By Amanda Morrall
Retirement Commissioner Diana Crossan openly challenged New Zealand banks to take the lead in tackling "dumb debt" by amending credit card policies and statements to show the long-term costs of borrowing on a minimum repayment basis.
Speaking at a financial literacy conference in Wellington Tuesday, Crossan said she would applaud the first bank to voluntarily change the way statements are displayed to discourage users from rolling over debt month to month and racking up high interest.
"Think of the impact it would have on consumers if they could see how long it actually takes to repay their debt,'' Crossan told the more than 150 participants attending the 2011 financial literacy forum.
Relative to other countries, New Zealand credit card users carrying interest are modest however records indicate the nation has more than NZ$12 billion in consumer debt.
It is estimated that of the $5 billion spent each month on credit cards, the unpaid balance of $3 billion collects more than $650 million in interest each year, the conference was told. (see chart below for credit card debt growth).
Regulators in the United States recently passed a law requiring credit card lenders to change the way information appears on statements to credit card holders to achieve greater transparency about how much interest would add, over time, to unpaid balances. A similar move afoot in Australia.
Crossan said it had been proven that highlighting the minimum amount owing act as a "psychological anchor" for consumers to repay their debt on that basis, thus prolonging their financial misery.
Critics however suggest a change in the way credit card debt is presented would not have the intended effect on the grounds that the high administrative costs involved would simply be passed along to the consumer.
Crossan, who has become an internationally recognised crusader for financial literacy, also issued a separate challenge to Government: to free up money to make financial literacy an entrenched part of the New Zealand curriculum.
Although Crossan acknowledged these were tough times for Government, she argued the "return on investment" by introducing and teaching financial literacy at an early stage would be "significant.'' She said the Retirement Commission (which changes in name Sept.1 to the Commission for Financial Literacy and Retirement Income) would continue to make early education a priority.
Crossan said financial literacy efforts have suffered because of recent budget cuts.
“Budget cuts have seen central funding for financial education drastically reduced and that is a great shame. We believe teaching kids about money now will result in higher savings and lower debt levels in the future.
“We have seen first hand how children have benefited from lessons about the concepts of budgeting, saving and investing. It would be a big step backwards to lose the momentum we have created through lack of funding."
Crossan said Australia recently announced a $10 million funding programme over five years to get financial education into the classrooms.
“This is one Australian example we should definitely follow. In an ideal world we would like to see all New Zealand school children learn financial skills alongside numeracy and literacy. In 2011, it’s unfair for children to leave school without the skills they need to live in today’s complex financial world.''
According to the New Zealand Union of Students' Association, student loan debt is more than NZ$10 billion, growing a rate of rate of $1 billion a year.