Young adult reliance on parents for financial advice could be risky


Nearly half the participants in the Fin-Ed Centre's longitudinal study said they had learned “everything” or “almost everything” from their parents. 


Young New Zealanders still rely on their parents for financial advice, despite many harbouring doubts about the quality of that advice, according to new research from the Westpac Massey Fin-Ed Centre.

The report presents findings from the second stage of the centre’s 20-year longitudinal study, which tracks the financial knowledge, attitudes and behaviours of a group of New Zealanders through different life stages. The longitudinal study is the only one of its kind in New Zealand. The first stage occurred in 2012 when the cohort was aged from 18 to 22 years. Now, five years on, the participants are aged from 23 to 27 years.

Fin-Ed Centre director Dr Pushpa Wood says the focus of the study is to determine how attitudes and behaviours have changed over the past five years as participants move into new life stages.

“It was heartening to see that objectively-measured financial literacy scores have improved since 2012,” Dr Wood says. “More than half the participants said they had taken steps to improve their money management skills in the past year, but questions remain about the sources of information they are using.”

Nearly half the participants said they had learned “everything” or “almost everything” from their parents. While this was down from 66 per cent in 2012, the reliance on parental advice was surprising, given only 35 per cent said they believed their parents knew what was best for them in terms of their finances. 

When participants were asked how they expected to learn about money management in the future, parental advice still featured, but the dominant source, at 39 per cent, was “life experiences”.

“It seems that young Kiwis still avoid formal financial education or consulting financial experts,” Dr Wood says. “Relying on parents and taking a learning-by-doing approach to money management has some obvious risks, especially if parents are not financially knowledgeable, or if bad decisions lead to costly mistakes that are hard to reverse.”

Westpac Massey Fin-Ed Centre director Dr Pushpa Wood.


Good financial advice is crucial

Westpac NZ’s general manager of consumer banking and wealth, Simon Power, says a good financial education is crucial to building a secure financial future.

“Getting a good financial start in life is really important. The research shows parents have a critical role to play in their child’s financial knowledge well into adulthood. We’d encourage parents to talk to their children about money from an early age and to also keep increasing their own knowledge,” Mr Power says.

“However, it’s encouraging that more than half of participants believe they will learn about managing money from financial planners, advisers and taking classes over the next five years.”

Gender differences in the study

The study found a gender gap in how participants performed in a financial literacy test and how they assessed their own financial literacy levels. The average score for the financial literacy test was 70 per cent for men, compared with 54 per cent for females, while 41 per cent of men assessed their financial literacy levels as “very good” or “excellent”, compared to only 21 per cent of females.

“It’s doubly important that parents talk to their daughters about money as we know women face more barriers than men in their careers and in saving for retirement. It’s equally important for women to take control of their own financial knowledge,” Mr Power says.

Overall, the report found the cohort had many positive financial behaviours, including a participation rate of 89 per cent in KiwiSaver. It also found that more than two-thirds of young people remain wary of credit card debt, with many saying they use their credit card primarily for rewards, and pay the balance in full every month to avoid paying interest. But there are still some areas of concern, including 60 per cent of participants wishing they were better at saving. 

“Ninety per cent of participants told us they knew what they were spending their money on and blamed impulse spending as the key problem for not saving. By setting up an automatic payment into a savings account that they can’t touch, individuals will soon not miss the money and can see their savings grow,” Mr Power says.

A summary report of the findings can be downloaded here: http://bit.ly/fin-ed-longitudinal

Key findings:

  • Parents continue to be the primary source of information and lessons on personal financial management matters, although many doubt the knowledge their parents are imparting;
  • Financial literacy improved, but participants’ self-assessment of their financial literacy declined;
  • Participants remain confident about their ability to manage their money, while remaining wary of credit cards, and acknowledging the importance of saving;
  • At 89%, participants have a very high participation rate in KiwiSaver;
  • More than 90% know where their money is spent;
  • 65% budget and track spending;
  • 60% wished they were better at saving;
  • 67% think it’s better to dip into savings than use credit for purchases;
  • Only 30% considered long-term planning beyond 5 years;
  • 72% still have a student loan to pay off;
  • Impulse spending is a key problem;
  • Females scored an average of 54% on the financial literacy test while males scored an average of 70%;
  • 21% of women assessed their financial understanding as being ‘very good’ or ‘excellent’ compared to 41% of men;
  • 47% of women assessed their financial knowledge as being ‘fair’ or ‘poor’ compared with 32% of men.

About the Westpac Massey Fin-Ed Centre longitudinal study

The Westpac Massey Fin-Ed Centre, or Financial Education and Research Centre, is a joint initiative by Westpac and Massey University that aims to improve the financial wellbeing of New Zealanders. The Centre is part of the Massey University Business School.

The centre’s 20-year longitudinal study explores the financial knowledge, attitudes and behaviours of New Zealanders through different life stages. A cohort of 300 New Zealanders aged 18-22 years participated in the baseline survey in 2012 and will be re-contacted in five-yearly intervals. Of the original cohort, 215 participated in the second phase of the study.

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