Financial literacy – a (very) small tick

“Good, but room for improvement” says a new report on New Zealanders’ financial knowledge, courtesy of the Office of the Retirement Commissioner, with the support of ANZ.

In face to face interviews with over 850 adult New Zealanders, the survey tested people’s essential mathematical skills, basic financial understanding, financial competence and financial responsibility.

The key finding – that two thirds of people had a medium to high level of knowledge about personal finance – is hardly cause for celebration.  While it may be expected that the very young (18-24) have lower levels of financial literacy, it should surely be of major concern that…

• one in four people who have a mortgage don’t understand the impact of increasing the frequency of repayments;
• and only half of all people understood that interest paid quarterly into a term deposit would result in a larger amount at the end of the year than if it was paid in one amount at the end.

The mysteries of compounding are indeed well beyond the average bear!  Not surprising really, when you see the abysmal lack of numeracy coming out of our schools, and indeed, the low levels required for university entrance as well.  Under NCEA, students require just a few credits in Level 1 maths (that’s Form 5 in old-speak) to meet the numeracy requirements for university – and of course, not even that once they reach the ripe old age of 20, and can gain adult entry with no qualifications at all!

However, the findings also suggest that this ‘uninformed’ youth is not a new phenomenon.  In fact, the other group with particularly low levels of financial literacy were the very old (75+).

But surely it’s the youth we should be most worried about.  In the middle of last year, specialist youth research company 18 Ltd surveyed just over 600 people from their panel of over 4,000 14 – 29 year olds about spending money.  These young people were asked to tell us where they get their money – parents / whanau, part or full time work, the ‘government’ or other sources.  They were than asked to say how much they spend per month on “the essentials” - rent / board, utilities, mobile phone, transport, and groceries. 

The results give us a snapshot of youth income.  While it is no surprise that most of the 14 – 17 year olds receive money from their parents or whanau, it may be a little surprising to find that this also applies to half of the 18 to 24 year olds, and even one in 8 in the 25 – 29 year age group!  Also interesting, I though, was the quite high ‘other sources’ – and these for not insubstantial amounts, average around $250 per month for those receiving income in this undisclosed manner.

The amounts of income received from each source are approximate, but nevertheless again show some interesting trends.  The drain on parental funds clearly increases with the age of the children, with the average 14 – 17 year old getting just $57 per month from parents, whereas that small group of 25 – 29 year olds still being funded by the ‘olds’ getting close to $500 per month each!