Bank says getting customers more clued up is key to financial security

Not all debt is bad debt - mortgages, business and student loans can be positive if managed correctly and the right decisions are made at the right time, says the BNZ.

The bank is hoping to increase understanding of such financial fundamentals as New Zealand emerges from the global financial crisis.

The BNZ is the sponsor of the business school's chair of finance at Auckland University, a position that was funded to increase financial literacy.

BNZ head of external affairs Diane Maxwell said it was really important to equip people with the knowledge to make good financial decisions, and the younger the better.

"People have different needs at different times. We need to help equip them, to understand the jargon. There is confidence in being more clued up. The challenge is to ask more questions. If you don't understand something, people need to say, 'Can you please explain that again'," Maxwell said.

"Your first home, investing in a business, improving the value of your home, these are all really good things but people need to be equipped. They need to understand the interest they are paying."

The 2009 Financial Knowledge Survey revealed 20 per cent of mortgaged home owners did not understand under what conditions it was better to have a fixed-rate home loan rather than a variable or floating rate.

Only a third of respondents answered correctly a question designed to test the understanding of compound interest in relation to a savings account.

The survey found there had been a significant improvement in New Zealanders' overall financial knowledge on results for 2006.

About 16 per cent of New Zealanders had difficulty managing their money and while about 80 per cent of New Zealanders understood what a budget was, only about 50 per cent stuck to it.

About 850 respondents were interviewed from around the country, aged 18 and over.

Craig Duffy and his twin brother, Paul, of the Duffy Club saw a gap in the market for businesses providing education on financial literacy, and three years ago founded a personal finance site that offers workshops and tutorials.

"The average New Zealander spends $1.15 for every $1 earned. These days it's too easy to spend money. We need to spend less than we earn. But consumers are targeted through advertising, media, banks and sales. People find it too easy to spend money. There is no control. Education is how to manage debt."

Credit cards, hire purchase and personal loans were the three main areas where people got into debt, especially young people, because the interest on those financial products was high, he said.

"Most people are in debt. Most people have made [some] bad decisions. The average New Zealander spends $300 a week on mortgage payments. It's important to save up for a large deposit. [Financial literacy] is terrible in New Zealand, we're not learning these things at school. We [the Duffy Club] are aiming to make a change. But parents need to do more for their kids," he said.

Retirement Commissioner Diana Crossan said KiwiSaver had done a lot to encourage young people into saving for their retirement when previously they would not have considered it.

Crossan said recent statistics showed 8 per cent of New Zealanders could not read bank statements and 20 per cent found it difficult to calculate the amount of savings they had.

Sites such as Sorted.org.nz offered free and independent advice for a lot of people who probably did not have access to such financial guidance.