By Amanda Morrall
Most people in KiwiSaver don't understand the scheme they're in and require basic investment education beyond what they're being offered by their providers, a non-profit financial literacy group says.
Katherine Percy, chief executive of Workbase, said KiwiSaver providers, particularly those heading default funds, had a "moral obligation" to do a better job of educating the masses, close to 1.8 million now. (See interactive chart below and latest KiwiSaver statistics here).
"We believe there are far too many assumptions being made that most people understand the basics and there is some clear evidence that easily half of New Zealanders don't,'' Percy told interest.co.nz
Percy said the claim was not frivolous and was backed by several financial literacy surveys rating New Zealander's knowledge of investment fundamentals such as risk and diversification.
"The levels of literacy, language and numeracy can tell us that when people are confronted with unfamiliar content, technical terminology, multi-layered information, all of which is true for KiwiSaver, they're not likely to be able to fully engage in it. And other research suports that; that most people in KiwiSaver don't understand the KiwiSaver scheme they're in.''
While Percy said while financial literacy levels varied among KiwiSaver members and providers, those parked in default funds, were most likely those with low knowledge.
"It's a reasonable assumption that people in default funds have lower levels of interest, knowledge and active engagement around it and for that reason we believe they (providers) have a moral obligation to do more to build their members knowledge and skills which means providing more basic information."
Rather than flood KiwiSavers with more documentation and information, Percy said they needed to be more discerning, selective and creative in terms of how they went about it.
"I'm not suggesting any of them aren't putting information out there but when we review it across the board it makes alot of assumptions about peoples' knowledge of terminology and financial concepts. For example, expressions like conservative, moderate, aggressive or growth funds; they don't have that much meaning for people who aren't familiar. Some websites talk a lot about asset classes, which I would suggest for unsophisticated investors has very little meaning."
Workbase offers the following five suggestions to help their members become more informed:
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.
"I think it's starting where the audience is likely to be and with more basic information and making it easier to move through the layers to understand what is the simple surface level and then to build on that knowledge and not to expect people to understand that right away but to progressively build knowledge over time,'' explained Percy.
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.
"I guess we believe just providing information through websites and in written form is probably not that helpful for this sort of complex information certainly as a starting point,'' said Percy.
3) Questions like do you understand, only invite the answer yes. And yet there are ways that you can ask the person tell me what you know about this so I can ensure the information I'm giving you is what you are interested in.
Percy said staff training would be the most obvious way to improve communications and assessment of members understanding.
"Under the new Financial Markets Authority, there is an assumption that people on the front line giving advice to customers have the skills to give accurate and consistent information."
4) Do not 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.
"Also, I think we'd like to see a bit more thought about keeping relevant information together so fees information is adjacent to scheme type where it differs by scheme. Often there may be a big table about fees somewhere and a big explanation about the schemes somewhere else but it's hard to put those two things together or it poses another barrier when you have to search for that information."
5) Ensure written communication is designed in a way that helps customers to easily understand information provided and find the information they need.
"We can easily see providers are putting a lot of money into communications and they are, by and large, well written but there are some very simple things, like not capitalising entire sentences because it makes them harder to read; having clearer lay-outs; explaining how people can navigate the document at the beginning, or having a short simple version at the front, and more for those who want it later on. There are lots of ways if you were focused on building knowledge you might not write it in the way you would for a very informed audience.
"I think for default providers, we have to assume that a high portion of their customers do need some explicit support to build their knowledge about KiwiSaver. It's not an everyday service and investment is not an everyday thing for many New Zealanders. We're still at the early stage of building peoples knowledge."
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.interest.co.nz, 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.