KiwiSaver providers must aid informed decisicion making

19 October 2011

KiwiSaver providers not doing enough to aid informed decision making

KiwiSaver providers are not doing enough to help the public to make informed choices about their contributions and investments, according to a financial literacy expert.

Katherine Percy - Chief Executive of adult literacy, numeracy and communication support provider, Workbase - says research shows that many people lack sufficient knowledge and skills to make sound investment decisions.

“Effective decision making about KiwiSaver requires people to have strong financial literacy knowledge and skills. Yet research shows that around half of New Zealand’s adult population has low numeracy and / or literacy levels.”

Although most New Zealanders can read, write and use numbers, many people lack the skills and knowledge needed to understand the unfamiliar concepts, technical terminology and multilayered information needed to make choices about KiwiSaver.

Low financial literacy is a significant issue for KiwiSaver because many people (even those with good literacy and numeracy skills) have little or no investment experience. Research suggests that more than half of KiwiSaver members know little about the scheme they are in, and most don’t realise that there is no government guarantee.

Ms Percy says KiwiSaver providers, particularly default ones, have a moral obligation to ensure people are making informed decisions because many people depend on KiwiSaver to fund their retirement.

“Although all types of financial institutions could do more to build people’s financial literacy skills and knowledge, KiwiSaver providers have a stronger obligation because their products require a higher degree of understanding than more commonly used financial services.”

In doing more to educate the public and aid effective investment decision making, KiwiSaver providers would also help to improve the overall breadth and depth of New Zealand’s investment base.

“Most New Zealanders don’t understand important investment concepts such as risk and diversification, which is one reason why so many have been badly burnt in the past by investment decisions that have gone wrong.”

Ms Percy says that although some KiwiSaver providers, banks and other financial institutions have taken steps to provide information for customers, more needs to be done.

“People need more basic information that increases their knowledge and understanding around important financial concepts and terminology.

“KiwiSaver providers should come from a standpoint that assumes people know little because, in most instances, that will be the case,” she says.

Boosting New Zealanders’ ability to make informed investment choices will take time and will require providers to progressively and repeatedly provide information that educates customers.

“Helping people understand the basics will provide a strong foundation for further education and communication about financial matters.

This will have positive flow on effects because helping New Zealanders to make informed investment decisions will benefit individuals, the investment sector and New Zealand’s economy as a whole,” she says.

Five ways KiwiSaver providers can help people make informed choices

1. Rather than simply providing more information, KiwiSaver providers should convey more basic information that builds people’s understanding about the schemes, types of funds, risks and fees.

2. Expect customers to build their knowledge progressively in a range of ways - not just through written information. Short videos and talking to frontline staff may be an easier place to start.

3. Train front line staff to provide consistent and simple explanations, and to be sure the customer understands what they have been told. (Rather than asking customers: “do you understand?”, ask them to: “tell me what you understand”.)

4. Do not to assume that people know and understand commonly used financial concepts and terminology. Websites, prospectuses, and other investment material should aim to build people’s knowledge and understanding. For example: include definitions for financial terms and concepts where they are being used, rather than in a glossary. This can be done in several ways, such as by featuring a pop up when a reader hovers the cursor over a term).

5. Ensure written communication is designed in a way that helps customers to easily understand the information provided, and find the information they need.

Steps New Zealanders can take to make informed KiwiSaver decisions

• Think about the skills and time you put into finding the best deal when shopping for groceries, clothes or a car and how great it feels to purchase something at a good price. Spending time learning about KiwiSaver and other investments will help to improve the amount of money gained from your investment/s.

• Accept that learning about KiwiSaver and investing will take time. Be prepared to keep going back to learn a bit more each time.

• Take steps to improve your own knowledge and understanding by reading financial advice columns in the newspaper, and visiting independent web sites such as www.sorted.org.nz, and the Money section in www.consumer.org.nz.

• Ask lots of questions – and keep asking until you are happy that you are getting answers you understand.

• Don’t be afraid to ask ‘silly’ questions; there are no silly questions when it comes to your money.

• Remember you are not alone – and don’t feel embarrassed! Many people have trouble understanding financial information.

ENDS

© Scoop Media