KEY POINTS:
Getting into the habit of saving, whether through KiwiSaver or an alternative, is a good move. More than 800,000 New Zealanders have joined a KiwiSaver scheme, and nearly 30 per cent of members are under 25.
Some are heralding this as marking the development of a "savings culture" and other commentators predict this will result in a more financially savvy population making sophisticated investment decisions.
Unfortunately, the evidence from Australia suggests it's not that simple. Although compulsory superannuation means that 74 per cent of adult Australians are saving for their retirement, and more Australians than New Zealanders own shares, on most basic measures of financial literacy our friends and relatives across the Tasman are not doing any better than we are.
Surveys carried out in both countries show that Kiwis and Australians are pretty much on a par when it comes to financial literacy. The surveys have been funded by the ANZ, the New Zealand one in partnership with the Retirement Commission.
The results show that both New Zealanders and Australians have a reasonable level of knowledge and are mostly confident in their ability to manage money. In both countries, almost everyone has a bank account and most understand the basics of banking, such as not giving out a PIN number and how to minimise banking fees.
Unfortunately, neither population is particularly good at planning. Australians are equally unlikely to have worked out how much money they actually need to live on when they retire (35 per cent in Australia and 36 per cent in New Zealand). We also have similar numbers of people who spend all their income as they get it and don't plan for the future (15 per cent of Australians, 14 per cent of New Zealanders).
And both Australians and Kiwis have what the surveys describe as a mixed level of knowledge or understanding about investment.
While in theory, most people recognise that high returns generally mean high risk, in practice we're not so sharp.
For example, when asked what they would do when faced with an investment advertised as having a return "well above market rates" with no mention of risk, fewer than half correctly identified it as "too good to be true" - 49 per cent of Australians and 44 per cent of New Zealanders. On both sides of the Tasman, a worrying number (43 per cent in Australia and nearly 50 per cent in New Zealand) said they would "invest lightly and see how it goes".
In the current climate, where money is tight and the financial environment uncertain, it's more important than ever that we are making well-informed decisions about every one of our hard-earned dollars.
Even baby boomers can build up significant assets if they start saving now. For example, a 50-year-old earning $50,000 a year who puts $35 a week into KiwiSaver, could have $100,000 on retirement. You don't want to put that kind of money at risk by making ill-informed decisions.
Fortunately, the Retirement Commission helps people make informed financial decisions, at all stages in life.
This includes providing detailed guides to KiwiSaver and other forms of investment, which can be found at sorted.org.nz with many other tools and calculators.
It's never too late to start saving, and it's never too late to learn more about how to make better use of your money.
