Making KiwiSaver compulsory carries moral obligation to significantly increase NZers’ financial literacy

Making KiwiSaver compulsory carries a moral obligation to ensure that Kiwisaver providers provide clearer information so more New Zealanders can make informed investment choices, according to a financial literacy expert.

Katherine Percy - Chief Executive of adult literacy development organisation Workbase - says research shows that many people lack sufficient knowledge and skills to make sound investment decisions.

This is not helped by KiwiSaver providers doing too little to help the public to make informed choices about their contributions and investments.

“People with low financial literacy could be put at risk if the Government forces them to invest in KiwiSaver without balancing that expectation with extensive investment in financial literacy skill development programmes, and also compelling KiwiSaver providers to do much more to build customers’ understanding,” she says.

“Effective decision making about KiwiSaver requires people to have strong financial literacy knowledge and skills. Yet research shows that around half of New Zealand’s adult population has low numeracy and / or literacy levels.”

Although most New Zealanders can read, write and use numbers, many people lack the skills and knowledge needed to understand the unfamiliar concepts, technical terminology and multilayered information needed to make choices about KiwiSaver.

Low financial literacy is a significant issue for KiwiSaver because many people (even those with good literacy and numeracy skills) have little or no investment experience. Research suggests that more than half of KiwiSaver members know little about the scheme they are in, and most don’t realise that there is no government guarantee.

Ms Percy says that, should KiwiSaver become compulsory, then the Government and KiwiSaver providers would both have a moral obligation to ensure people are making informed decisions.

“Although all types of financial institutions could do more to build people’s financial literacy skills and knowledge, KiwiSaver providers have a stronger obligation because their products require a higher degree of understanding than more commonly used financial services.”

“Most New Zealanders don’t understand important investment concepts such as risk and diversification, which is one reason why so many have been badly burnt in the past by investment decisions that have gone wrong.”

Ms Percy says that although some KiwiSaver providers, banks and other financial institutions have taken steps to provide information for customers, much more needs to be done.

“People need more basic information that increases their knowledge and understanding around important financial concepts and terminology.

“KiwiSaver providers should come from a standpoint that assumes people know little because, in most instances, that will be the case,” she says.

Enhancing New Zealanders’ ability to make informed investment choices will take time and will require providers to progressively and repeatedly provide information that educates customers.

Ms Percy notes that many KiwiSaver providers pay lip service to improving their customer’s financial literacy. “I am aware of at least one major provider’s call centre staff being required to handle enquiries within a given timeframe, which means they often conclude discussions even though they know that customers have not understood the information they have been given.”

“Compelling New Zealanders to invest in KiwiSaver is a simplistic solution that could backfire badly unless it is balanced by comprehensive and sustained investment in improving the population’s financial literacy.

“Making this investment will help people’s lives in many ways, thus reaping long-term benefits that go far beyond KiwiSaver.”

ENDS

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