Amid a market boom and a huge influx of retail investors, financial literacy levels in NZ unexpectedly dropped over the last year, a new survey has revealed.
And the local financial services industry needs to help reverse the worrying trend, according to Ryan Bessemer, Trustees Executors (TE) chief.
Bessemer said NZ financial services providers need to collaborate further to educate consumers and improve access to advice in light of the survey findings.
The Financial Services Council (FSC) 2022 ‘Financial Resilience Index’ released last week shows Kiwis’ money knowledge dropped 5 per cent overall year-on-year across four of the five key indicators.
Somewhat surprisingly given the surging interest in online investment and KiwiSaver of late, the FSC ongoing annual study – produced by Australian research house, CoreData – found a significant fall in consumer knowledge about “the relationship between risk and return, diversification, the risk profile of investments, asset allocation and current investment market trends”, Bessemer said in a release.
“The decline in financial literacy should set alarm bells ringing,” Bessemer said.
But he said the NZ financial services industry has a good record of working together to tackle collective problems.
“For instance, we can collaborate on developing better consumer education and disclosure materials or ways to provide greater access to affordable advice,” Bessemer said. “That’s our challenge and obligation – but there’s long-term benefits for consumers, the industry and NZ as a whole.”
Despite the backwards step on financial literacy, all other FSC financial resilience indicators either improved or held steady over the year.
The survey found financial confidence was up 5 per cent while both job security and investment ownership figures also rose compared to the 2021 report. Furthermore, the 2022 study shows a slight fall in those suffering “wellbeing” concerns due to financial issues.
The proportion of respondents financially ready for retirement stayed the same year-on-year – albeit at the low level of just 43 per cent.
However, the number of New Zealanders totally unprepared for retirement appears to have shrunk compared to the findings of the inaugural FSC 2020 Financial Resilience Index: in the 2020 study almost 28 per cent fell in this category against just over 23 per cent in the latest report.
After a couple of years of booming markets and easy money (even during a global pandemic), Bessemer said the “current economic outlook is very challenging for many Kiwis, with rising inflation and interest rates, and low wages growth”.
“There is also the disparity between those Kiwis who bought assets before the boom, and those that have been unable to participate,” he said. “… Arguably, there has never been a more important time for Kiwis to be able to access professional and affordable advice.”
The 2022 FSC report was based on a survey of 2,000 New Zealanders carried out this January.