FSC research shows financial confidence has risen – but is a perfect storm brewing?

Aotearoa New Zealand is emerging from the pandemic in relatively good shape, with the latest news that we are not heading for recession.

And, according to the Financial Services Council’s (FSC’s) latest research report, Financial resilience trends in New Zealand: Overconfidence and a perfect (savings) storm, 86% of New Zealanders are reasonably to extremely confident about their finances, an increase of 8% between 2020 and 2022.

Yet this confidence is likely misplaced.

The research will be discussed tomorrow at the FSC’s 2022 Conference held in Auckland. The theme of this week’s conference, aligned with the FSC’s strategic vision, is “Growing the financial confidence and wellbeing of New Zealanders”.

The report analyses data from previous Financial Resilience Index reports from March 2020 to January 2022 to identify trends in New Zealanders’ financial confidence and wellbeing throughout the pandemic and times of economic hardship.

In spite of encouraging financial confidence levels, other findings from the report suggest this confidence may now be misplaced, given the economic volatility, rising living costs and increasing interest rates we’ve witnessed in the months after the most recent data was released.

In January 2022, just under 30% of respondents could last for a month or less without earning an income. 40% didn’t know if they could raise $5,000 in a week in 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/unable to work for more than three months.

Half of respondents said they had experienced financial issues that affected their overall wellbeing. What’s more, financial literacy is on the decline, with 44% of survey respondents reporting being financially literate, a decline of 6%.

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,” Klipin continued.

“The over-reliance on friends and whānau and uncertainty on managing finances in times of crisis is worrying, as when everyone is doing it tough, this can be a recipe for hardship.

“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.

“This latest research emphasises just how important growing the financial confidence and wellbeing of New Zealanders is, and as we continue to track these key indicators into 2023 and beyond, our objective is to see them all move in a positive direction,” concluded Klipin.

The research report is available on the FSC’s website here.

ENDS

About the research:

This sector report analyses the trends of the key Financial Resilience Index indicators tracked through the four research periods from March 2020 up to and including January 2022. The five indicators are:

• Financial confidence
• Financial wellbeing
• Financial literacy
• Financial preparedness, and
• Job security

The research was conducted via an online survey developed and hosted by CoreData. Data was collected in March 2020 (2,000 valid complete responses), August 2020 (1,000 valid complete responses), April 2021 (2,035 valid complete responses) and January 2022 (2,000 valid complete responses). This data formed the basis of the analysis and this sector report. The samples are representative of the New Zealand consumer population in terms of age, gender and income based on the latest Stats NZ data. According to Stats NZ* in March 2021 there was an estimated resident population of 5,116,300. As this survey only included respondents aged 18 years old or over, the estimated resident population of the sample is 3,944,700.