Crisis makes Kiwis more financially savvy

By AMANDA MORRALL - The Press

First the good news: Since the Retirement Commission last assessed our financial intelligence back in 2006, we have got smarter.

The bad news? It is mostly those who already know a fair bit about money, and have some to spare, who improved the most. Those at the opposite end, who could arguably benefit most from a boost, are stagnating.

Of 850 New Zealanders surveyed, 31 per cent were assessed as having low financial knowledge (compared with 33 per cent in 2006). The high scoring group increased 10 per cent from 33 per cent in 2006 to 43 per cent in 2009.

Questions ranged from knowing what a real rate of return was to whether the New Zealand Superannuation scheme was means or asset- tested and how much a single person received compared with a couple.

Retirement Commission Diana Crossan says the country still has its work cut out.

"Initially I was delighted to see it was an overall improvement but I'm also cautious that this is only our second such survey. It is a long process to change people and to get information to people and to get them to use it."

If the Retirement Commission is cautious about our educational progress, New Zealanders are also wary.

ANZ National chief executive officer Jennifer Fagg says the study suggests that while greater numbers of people are more aware of the risks of investing, they are less certain about how to reduce risk.

"Some of this feedback may be a reflection of the recession. People seem more cautious and realistic about their finances. I think there's a general feeling of greater vulnerability compared with 2006."

That sense of vulnerability resonates across the board, not just with scorched investors.

And those with the lowest levels of financial knowledge are feeling most insecure. Compared with 2006, fewer feel confident about their ability to manage and control their financial affairs and more worry they could not withstand a major loss of income for three months.

Crossan says it remains unclear what is behind the overall lift in financial literacy, but believes the economic crisis is a factor with more people trying to understand their losses and the current environment.

Other influences include: the introduction of KiwiSaver in 2007, more media coverage of personal finance, access to and availability of resources, and an improvement in basic numeracy skills.

Quoting an official from the Organisation for Economic Cooperation and Development (OECD), Crossan said the economic crisis was good in so far as it could be construed as "a teachable moment".

"Even the Secretary General of the OECD made a comment that the lack of financial information certainly had nothing to do with why it happened, but it may have added to it."

While New Zealanders tend to get a bad rap about just how little we know about finances, what little comparative data is available suggests we are, in fact, no worse than Australians.

Studies indicate Aussies and Kiwis have a "reasonable level of knowledge but face some problems areas".

Crossan says addressing those sticky areas - a standout is confusion about mortgage policies - will be a primary focus for the Retirement Commission.

"There are some spaces in there that we will be working on in partnership with other people to lift the game."

The other big push will be to bolster educational efforts and initiatives for those trailing the nation in financial literacy.

Crossan believes a double-barrelled approach, integrating numeracy and literacy initiatives in the context of financial literacy, could be key.

"We have found that in the school projects when financial literacy is used to teach maths, maths becomes more interesting because it is more real. So one of our challenges is to make better use of those initiatives and tie them to financial literacy."

And reaching those who struggle most is a priority, she adds.

"In New Zealand we know students do extremely well at the top end but we've got a heavy tail end, and it's the same tail showing up in this survey."

While there was an 11 per cent drop in the medium-knowledge group, the belief is that they moved into the higher scoring group. At the same time, some of the top scorers also demonstrated a more sophisticated understanding of finances.

Those rated as having "advanced" knowledge rose by 5 per cent over 2006.

So who are the New Zealanders making the top grade?

The study found that financial knowledge was highest among those 35-64 with the most pronounced improvement among the 55-64 year olds.

Could it be that those who gained most in knowledge, lost the most financially?

Age alone would suggest it is those mum- and-dad investors who got crushed during the collapse of the finance company sector.

"That's what we have surmised," concedes Crossan.

"They're reading up hard and they're reading up fast."

But another group that appears to have done its homework is women, both old and young.

Women aged 18-24 and 55-64 had the most notable improvement since 2006.

That had the effect of narrowing the knowledge gap between the sexes.

It was a point of interest to Crossan.

"I'm pleased to see the gap between men and women has narrowed, but we don't know whether that will hold.

"I'm interested to see where people get their information."

What the survey gleaned on that question was the banks are the main source of financial information for a vast number of New Zealanders.

It found 51 per cent of respondents used a bank for financial advice during the past 12 months.

Friends and relatives came in at second place (35 per cent), TV programmes third (21 per cent) and financial advisers at the bottom (18 per cent).

Crossan says she was concerned so many people were getting information from the media on the grounds it was less credible not having been "peer reviewed." "People get information from the media and they tend to believe every word of it."

At the same time, while banks were a more reputable source of financial information, that information comes with a bias

"My concern is that banks sell products and so it is getting more independent advice that should be encouraged."

As for financial advisers ranking last, Crossan speculated people "either didn't know when they were talking to a financial adviser" or discriminated against them on the basis that they are only for people who had money.

Crossan speculates their role as purveyors of financial information will increase as regulations around the profession and the industry tighten in October.