Discussion around the level of financial literacy in New Zealand, and the contribution of financial institutions to this issue highlighted in the media recently has reiterated, again, the need for improved financial education in our country.
Westpac wholeheartedly recognises that improvements in financial literacy requires constant improvement, which is why it is involved in numerous initiatives to help our country better understand the many elements of finance.
We know financial literacy could be improved because through a longitudinal study of 18 to 20 year olds conducted last year by the Fin-Ed Centre (a joint partnership between Westpac and Massey University), we found that more than half the people surveyed had not given any thought to their financial goals, spending habits or ways to manage their money.
The baseline results from the study found that while young New Zealanders are aware of the need for savings, two thirds are still not saving for the long term.
A significant 77 per cent said it is not important to plan any further than four years ahead when it comes to finances.
The initial results from this survey give great insight into the money decisions our 18-20-year-olds are making and although the results aren't very palatable they provide a platform for growth in the financial education space. It found 66 per cent said they learned everything about their finances from their parents.
These role models have the ability to make a significant impact on the actions of youth. If parents, caregivers, teachers and other influencers display sound financial ability and knowledge young people have more of a chance of picking up on this behaviour, and learning to manage their own wealth wisely.
There is no quick fix to financial literacy, it requires learning and development, but the benefits are so significant that being financially savvy is imperative.
This is one of the key reasons we jointly launched the Fin-Ed Centre in 2011. The longitudinal study chose 300 New Zealanders between 18 and 20 years old for a baseline survey of their financial literacy and experience of education in finance.
The survey will be repeated every five years for the next 20 years to gain an understanding of people's needs for financial knowledge at different life stages and where people get their information to make money decisions.
The second major project the Fin-Ed Centre is working on, is a multi-level certification programme for personal financial educators to ensure that the people giving Kiwis financial information have a good level of financial literacy themselves. By the end of this year Fin-Ed will have certified 90 educators and has plans to certify a further 120 educators by the end of next year.
Through industry regulation all banks are in the process of providing plain English explanations for financial documents to make them more readable. We expect these documents to be ready by September.
Westpac is working with the Commission for Financial Literacy and Retirement Income (CFLRI) as part of an industry group to improve the financial wellbeing of all New Zealanders by bringing a consensus approach to common terms used to explain financial information.
The overall financial education programme aims to help lift New Zealanders financial confidence and capability and includes Managing Your Money workshops to help New Zealanders become financially empowered to achieve a better quality of life.
Since 2006 Westpac has had more than 63,000 Kiwis take part in our Managing Your Money workshops with more than 131 of our staff helping people to develop their money management skills. These workshops help guide people through the maze of money management and make everyday money matters more manageable. The workshops have helped New Zealanders feel more confident about making basic decisions about money, covering a range of topics including budgeting, savings plans, credit cards and overdrafts, retirement, insurance, compound interest and making your money go further.
All banks know there is a high level of value in helping young people get into the habit of financial planning and saving early. We understand that financial education is increasingly important, and not just for investors. There is a need for financial literacy to be included in the school curriculum. Through educating people at a young age, children will develop strong habits regarding money management, allowing for good financial decisions over their lifetime.
New Zealanders are faced with making a large number of decisions regarding personal finances every day. The growing sophistication of financial markets means consumers are being offered a plethora of financial products for borrowing and saving. There are many valuable options for individuals however they will not be able to choose the correct options if they are not financially literate.
If people become more confident in their ability to make financial decisions they will more actively manage their finances and therefore see more growth in their wealth. This is something financial institutions want to see happen - we see it as crucial to help New Zealanders improve their financial literacy and although good progress is being made, there is still more to do.
Simon Power is managing director of wealth, insurance and private business for Westpac.