However, the gender gap remains, with women scoring low
Venkat Raman
Auckland, August 2, 2023
Improved financial literacy is enabling young New Zealanders to manage money matters with confidence and without parental or other intervention, a study has found.
The Study has also found that young respondents are achieving greater awareness of financial products such as KiwiSaver and insurance policies in money management.
The respondents were learning to manage their money more through their own experience, with parents becoming less important as the primary source of information. The influence of parents dropped to 26% from 47% recorded in the earlier Study.
These findings are a part of the third stage of a 20-year longitudinal study conducted by the New Zealand Financial Education and Research Centre (NZ Fin-Ed Centre) of Massey University.
“Young New Zealanders are growing their financial capability as they move into a new life stage but women are still behind their male counterparts,” it said.
The Study, commissioned by the University in conjunction with Westpac was conducted by the Centre’s Director Dr Pushpa Wood along with Associate Professor Claire Matthews, and Dr Jeffrey Stangl of Massey University.
Impressive improvement
The findings of the Study, published this morning, showed an overall improvement in financial literacy and a narrowing gender gap, with a 17% increase in the average score for females compared to 6% for males. Confidence in the financial capability of individual respondents also improved.
However, a fairly wide gender gap remained, with only 29% of females reporting their financial literacy as ‘Very Good’ or ‘Excellent’ compared to 44% of males.
The findings come in the wake of the general perception that New Zealanders are not thrifty and that their level of savings is very poor.
Dr Puspha Wood said that the Study found good levels of resilience with about 50% of the respondents raising that they would be able to easily raise $3000 for an emergency within a week.
“A further 41% said that they would be able to raise the money after making sacrifices or ‘taking drastic action.’ In addition, 40% indicated that they could live off their savings for six months or longer,” she said.
About the Study
The Longitudinal Study of the NZ Fin-Ed Centre has been a reliable parameter to access the improvement or otherwise in financial literacy. The first stage was in 2012 when the cohort (the respondents) was in the 18-22 age group, rising to 22-26 in 2017 (second stage) and to 28-32 in the current (third) stage in 2023.
The respondents were chosen at random from the electoral roll from Auckland, New Plymouth, Palmerston North, Wellington, Nelson and Christchurch.
They were required to answer an online questionnaire followed by a personal interview with periodic communications and intermittent surveys occurring with the participants between each stage.
The retention rate of the cohort has been high at 66%, accounting for 232 participants in stage three, of the 350 in the first stage.
“At study termination, the participants will range in age from 38 to 42 years. There were interim updates in 2014, 2016, 2019 and 2020, which dealt with topical issues including economic inclusion, housing affordability and the Covid-19 pandemic,” the authors said.
According to the Study, 95% of the participants (Stage Three) had some type of insurance policy, while 92% had subscribed to KiwiSaver. About 67% of them were ‘feeling good’ about their money management abilities and 73% were thinking about financial goals, credit cards and spending habits. Only 5% of respondents had no form of insurance.
Dr Wood was pleased with the satisfaction expressed by the participants with their current financial situation.
“We are seeing confidence in money management grow, with participants thinking more about their financial goals, moving from 51% in 2012 to 73% in 2022. The change in their life situations relating to their age is becoming apparent with home loans now being held by 55% of participants, compared to less than 1% at the beginning of this study,” she said.
Financial Literacy Scores
The average score for the financial literacy test in 2022 was 4.7 out of seven (67%).
“This is a further increase (of nearly 12%) compared to 2017. There has been a 34% improvement in the average financial literacy scores since the 2012 study. It is important to remember that approximately one-third of the original cohort did not participate in this stage of the study, though the participation rate for this stage is similar to Stage 2. Some of the improvement in the financial literacy score over the first stage in 2012 could potentially be explained by the loss of some participants, particularly if those participants had lower overall financial literacy scores. However, the increase from 2017 is less likely to be impacted by the loss of participants, and therefore more likely to reflect a real increase in financial literacy,” the Study said.
The average score for female participants was 4.47, which remains substantially lower than that of male participants at 5.25, although an improvement on the 2017 average score of 3.83. The improvement in the average financial literacy score for females was comparatively greater, at 17% than the increase in the average male score, at 6 % over the period.
A higher proportion of participants reported having taken steps over the past 12 months to proactively enhance their money management skills (63 %, compared to 52 % in 2017).
“However, individuals only infrequently referred to attending classes, workshops or seminars on money management (8%), or seeking assistance from a budget advisor (2%) as steps taken to improve financial literacy. Talking with financial planners or counsellors was much more common (24% compared to 2% in 2017) and talking to bank staff was also mentioned more frequently (15% compared to 8% in 2017. However, as we found in both 2012 and 2017, the main sources were talking to parents (33%), talking to friends (52%) or finding information on the internet (64%). While all three were reported as being more common in 2022, the increase for friends (from 18% in 2017) and the internet (up from 17%) was notable,” the Study said.
The information available online and conversations with friends and their advice and suggestions were helpful in the cohort to manage their finances.
Learning by experience
Dr Wood described the past few years as turbulent, saying that the cost of living crisis and the Covid-19 pandemic have had an impact on the cohort.
The interim studies undertaken between the main surveys have shown the effect of these issues on financial behaviour, she said.
“Experiencing a pandemic has helped impart some key lessons on our participants, with many remarking how they have since learned the necessity of being financially prepared for an emergency and getting insight into their own spending habits during the lockdown period. It will be interesting to see how this continues to develop within the next five years,” Dr Wood said.
Westpac NZ General Manager of Consumer Banking and Wealth Mike Norfolk said that it is never too late or too soon for young people to start mapping out their financial future.
“Of all age groups, the Millennial and Gen Z generations have the most to gain by having a sound financial strategy. We encourage them to think regularly about their savings and investment goals and use online tools and projections to check if they’re on track. If they want specialised advice, they should talk to their bank or a trusted adviser,” he said.
Finance management for women
Mr Norfolk said that the level of financial capability of women was a matter of concern.
“Women live longer than men on average and tend to have lower KiwiSaver balances and fewer other investments. It is therefore important that they make a long-term plan for handling their finances and review it regularly as their circumstances change,” he said.
There have been a few research papers published on financial literacy in New Zealand, indicating the improvements or otherwise of people.
A Paper published in 2014 by the New Zealand Council of Educational Research (NCER) for the Commission for Financial Literacy and Retirement Income found that almost all teachers and school leaders strongly agreed that it was important for all students to learn about financial literacy, slightly fewer agreed that financial literacy should be included in their school.
“Students also agreed that money, and getting advice on how to manage their money, was important, with about 79% of students feeling confident about managing money. While students obviously have a high opinion of their money management skills, just 19% of teachers reported that their students’ money management skills were high,” the Report said.
Nine years later, the situation is far different.
We have a young population with improving financial literacy.
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