Westpac, Massey University question whether young people are as financially savvy as they apparently think they are

Westpac, Massey University question whether young people are as financially savvy as they apparently think they are

By Jenée Tibshraeny

New research is supporting the stereotypes that define Generation Y and their “cavalier” approaches towards money.

A new survey done by the Westpac-Massey Financial Education and Research Centre has found 20 to 24-year-olds are confident when it comes to their personal finances and don’t feel the need to improve their money management skills.

Seventy-one percent of the 300 people interviewed by researchers feel “in control” of their financial situations, and 69% feel good about their money management skills.

This is despite only 39% being satisfied with their financial statuses.

So what do young peoples’ bank balances look like?

The average income for 20 to 24-year-olds in 2014 was $465 per week, according to Statistics New Zealand.

This was $315 less than the average income across the entire working age population.

As for student debt, 721,437 people were borrowing an average of $20,000 from the government as at June last year.

Nonetheless, Massey’s research found only 29% of those surveyed took steps to improve their money management skills in the past year.

Co-researcher Dr Jeff Stangl said, “I find it a bit of a stretch to believe that most young people know all they need to know about managing their finances.

“I think there is a tendency with this age bracket to be over-confident about their skills.”

Westpac’s business bank and wealth general manager, Simon Power, is concerned only 6% of those surveyed used a financial advisor before making a major financial decision and not a single respondent used a budget advisor.

Forty-nine percent searched for financial information over the internet, and 75% sought advice from their parents.

“This is fine if you have financially savvy parents – but that is not always the case. Bad financial advice can be become a debt trap perpetuated by a family environment where poor advice is given,” said Power.

He also highlighted the inter-generational gap between young people and their parents, saying buying a house for example, is completely different today compared to 30 years ago.

He said the complexity of choices young people have, means more specific knowledge is required.

The New Zealand University Students’ Association acting president, Kahlia Fryer, believes young people tend to view the future through rose-tinted glasses.

She said they often don’t have a concept of how much a $50,000 loan is, for example.

Many haven’t been exposed to this sort of money, so don’t understand how long it will take to pay off.

Fryer maintains students need access to more impartial advice about tertiary study, rather than just information from education providers with vested interests.

She’s pleased the Government today launched a mobile App that compares job prospects and incomes of 20 different careers, to help students make decisions about their secondary and tertiary education.

Yet she said it’s not enough.

Power said Westpac runs workshops throughout the country to educate young people on issues like KiwiSaver, but wants to see financial literacy programmes made compulsory in schools.

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So what is the benchmark to be finacially savvy? Is that set by the Center's sponsor Westpac? If we don't know what it, is how do evaluate the conclusions or at least have any perspective?

The lack of engagement with financial services providers is a telling part of this study.   Wealth managers at the major banks are not incentivised to discuss a financial plan with young people or those with not much money to invest.     There will be odd initiative like the workshops mentioned, but the targets for wealth managers are all about new money coming in -  and that money must come in by the end of *this* quarter or *this* financial year in order to qualify for bonuses.   A financial plan written for a young person with no money will not help with those targets.  It's not the wealth manager's fault - it's how they are paid.
Those with over, say, $250k to invest have heaps of choice when it comes to financial advice.   These are generally the over 60s who had their money with Bank A and are looking for a slightly better deal with Bank B.   The same old money moving around and around.  Five banks feed on this limited market and swap funds under management depending on whose best at doing that kind of thing.   Worse, snaffling $ from Bank B is celebrated far more than the act of giving someone a good financial plan.
However, banks don't ignore young people.   They are brilliant at getting them into debt.   The staff are incentivised to get more lending on the books, not dish out sensible financial advice.   "Mortgage war" behaviour between banks encourages irresponsible lending and it's happening (again) now.   
In my opinion, a parent giving financial advice is far better than going to see your bank.  A wise parent at the moment would probably advise not to buy a house right now in Auckland.   A bank employee at a branch will say "awesome!" and go straight to the home loan application. 

Great comment

Great insight Austin. Probably much better insight that the Center's insight into youth attitudes towards money.

Nonetheless, Massey’s research found only 29% of those surveyed took steps to improve their money management skills in the past year.
I'm surprised it was that high. People in the 20 to 24 year old age group generally don't have much money, nor do they have much experience with it. So a study like this isn't going to find anything interesting. Also surprising that as many as 6% had used a financial advisor: perhaps this is a statistical error and the true answer is closer to 0. Sadly, and more likely, far more in this age group will have experience with a loan shark or budget advisor to help make ends meet.
When I was that age, I was happy just to have enough to meet the weekly expenses: accommodation, food and a few beers once a week. Financial management was all about not going below $0 bank balance. It wasn't until my late 20's, when I finished studying, that I had money left over after paying the basic expenses, and could buy things like a car, that I started to think more about what I should do with the small surplus left at the end of each week.
That was the 1990's, when taking out loans to cover living expenses weren't the norm. The number one money management skill for 20 - 24 year should learn is: don't get into debt, unless it is to buy a house, or for a car loan that can be paid off in a year (or earlier).