Work needed to help NZers make informed financial choices
This media release is issued on behalf of Consumer New Zealand and Workbase:
7 September 2012
More work needed to help NZers make informed financial choices
New Zealand’s first annual Money Week is an excellent initiative that will help Kiwis become more financially aware. It’s also an excellent opportunity say leading consumer and adult literacy groups to recognise the role of the financial industry in providing much clearer and straightforward information about their services and products.
Money Week - launched on Monday - involves a series of educational events and activities to raise awareness about how people can better manage their money and get help to do so.
David Naulls, Consumer New Zealand’s Editor in Chief, says the week’s focus on building adults’ and children’s financial literacy skills is an excellent start but “financial services providers are the other half of the equation and Consumer believes they could be doing far more to make it easier for people to understand the financial information they are given.”
Katherine Percy - Chief Executive of adult literacy, numeracy and communication support provider, Workbase – agrees and says she would like to see the ‘blame’ for low financial literacy being shifted from people, to the system.
“Although around half of New Zealand adults are likely to have literacy, numeracy and/or language gaps that affect their financial literacy, many highly literate people also find they struggle with complex and unfamiliar financial information,” she says.
“Financial literacy is about more than whether an individual understands financial information. Financial literacy is the interaction between people’s skills and knowledge and the demands that the financial services system place on them.”
Mr Naulls and Ms Percy say that New Zealand’s financial service providers create high demands for people because financial products and services are unnecessarily complex – just as has been the case with telecommunication services. They note that there are a plethora of financial products with little difference between them, which makes it very difficult to compare what’s on offer and make informed choices.
Mr Naulls notes that financial services providers also need to help New Zealanders make informed financial choices by making their fee structures more transparent.
“Fee information tends to get hidden; we’d like to see fees clearly stated alongside key product information so that people can quickly and easily make comparisons. And for or products like KiwiSaver, we would like to see the range of fees simplified and presented on the same basis.”
Ms Percy says that financial services providers tend to think they have addressed financial literacy by providing people with lots of written information: “More detail is not the best approach. Instead people need to be given simpler information that includes explanations of important financial concepts and terms,” she says. “Financial services personnel, such as bank tellers, can also play an important role by checking that people understand the information they have been given,” she says.
Six things financial services providers can do to help improve New Zealanders’ financial literacy
1. Keep it simple
· Simplify product and service offerings.
· Ensure fees are clearly stated alongside key product information.
· Provide clear information about what will happen if people are late in paying fees, interest, etc.
· Make it easy for people to compare your different products and services by providing a one-page summary sheet of key information.
2. Repetition is good
· Adults need 40 exposures to a new word before it becomes part of their vocabulary.
· Generally adults will struggle to understand a document unless 80% of the words are high frequency words.
3. Keep it short
· People become overwhelmed and attention decreases when they are provided with too much information.
· Give the right amount of information for the stage in the financial process that someone is at.
4. Don’t judge a book by its cover
· Avoid making assumptions about people’s financial knowledge even if they appear to have good general literacy skills.
5. Make it easy for people
· Help people to anticipate the next steps in a financial process.
· Give information in sequence.
6. Check understanding
· Encourage questions.
· Ask open-ended questions. For example, don’t ask ‘do you understand?’ because ‘yes’ tends to be the default answer regardless of whether or someone understands. Instead say: ‘tell me what you understand…”