Over the last 40 years or so, two trends have come together to make financial capability and literacy more important.
These changes are such that people now need to know much more about finance and have good skills to manage their money. In my view, they make it important that financial literacy is taught in schools.
The first of these changes has been the growing trend toward people becoming independent contractors.
I read recently that in the US it is thought that by 2020, 40 per cent of workers will be freelance. I cannot find the number here in New Zealand, but it is likely to be both big and growing. In my experience, there has been a strong trend towards people becoming independent contractors over the last few decades.
These independent contractors doing freelance work are effectively running small businesses.
As such, they have all the concerns of any small business from marketing through to financial management. For many of them, income is not regular and predictable as it is for employees – many freelancers will tell you that they are never too sure where their next job will come from.
Freelancers with their lumpy, irregular and uncertain incomes find it very difficult to manage cash flow and to have consistent savings plans.
The second trend is the demise of defined benefit superannuation schemes. These schemes gave an agreed amount of income to the superannuitant (say, 60% of finishing salary). If you paid into it, you knew you were set for life as you would have a good income until the day you died. Defined benefit schemes meant that you did not need to worry about building a nest egg or, when the time came, investing that nest egg for retirement income.
To a much larger extent, people are now on their own with little help or support: their futures are completely in their own hands.
Forty years ago, fewer people needed to worry about things like investment, the impact of interest rates, market trends, global economics or any of the other bothersome things we have to think about. Today, pretty much everyone has to worry about these things – along with a good few more.
That makes financial capability important. We are now left to our own financial devices and those devices had better be good.
There is now a very good case for financial literacy to be taught in schools. No-one escapes the need to know about money and it does, therefore, need to be taught from an early age in a systemic way which catches the total population. That means schools.
I know that the curriculum is full and that the development and implementation of a financial literacy programme would be expensive. Nevertheless, it is clear that this is something that we all need and no-one should be left out. As for the price: what cost for doing nothing?
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.