New Zealanders generally have great knowledge about basic financial concepts like inflation, interest, risk and returns. However, this isn’t the case with more detailed concepts like compound interest, risk diversification, and retirement savings. Moreover, there’s a big difference on how adult males and females understand complex financial concepts.
According to the survey results conducted by the Commission for Financial Capability on 3,000 participants, both male and female young Kiwis — regardless of their ethnicity — scored the same when it comes to their financial knowledge. However, females tend to lose the lead, most especially if they enter a relationship or become married.
Take a more comprehensive look at Kiwis’ financial knowledge.
The study shows that Kiwis aged 18-34 scored 4.5 out of 7, regardless of their gender. However, as both sexes enter the 35-54 age group, men become twice more knowledgeable than women. According to the survey, twice as many men answered the questions perfectly at 30%, while women only scored 15%.
While women also increase their financial literacy as they age, they never seem to catch up with the lead. Some believe this is due to women getting lower earnings, which has reduced their opportunities to experience more financial freedom and flexibility. Otherwise, many believe it’s due to women having more “time poverty”.
One of the biggest factors in the survey that experts are looking to verify is that women tend to suffer from time poverty due to unpaid caring labour. This means they tend to devote less time on financial matters, but more about caring for their children and family.
That’s why women with children tend to have lower financial knowledge than those without one. Single women who are not in a relationship also tend to have higher financial knowledge than single women who are in a relationship and who have children.
Although women tend to have limited financial knowledge, they are better at managing money for the short term. According to Retirement Commissioner Jane Wrightson, this is because women tend to be less confident about managing a big amount of money, which stems from their limited knowledge.
They often don’t trust financial pieces of advice, and rather rely on personal experience. Due to this, Wrightson also believes that women may have a better grasp of the extent of financial risks and consequences than men do. This gives women the chance to be more successful in their investment if they only trust the financial system.
New Zealand is a diverse nation of Maori, Pacific Islander, Asian, European, and many more cultures. Among these ethnicities, Maori and Pacific have the lowest financial knowledge, scoring only 21% and 26% respectively. For comparison, the population average answered an average of 45% of the questions correctly.
One of the most plausible explanations is the low average income for Maori and Pacific Islanders. Having a higher income means better exposure to different financial services and products, resulting in more knowledge. This low average score isn't just evident to one age group; all age groups — regardless of gender — scored lower than average.
While both mortgage and loans are considered as debts, Kiwis who are paying for mortgages are more knowledgeable than those paying for loans such as car loans and personal loans. The low score suggests that most Kiwis applying for a loan don’t know the financial consequences associated with their debts.
However, Kiwis applying for mortgages scored higher, which translates to better financial knowledge. According to the feedback from sorted.org.nz, this is because a certain degree of financial literacy is needed when applying and paying for mortgages, most especially about compound interest and budgeting.
Compound interest is the interest on a loan calculated based on the initial principal and accumulated interest. In simpler terms, it’s “interest on interest.” Due to its complexity, only a few Kiwis answered this correctly, mostly those with higher income.
Those who correctly answered the question about compound interest are shown to be better savers. They’re more likely to allocate savings monthly, compared to those who got it wrong. The best explanation for this is high-income earners have more comprehensive long-term goals. Whereas, low-income earners can’t afford to have these goals because they can’t afford to save. They focus more on their day-to-day expenses than the long-term ones.
KiwiSaver is a great tool to manage your finances both for those with high and low financial literacy. It can be used to save money, invest in stocks, get retirement funds, and more! KiwiSaver exposes Kiwis to financial services, which can increase their financial knowledge.
The great thing is that almost everybody has one in New Zealand! If you don’t have a scheme yet, make sure to get one that fits your financial situation and needs. Compare the best KiwiSaver schemes from NZ’s leading providers at CompareBear.
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