Recent shocks to our economy have shown that when it comes to knowing how to manage our money, New Zealand still has a long way to go.
Having now moved on from my first illustrious job as a graduate tax accountant, a lot of what I learnt about tax in my early days has (for better or worse) faded. What has endured, however, are the snippets of life advice imparted on me by colleagues between meetings, at the photocopier, and during after-work drinks, with one of the most memorable snippets being that “you’re at your most dangerous when you don’t know what you don’t know”.
While I imagine this advice was given to me in the context of “don’t send emails that haven’t been reviewed”, it feels increasingly relevant at a time when a bunch of people across New Zealand are having to intimately engage with their personal finances for the very first time.
The financial impact of Covid-19 has been well reported. With increased unemployment, speculation of a slumping property market, and KiwiSaver balances coming and going with the tide, the majority of New Zealanders have had their finances affected in some way by the pandemic. Many have been spurred into taking action, either as a precaution or out of necessity, and logic would suggest it would’ve been the first time many would’ve really had to take intimate control of their personal finances.
There seems to be no shortage of financial services providers lining up to help by either offering support to get through these tough times, or a supposedly better financial product. Over the last few months, it feels like there’s been a noticeable increase in this from KiwiSaver providers, with ads asking us if we’re happy with our current provider.
But how are we to know whether we should be happy with our KiwiSaver provider? Regardless of the fact that your KiwiSaver balance may now have recovered, why would anyone be happy with a provider who saw their balance drop massively overnight in late February? Why wouldn’t you make a shift? Or if you’ve always had your KiwiSaver with a default provider, not understanding how it all fits together until your balance trended swiftly downward in late February, does making a potentially knee jerk change risk putting you in a worse position? We saw this in March when a mass exodus of panicked KiwiSavers switched from share-heavy growth funds into cash and conservative funds without realising they were missing out on potential long term gains.
Generally, what’s best for a person’s KiwiSaver is very specific to them. It depends on life circumstances like how old they are, when they want to access their KiwiSaver funds, whether they’re planning on buying their first home soon, and their general appetite for risk.
But for someone who’s never taken intimate control of their personal finances, how do they know that they need to ask themselves these sorts of questions? What’s more, what do the answers to these questions mean they should do? Before engaging with their personal finances, how do they get an appreciation of what they don’t know, of where their blind spots are?
There are a bunch of resources out there that introduce basic financial concepts, including those provided by the Commission for Financial Capabilities’ Sorted team. I’d also suggest that any financial service provider who genuinely has its customer’s best interests at heart should also be able to provide access to its own resources or work with its customers through the decision making process.
Times like these also reinforce the importance of financial education from a young age. Research shows that by age seven many of our enduring financial behaviours have already developed – money habits that, if adequately supported and nourished, will mean that when their generation’s financial shock comes they’ll be much better placed to handle it. There are plenty of ways we can develop the next generations’ financial capability, from including them in our own financial experiences and journey, to encouraging your local school to include financial education, the likes of Banqer, in their programme of learning.
Through engaging in our personal finances with our eyes open, by doing our own research and questioning, and not just blindly following the advice of a TV commercial, we can ensure that we don’t make an already challenging financial situation more challenging. We can control what we can, and at the least, know what we don’t know.
Simon Brown is chief operating officer at Banqer, a social enterprise committed to improving financial education in schools.