• Trustees Private Wealth

Apr 4, 2022

Are you Financially Resilient?

The issue of financial resilience has become more and more important as the global pandemic continues to impact people and businesses all over the world. Intermittent lockdowns, restrictions on travel, and knock-on effects of earlier measures put ever-growing pressure on workers, businesses, and the economy as a whole. For households the impact of Russia’s invasion of Ukraine has created even more complications and crushed any hope of a return to “normal” in 2022.

The 2022 Financial Resilience Index by the Financial Services Council (FSC) with the support of Trustees Executors shows that Kiwis are increasingly concerned about the housing market, inflation, and the direction of the economy as a whole. Despite this, New Zealanders feel more secure in their jobs and worry about money less frequently than they did in 2020. That’s a good thing on its own, but people and businesses need to do more if they want that high level of job security and financial wellbeing to persist into and beyond the next crisis. Pursuing financial resilience is and should remain a priority for the foreseeable future.

Kiwis feel confident, but many are financially vulnerable

The Financial Resilience Index surveyed Kiwis to learn how financially resilient they are and how they feel about the economy as a whole. Looking at the 5 key indicators used to track financial resilience, we can see that while people enjoy a high level of job security and worry about money less than they did in 2020, many are also less able to deal with further economic difficulties than they were a few years ago. The indicators are as follows:

1. Financial confidence

Kiwis feel more confident in their ability to make financial decisions than they did in 2020. 52.5 per cent of respondents indicated that they were “very” or “extremely” confident in making financial decisions, compared to 38.8 in 2020. At the same time, however, 68 per cent expressed concern about home prices, and 79 per cent are worried about inflation.

2. Financial literacy

Since 2020, New Zealanders’ perception of their own financial literacy has decreased, contrasting somewhat with their growing confidence in making financial decisions. This may be due to an increased focus on financial markets and investment since the onset of the pandemic, as people become more aware of how little they know.

3. Financial preparedness

While more Kiwis are investing than in the past, the amounts invested have decreased for most households. When asked if they would be able to come up with $5000 for an unexpected cost within a week, 41 per cent indicated that they could not, or didn’t know if they could do so without going into debt. Slightly more Kiwis feel prepared for retirement today than in 2020, however, more than half indicate that they are “not particularly prepared” or “not prepared at all” for retirement.

4. Job security

More than one-third of Kiwis feel that the pandemic has impacted job security, however, 86.2 per cent still feel reasonably, very, or completely secure in their jobs. This is likely because of the ongoing skill shortage in New Zealand and around the world, which has served to keep people employed despite ongoing economic difficulties for businesses.

5. Wellbeing

Respondents spent less time worrying about money than they did in 2020 and 2021. However, more than half of younger respondents (under 37) and over 40 per cent of people aged 38-52 worry about money on a daily or weekly basis. Working-age people appear to suffer from financial insecurity at a much higher rate than older respondents—at least with respect to their mental health and wellbeing.

Financial resilience isn’t a hard number that can be easily measured—it’s about how well you can weather economic shocks and unexpected financial challenges. That can include everything from whether and how we invest our money to the type of debt we hold, to savings, to knowing what to do after something (such as a sudden spike in inflation) happens. Looking at the Financial Resilience Index, though, we can see that financial preparedness for emergencies and financial literacy are the clearest problem areas.

Findings reflect growing inequality in New Zealand

New Zealand’s (and the world’s) response to the pandemic has focused on preserving jobs and boosting assets. As a result, investors and homeowners have largely benefitted from rising home values and booming markets in 2020 and 2021. Those without assets—especially renters and lower-income workers—have kept their jobs, but otherwise, they’ve largely been left behind. While wages have grown significantly, they have not kept up with rapid inflation, leaving many Kiwis poorer and less able to save or invest than they were.

This is a major problem because it makes it much more difficult for the latter group to save for retirement, purchase homes and reach other financial goals. As inflation accelerates and home prices rise, many younger Kiwis may feel that the lifestyle and retirement that they imagine for themselves is slipping out of reach. At the same time, many are finding it more difficult to access funds on short notice. This puts them in a more vulnerable position when dealing with financial emergencies compared to 2020. While wages increased significantly in 2021, the rise did not keep up with inflation, meaning that many saw a drop in their real wages.

How to boost your own financial resilience

Restoring savings to deal with emergencies is important. Spend less than you save is key to this. Getting rid of high-interest (expensive) debt should also be a priority, followed by reducing other debt (ie: housing loans). Reduced debt, especially given the prospect of rising housing loan interest rates and having an emergency fund are key to navigating any economic downturn.

Having a longer-term plan to grow investment wealth is a further step to long term financial resilience. Making the best use of KiwiSaver during years of employment is one strategy. The Government currently contributes to KiwiSavers under 65 years of age $512 a year for those that contribute $1024 a year to their accounts. That’s a 50% return, even before investment returns are added!

Building investment assets outside of KiwiSaver should also be part of any long-term plan.

It can be tricky to decide on a suitable balance between competing needs to reduce debt and grow wealth while meeting household needs—as well as getting some fun out of life along the way. Help is available, however. A suitably experienced professional financial adviser is an indispensable resource for helping you to identify the best way forward, as well as to help you develop your own financial literacy.

Working with a professional financial adviser isn’t just for wealthy investors.

People often imagine that they have no reason to work with a financial adviser because they don’t own a lot of assets or aren’t particularly wealthy. This is a common mistake and also a costly one. A financial adviser can help people in any situation avoid costly mistakes and to achieve their financial goals—whether that involves large-scale wealth management, helping you to secure a comfortable retirement, or boosting your financial resilience. It’s our business to know what to do in a difficult financial situation as well as in a good one.

If you’d like to learn more about how we can help you to secure your retirement, protect your investments, or achieve your other financial goals, reach out to us today!

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