In the recent Standard and Poor’s Global Financial Literacy Survey, New Zealand ranked 11th in the world. Out of 148 countries, that’s not too bad. 61% of us passed a financial literacy test, compared at the extremes with 71% of Scandinavians and 28% of Chinese.
Overall, our financial literacy does look fairly healthy. But Kendall Flutey, founder of the online education programme Banqer, suggests we may outperform countries with our literacy but capability is another step up again. “It’s about enacting good financial practices.”
While considering the results a fair reflection of the current state of the nation, Flutey notes that certain sub-groups cause concern.
Dr Pushpa Wood of Westpac Massey Fin-Ed Centre agrees.
“While we may be doing well overall, we also have pockets of our population, including our youth, with really low levels of financial capability.”
Of particular concern are results from a 2012 PISA survey that reveal 27 % of Māori and 44 % of Pāsifika students had scores that placed them at the most basic levels of financial skills and knowledge.
What this means right now, Flutey says, is that a real need and opportunity exists, to make positive changes.
Spend, spend, spend
In New Zealand, debt is common. “We live in a culture with a ‘buy now, pay later’ attitude,” Flutey says.
And while the idea of financial capability is becoming more popular, many common triggers – through marketing and the general media – point in the other direction.
Dr Wood agrees that we live in a society of instant gratification. In general, she says, there’s nothing wrong with that, “provided we’re not borrowing to fulfil desire, especially when we have NZ$3.7 billion of credit card debt.”
It has to be noted, here, that while banks may promote financial capability and savings schemes on the one hand, they are also profiting from New Zealand’s debt culture on the other.
Focusing on the future
Like most Western cultures, New Zealand has an ageing population, which means an increased need for private funding that will see us through retirement.
In this regard, Dr Wood also believes there is still “a lot of work to be done with women and their preparedness for retirement, especially Māori, Pāsifika and women of other ethnicities.”
We also need to save for rainy days. In the broadest terms, Dr Wood says, it seems our older generations are more careful about living within their means and putting something away for tomorrow.
But our investments generally tend to be channeled into property, meaning if the housing market were to fail, investors could become economically weak.
How did we get here anyway?
Dr Wood suggests that we need to have more open conversations about managing money. One of the biggest barriers we have to overcome is how to make this conversation less difficult.
Our level of financial capability can be further complicated by money rapidly becoming ‘invisible.’
“Young children in particular don’t understand where money comes from (apart from the ‘hole in the wall’
money machine), how it’s spent or how to manage it so some is left for tomorrow.”
Flutey also suggests that the move to digital has meant younger people don’t have such an involved relationship with their finances.
Terry Shubkin of Young Enterprise Trust thinks it’s crucial that kids learn about being financially capable from home and school, not one or the other.
“Otherwise, by the time they hit the real world, they haven’t actually developed the discipline of managing their money or how to make informed decisions,” she says. “And they don’t realise they’re starting themselves on a path that will only become harder to leave.”
So how can we do things diﬀerently?
Many experts agree that any move towards better financial capability has to be a combined eﬀort from government, the private sector (particularly lenders) and schools.
Angus Dale-Jones of the Professional Advisers’ Association agrees that a lot can be done to help consumers understand financial capability.
Consumers also need to be aware of the positive contributions that financial services can make to peoples’ lives, “particularly people with limited financial circumstances.”
However, just because a person is wealthy doesn’t mean they’re financially capable.
As Shubkin states, capability does not relate to how much money you earn.
“Being in a good financial position is not about wealth creation, it’s about having choices and being able to weather life’s storms.”
In schools, many teachers practice meaningful financial capability with their students.
At Gladstone Primary School in Auckland, students earn paper income for showing up to school, as they would in work.
The students also earn interest on income that isn’t spent and pay rent on their desks.
Reaching a tipping point
Having worked in the field of financial capability for over 20 years, Dr Wood believes that we have come a long way, but that we still have a lot to learn about changing people’s behaviour.
She thinks we have enough resources but need capable people to make the best use of these resources for the intended audience.
Dr Wood says we also need to ensure the consistency and quality of programmes.
Flutey suggests we’ve reached a tipping point where “we do need to start combating financial illiteracy as a joint force between government, the private sector and schools. The Commission for Financial Capability plays a key role in creating ways to do this, such as Money Week, where we can all connect and contribute to the one mission.”
A brighter future
Dr Wood wants to see multi-generational programmes that will encourage entire communities.
She believes “the money conversation needs to start at home” and that people need to want to learn about managing money. She thinks it’s also important for people to see the importance of making financial decisions that are appropriate for their circumstances.
Shubkin agrees. “To create a change in behavior you have to create the desire to want to change, and you can’t educate somebody unless they want to be educated. Changing the behaviour of 4.4 million people is going to take time.”
Shubkin’s hope is that financial capability will remain a topic of conversation and that all young adults will not only have education in financial capability but also practical experience when they leave home.
“Real change stems from younger generations, like the move away from smoking and not wearing seat belts. The next generation always drives the message home and that in turn helps change the views and behaviour of older generations.”
Dr Wood’s hope for the future is that “financial capability is accepted as a basic human right, along with literacy and numeracy”.
She also hopes to see every child leave school with the skills to manage their financial well-being and positively contribute to the economy.
Flutey wants to see a generation of Kiwi children moving through the education system, equipped
to handle financial situations.
“We want to see this trickle down cyclically, year after year, becoming a mainstream value and extending into the household, educating parents as well.”
The 2013 Financial Knowledge and Behaviour Survey revealed that very little had changed in terms of New Zealanders’ financial capability between 2009 and 2013.
Let’s hope the future will be much brighter than that.
- By Sue Lewis -
Supplied by Juno Investing Magazine, Automn 2016 issue