GUEST COLUMNIST – KATRINA SHANKS
Quality financial advice is all about the transfer of knowledge, and the empowerment of our Kiwi community, says Financial Advice NZ CEO Katrina Shanks. Here, she reviews the Financial Capability report from the Retirement Commission which focuses on the impact of financial literacy on decision-making.
The Retirement Commission’s Financial Capability report is a compelling read, and a powerful reminder of the pivotal role that advisers play in New Zealander’s financial wellbeing. I encourage you to download the report, but here are some key takeaways of particular interest for financial advisers.
According to the report, despite having adequate income, one in five people surveyed believe their financial situation is largely outside their control. But this is exactly what financial knowledge is about – putting Kiwis in the driver’s seat of their financial decisions and future.
In this respect, the survey raised many great points. One of those I found most interesting is that financial wellbeing is not predetermined by income, demographics, ethnicity, gender, or other socio-economic factors. Everything else being equal, financial behaviour, knowledge and psychological factors have a greater impact on financial wellbeing outcomes.
In other terms, the factors that contribute the most to sound financial outcomes are not outside of people’s control. In fact, individuals have the ability to positively influence them through behaviour and knowledge.
Having said that, we also know how ingrained financial habits and self-talk can be. It takes awareness, guidance, and practice. And this is where the financial advice sector plays a very meaningful role.
Advisers are well-equipped to shift the dial on financial resilience, by providing ongoing support for changing behaviours, overcoming attitudes, and equipping Kiwis with knowledge.
How advisers can help
The report identifies some key components of financial wellbeing, some of which have particular relevance for insurance advice:
- Resilience for the future – nearly one in three Kiwis (31%) don’t have savings of more than one month’s income, and just as many (33%) wouldn’t last three months without borrowing if their income declined by a third. This is likely to leave them vulnerable to the unexpected
- Informed financial product choice – more than half of New Zealanders don’t search for information at all before taking out a financial product, 41% don’t check terms and conditions, and one-third don’t check periodically that the product is still appropriate for their needs. By promoting regular reviews, the adviser relationship can really make all the difference
Katrina Shanks, CEO, Financial Advice NZ. - Informed decision-making – almost half of Kiwis get informed before making financial decisions and stay informed about money matters. But the time they’re able and willing to spend on this is limited.
Once again, advisers can facilitate this (and many already do) by sharing helpful financial education content - Knowledge of how to compare financial products – many find it challenging to compare insurance solutions to find the one that’s most appropriate to their needs.
Here’s another scenario where advisers are of great help, by making sure that clients’ individual needs are aligned with available solutions
Cutting through the complexity
One of the big gaps that the survey identified is Kiwis’ knowledge of financial products.
Based on the surveyed sample, over 85% of New Zealanders don’t have enough knowledge to compare the terms and conditions of a credit or insurance products. What’s more, 41% of Kiwis surveyed don’t check the terms and conditions of financial products at all.
…41% of Kiwis surveyed don’t check the terms and conditions of financial products…
These findings may not be surprising, but they’re concerning, nonetheless. And the way financial information is presented is likely to be a contributing factor.
We have raised this issue several times over the past few years, and we continue to advocate for plain language and clarity in insurance contracts.
Consumer confusion about important insurance details – such as policy wording, claim processes, disclosure, benefits and exclusions – has marred people’s financial confidence, as well as public confidence in our sector.
…simplifying policy language is
a good place to start…
If we want to tackle the underinsurance issue in New Zealand, and help consumers feel empowered, then simplifying policy language is a good place to start.
In the meantime, Kiwis can count on the professionalism and expertise that so many insurance advisers bring to the table – valuable support to cut through the complexity and make sense of things.
Here to support financial advisers’ own knowledge
In a changing world, it’s all-the-more crucial for financial advisers to keep their professional development and learning up to date. At Financial Advice NZ, we’re committed to informing, inspiring and supporting advisers on their own knowledge journey.
Visit our Bring in the Experts page to stay in the know with expert insights for all areas of advice and more.