More than four in five (86%) of New Zealanders are reasonably to extremely confident about their finances, an increase of 8ppt between 2020 and 2022, according to the Financial Services Council's (FSC's) latest research report, "Financial resilience trends in New Zealand: Overconfidence and a Perfect (Savings) Storm".
Yet this confidence is likely misplaced given the economic volatility, rising living costs and increasing interest rates witnessed in the months after the most recent data were released, says the report. It highlights that:
1. There remains considerable concern that around half of all Kiwis are experiencing financial issues affecting wellbeing, are reporting poor financial literacy, and low financial preparedness for rainy day funds and retirement.
2. Despite the trends showing an overall growth in perception of confidence in making financial decisions, 40% didn’t know whether they could raise NZ$5,000 ($2,922) in a week in a time of emergency, and 45% said they either would rely on friends or family or weren’t sure how they would manage if they were suddenly to be unemployed or unable to work for more than three months. There thus appears to be overconfidence in perceptions of financial resilience.
3. Just 44% of respondents report being financially literate, down by 6ppt since March 2020.
4. Worryingly, in January 2022, just under 30% of respondents said they could last for a month or less without earning an income.
5. With financial preparedness being such a concerning issue for some, job security is an important element of financial resilience for those in the workforce.
What the research findings indicate
FSC CEO Richard Klipin said, “The intention of this research was to look at some of the key trends and behaviours relating to financial confidence and wellbeing over the past three years to get a temperature check on how we are tracking.”
“What the research tells us is there are some clear warning signs that there is a perfect storm brewing due to financial overconfidence, insufficient rainy day funds or retirement investments and economic uncertainties such as rising interest rates and inflation,” Mr Klipin continued.
“Factoring in how the economic environment has significantly changed since January this year, it is likely that the present picture is even more concerning. It’s important that increased financial confidence is reflected in the other indicators; financial literacy, financial preparedness, job security and wellbeing."
The FSC began tracking financial resilience in March 2020, just as the COVID-19 pandemic was becoming a reality in New Zealand. The subsequent data collected reveal how Kiwis react through the pandemic, and how they are continuing to respond during a time of economic uncertainties.