Although some positive steps are being made to help improve New Zealanders' financial literacy, the finance industry can be doing far more to provide clearer and more straightforward information about their services and products.
The term financial literacy describes an individual's ability to understand financial information.
Around half of New Zealand adults are likely to have literacy and/or numeracy gaps that affect their financial literacy, many highly literate and tertiary educated people also can find it difficult to understand complex and unfamiliar financial information.
There has been considerable focus on building adults' and children's financial skills but New Zealand's financial service providers create high financial literacy demands for people because their products and services are unnecessarily complex - just as has been the case with telecommunication services.
There are a plethora of financial products with little difference between them, which makes it very difficult to compare what's on offer and make informed choices.
Financial services providers could also help New Zealanders make informed financial choices by making their fee structures more transparent rather than hiding fee information within documents.
It is likely to be time consuming and difficult to lift more than a million New Zealanders' financial literacy skills to the levels needed to competently engage with and understand the financial information as it currently exists.
A more sensible and cost-effective approach is for financial services providers to reduce product and service complexity, and to make information more accessible to their customers.
Six things financial services providers can do to help improve New Zealanders' financial literacy:
Keep it simple. Simplify product and service offerings. Ensure fees are clearly stated alongside key product information. Provide clear information about what will happen if people are late in paying fees, interest, and so on. Make it easy for people to compare different products and services by providing a one-page summary sheet of key information.
Repetition is good. Adults need 40 exposures to a new word before it becomes part of their vocabulary. Generally adults will struggle to understand a document unless 80 per cent of the words are high frequency words.
Keep it short. People become overwhelmed and attention decreases when they are provided with too much information. Give the right amount of information for the stage in the financial process that someone is at.
Don't judge a book by its cover. Avoid making assumptions about someone's financial knowledge even if they appear to have good general literacy skills.
Make it easy for people. Help people to anticipate the next steps in a financial process. Give information in sequence.
Check understanding. Encourage questions. Ask open-ended questions. For example, don't ask "do you understand?" because "yes" tends to be the default answer regardless of whether or someone understands. Instead say: 'tell me what you understand ..."
Katherine Percy is chief executive of Workbase.