Money: Birds, bees and savings

By Philip Macalister

Every day we are told that we need to start saving for our retirement because the Government will not be able to afford to pay decent pensions in the future.

Judging from many of the statistics that are bandied around, the message is only slowly getting through. In fact, by international comparisons, Kiwis are reputedly poor savers.

In many ways, indoctrinating New Zealanders with the savings habit is going to take a generation to achieve. It is like the road safety messages about drink-driving and speeding.

Nowadays teenagers are far more responsible about drinking and driving than their parents were at a similar age. According to recent reports from the police, the same thing is true about speeding. The message is getting through to many people, but it is those around the 40-year age group who are not slowing down.

Putting this into context with savings, we need to teach kids to save.

The message is probably more imperative now. Messages urging consumers to spend their money are more numerous and more forceful. And the many financial tools available are more sophisticated.

Back in the 1960s and 70s, kids at school had their Post Office Savings book and were encouraged to save a little bit of money each week.

In those days financial planning was pretty simple. The only real option available to children was a savings account. These days teenagers have ATM cards and credit cards, they use telephone and online banking, and some may even indulge in share trading online. When they go to university chances are strong they will end up with a student loan.

The comparison is also stark when you look forward.

Someone in the pre-baby boom generation could reasonably expect to receive a taxpayer-funded pension in retirement. A child of the new millennium will not have such a luxury to look forward to; he will have to provide for his own pension.

One of the groups proactively trying to teach kids about savings and financial matters is the Enterprise New Zealand Trust which has developed a programme called Pathways to Financial Literacy.

The programme, sponsored by the Office of the Retirement Commissioner and Tower Investment Savings, was taught to 7500 children in 130 secondary schools last year.

Its aims to teach children about financial matters, including budgeting, and investment principles.

Programme director Lyn Morris says the nine-module course takes a lifestyle approach to teaching.

"We encourage students to project into the future and consider themselves in one of the four distinct phases of a person's life-cycle.

"We've found it to be a novel and non-threatening way for students to learn about coping with different financial circumstances," she says.

"The key benefit of the programme is that it teaches these skills before young people embark on their working life. These are skills that will last them a lifetime, no matter what their circumstances are, or might be, in the future."

Morris says that ultimately, Pathways to Financial Literacy is about changing behaviour.

"The programme shows young people how to translate a positive attitude about financial management into positive action."

One of the spin-offs of the programme is that children are taking their new-found knowledge home and sharing it with their parents.

It seems that teaching children about financial matters is akin to talking about the facts of life. Many parents are not comfortable talking about it.

The reasons for this reluctance could be many, including the complexity of the subject, or that parents do not understand many of the new financial tools which are available in the market these days.

Ultimately, groups like Enterprise New Zealand are taking on a financial planning role that the market has not addressed.

Financial planners and investment advisers tend to look after people with large sums of money and those approaching retirement. They largely ignore people who are beginning to save, or want to invest small sums regularly.

Retirement Commissioner Colin Blair spells out the importance of good planning.

"Sound financial planning is essential for all, no matter what their stage in life. This [financial literacy] programme helps a new generation see the benefits of long-term financial planning," he says.

"Those who can make sound financial decisions early in life have a good chance of reaching retirement in sound financial shape.

"We believe that more should be done to equip school-leavers and tertiary students with good financial management knowledge and skills."

One company doing something about teaching kids about savings is Fisher Funds Management based in Devonport.

Fisher Funds, which is run by husband and wife team Carmel and Hugh Fisher, established itself two years ago with a single $44 million fund dedicated to investing in small and medium-sized New Zealand companies. It has recently launched its Fledgling Fund designed specifically for school children.

The idea is that the fund, which invests in international shares, will be used as a tool to help educate young savers about investment matters.

Carmel Fisher says the marketing material is jargon-free and pitched at an 11-year-old level.

Besides that, jigsaws, crosswords and puzzles are designed to teach youngsters about personal finance matters.

Fisher says the fund will be competitive against other high-risk diversified funds, yet it is "almost a quirky fund."

Its investment goal is to create long-term growth, but its mandate instructs the manager to invest in shares of growth companies that have an impact on the lives of the young.

These will be companies which have been around for some time and which have strong brands, such as Vodafone, IBM, Sony, Microsoft and Gillette.

She says by buying companies that are known to younger people, they can be used as case studies to help with the education process.

In keeping with its quirky nature, the fund has no entry fee, but an exit fee must be paid if the money is withdrawn within three years. Minimum investment is $500 or $50 month.

Lyn Morris says educating children about finance requires a huge social change.

Likewise, she says it takes time for the change to come through.

But she is confident it will happen as more and more kids are taught about financial planning.

She also points out that many children in senior secondary schools have part-time jobs and a reasonable amount of disposable income.

If the savings industry does not work to capture that money, it will be spent on things like cellphones and designer-label clothes.

Carmel Fisher agrees that it will be a hard road to hoe - the Fledgling Fund will require a large number of small investors to make it profitable - yet she is confident it is a cause worth pursuing.

She has set her goal, and is now trying to encourage young investors to do a bit of goal-setting themselves.

* Philip Macalister is the editor of online money management magazine Good Returns www.goodreturns.co.nz). Good Returns provides readers with news and information on managed funds, mortgages, superannuation and financial planning.