Gael Price: 0:00Kia ora, and welcome to the FMA's Occasional Conversation Series podcast, where we talk about the latest research that we've been working on. I'm joined today by Gail Price, Head of Economics and Research at the FMA, whose team is behind the latest piece of research called Good Sense Kiwis on Savings and Debt. Welcome, Gail. Hi, Heidi. Can you tell us about this research and what you've found?
Heidi Norman: 0:25Absolutely. We wanted to know what New Zealand consumers think about savings and debts. We were interested in their attitudes to savings and also what types of savings and debt products they use. We also asked about what types of financial institutions they work with around their savings and their debts.
Gael Price: 0:41And what did you find? We
Heidi Norman: 0:43found that most people are pretty comfortable with their experience around savings and debt. They feel like they're well informed and they know how to make good decisions. We noticed that they consider sensible information when they're deciding which savings products to invest in and how to pay down their debts. We did find that there are areas that some providers might have an opportunity for improvement around making sure that their products are meeting the needs of all their customers.
Gael Price: 1:09I see that you found three areas where knowledge and behaviour don't match people's aspirations. What's that telling us?
Heidi Norman: 1:17We're interested to find that most people say when they're looking for a savings product, the main thing they look for is a high return. So they're interested in what interest rate they can get or what kind of dividend payment they can expect. But then when we ask them what savings do you actually have, most people are holding the majority of their savings in quite low returns products. So that was really interesting. Now, there's a number of reasons that could be behind that, but it does suggest that there might be reason for a little more careful thought for some people.
Gael Price: 1:45Any other interesting things come up in the
Heidi Norman: 1:46research? Yes, we were interested to find that a lot of people hold by now pay later debt. So this is like after pay. This is interesting because we didn't realise quite how prevalent that was. And it's a product that requires a different type of thinking for people to manage that debt relative to traditional debt that has an interest rate. So we thought that's definitely worth keeping an eye on and making sure that people are managing their debt in a way that's sensible. Anything else? Yes, something else we found was a lot of consumers are surprisingly uncomfortable discussing their finances. So we asked, would you be open to receiving advice about how to manage your finances? And they mostly said, yes, yes, of course, advice would be great. But then later we asked them, how comfortable do you feel discussing your finances with other people? And the response was actually not that comfortable at all. So although they would like to receive guidance, their emotional comfort with doing so is maybe not where it could be.
Gael Price: 2:44Did you find anything out about
Heidi Norman: 2:47term deposits? We found that there's some really interesting demographic differences around the holdings of term deposits. So when we broke down our findings into age categories, we found that people aged 65 and over have some really unique features. One is that these older people are very interested in receiving a stable return. So they're after an interest rate that doesn't change all the time, so that it's predictable. And we also found that they do hold term deposits a lot more than people in younger age groups. We think that's probably because their KiwiSaver has either matured or maybe they didn't have KiwiSaver to begin with. So instead, they're holding their investments in term deposits.
Gael Price: 3:28You also took a look at these questions, but viewed through the lens of age and ethnicity. What can you tell us there?
Heidi Norman: 3:34Yes, we decided to have a look at the survey responses in terms of which populations are having the hardest time. And there's a couple of different ways of looking at that question. We found that young people are among the most financially vulnerable. So their level of But then we found that people of middle age are actually struggling the most. When we looked at ethnicity, we found that Māori and Pasifika communities are struggling the most. So that was really interesting.
Gael Price: 4:02So when you say that young people are financially vulnerable, talk to us a bit more about that.
Heidi Norman: 4:07We found that people aged under 24 in our survey were the least comfortable with discussing their finances with others. So that means that they're less likely to seek financial advice. So that means they might be lacking some of that guidance that they need. They also rated themselves as the least confident in being able to make good financial decisions. And when we asked them some financial literacy questions, we also found this group were the least likely to get those questions right. So there's a couple of different dimensions where they might feel that they're not as well supported as they could be.
Gael Price: 4:39Are there any other age groups where you found something interesting?
Heidi Norman: 4:42Yes, we actually found people of middle age are among the most struggling people. So when we asked them the question, thinking about your finances, would you say you're sinking or swimming? One in four people of this middle age group said that they were sinking, which is actually quite high when you think about it. That's quite concerning. It is quite concerning. They also said these middle age people, they They struggle to pay for food sometimes and keeping up with their debt repayments can be really hard. So it's worth considering what that demographic really
Gael Price: 5:12need. And you mentioned that there are particular ethnic groups that are struggling as well. What can you tell us about that?
Heidi Norman: 5:21So with the Māori and Pasifika community, we asked the same question, are you sinking or swimming with your finances? And we found that one in four of these people also said they're sinking. So that's concerningly high for such a large population of people. there were some really interesting things within that population as well. One thing we found was that when seeking financial guidance, Māori are just as likely to turn to a family member as they are to go to their bank. Now that's really interesting. Family is a great source of financial guidance. It's really important to talk to professionals as well to get their expert opinion. So we want to make sure that no community is missing out on that professional guidance.
Gael Price: 6:00Can you tell us the experience that Māori and Pasifika are having with debt?
UNKNOWN: 6:05Yes.
Heidi Norman: 6:05We found that in that population, there's quite a large number of people using buy now, pay later debt. So I mentioned that around a quarter of New Zealanders have this type of debt. In the Maori and Pasifika population, it's 40%. So that's really high. Now, this type of debt is a great way to spread payments out through time and maybe cover a bill that might be a little bit on the large side for you. But if you have a lot of it, it can really add up and those late payment fees become a huge problem. So it's definitely worth being aware that there's this community which is both vulnerable in the sense that they say that we are sinking and they have a huge amount of buy now pay later debt.
Gael Price: 6:43Gail, can you tell us what financial services providers could take from this research?
Heidi Norman: 6:49Our research reflects the diversity and the complexity of the consumer landscape here in New Zealand. So organisations like banks, insurance companies, managed fund providers, even financial advisors will find that there's some areas of this research that reflect their experience with consumers and some that maybe don't because it is a diverse group of people. I think if I was a provider, the big takeaway that I would be looking at is people's level of comfort with talking about their finances. It's really, really important that people can feel safe to access useful guidance about their financial decision making. And so anything a provider might be able to do to be approachable, to make sure that people do feel comfortable, I think it's really worth investing in that. None of the things that we've found, which we're describing as areas for improvement, are bad things. It's all just areas of opportunity. There are places where consumers might feel that they could be served a little bit better if products were maybe designed slightly differently. There's an opportunity for providers to think about whether that's part of what they want to do. But it doesn't mean that anything is going wrong out there.
Gael Price: 7:54Well, that is good news. And a great positive note to end the podcast. So thanks very much for your time today, Gail.
Heidi Norman: 8:01Thank you.
Gael Price: 8:03If you'd like to access this research, check out our website www.fma.govt.nz. See you next time.
