We had an excellent first day of the inaugural Building Financially Capable Communities conference in Auckland. Then Day 2 topped it! Friday’s interesting information left me feeling like my brain might explode.
… the best possible way 🙂
Warning #1: this article is full of my opinions, which formed from the conference content. I haven’t validated them. If there are errors, feel free to let me know 🙂
Warning #2: Most of the academic papers listed co-authors, and they’ll all be delighted to know their co-authors acknowledged them. I’ve mentioned the presenter only.
This was the day the organisers rolled out the big guns, so let’s cover that before we leap into the research:
Reserve Bank Governor’s Address
We heard from Adrian Orr, the Governor of the Reserve Bank of New Zealand (RBNZ). Adrian’s frank and wide-ranging commentary was full of great info, as well as his wry humour.
Items that stood out for me were:
RBNZ considers access to cash a human right.
There will be less cash, but not a cashless society. Fascinating, given going cashless means easier inflation control through monetary policy.
Side note #1: This sense of fairness seems to flow through New Zealand culture. They tend to take decisions with whole-of-community wellbeing in mind.
The Culture and Conduct Survey indicates they don’t need to replicate the Australian Banking Royal Commission.
This was a self-reporting process. The banks submitted their statements with evidence for why they think they’re treating customers fairly. It wasn’t an independent third-party audit.
Something like 40% of people attending FinCap carry bank debt and are in financial distress. So, saying it’s all fine sounds like a big call.
Side note #2: I got the impression much NZ government, education and business interaction in this space is collegiate and friendly. It rang warning bells for me, through the lens of robust corporate governance. I’ll cover it more on my Day 3 wrap-up.
Adrian’s candidness around not knowing why culture and conduct seemed to be robust was impressive. Can’t wait to hear what they find as they delve deeper.
The Insurance findings were another matter.
There were examples of customers being sold insurance:
- for which they could only ever be ineligible,
- for which the cost of the premiums outweighed any possible benefit,
- after receiving false information, and
- when the insurer excluded relevant information to get credit approvals through.
Insurers also only fixed identified issues for customers that complained. Everyone who didn’t complain had no changes made.
I’ve said it before, I’ll say it again. Commissions create inherent conflict of interest potential. So, no surprises there.
RBNZ has a bank dashboard.
Adrian is eager to spread the word, so here’s the link. It’s elegant and intuitive to use. It covers bank governance metrics, so it’s a great resource if you’re deciding which bank’s shares to buy (if any).
…but it’s not what I expected.
I was hoping for customer-centric metrics. If you’re a customer who want to know which banks:
- offer the best interest rates,
- have the best complaint resolution outcomes, or
- take an ethical stance in their investments and loans (e.g. not lending to fossil fuels)
You get what you measure
Of all the presentations across the three days, my favourite was Dr Dee Warmath’s keynote, ‘The Role of Hope in Financial Well-Being’. Dr Warmath is from the University of Georgia.
There’s too much great stuff to condense into this blog so you seek out the full report. The bit that most captured my attention was how she measured of financial literacy. The model she and her co-authors developed was the most useful model I’ve seen used in this area.
Dr Warmath’s pointed out that too often we talk about financial literacy in relation to technical theory. This plays out like this:
Can you correctly tell me whether a diversified investment portfolio is more or less risky than a concentrated one?
No?
Well, you’re not very financially literate then.
Total bollocks.
She explained this was like saying you can’t read English if you don’t what a past participle is. I don’t know what a past participle is – I had to Google it. Turns out I use past participles a lot, including several times in this article. I just didn’t know the term.
We need to stop measuring someone’s financial literacy in one dimension only.
Side note #3: that risk portfolio question sucks. Warren Buffett would say ignorance is the greatest risk. He built his wealth through targeted, narrow investment. Would you say he’s financially illiterate? There’s more than one way to skin almost every cat in personal finance.
Dr Warmath and her team looked to Bloom’s Taxonomy for a more holistic measure of financial literacy. In the context of the prior day’s paper on self-efficacy, this made perfect sense to me:
Game changer!
A Global Financial Consumer Protection Crisis?
Professor Dennis Philip’s keynote on financial consumer protection was part eye-opening, part terrifying. Prof Philip is from Durham University.
His research quantifies the cost of data breaches to big business and investigates how good we are at detecting fraud. It was fascinating. One finding was that financial knowledge was more important than financial behaviour if you want to detect when you’re targeted for fraud.
Prof Philip explained the limitations of the data included being unable to tell when someone detected false positives. For example, they thought they were being targeted when they weren’t. I had two thoughts:
Are there people who haven’t been targeted?
Given I get phishing scams several times a week in my junk inbox, I’m amazed anyone with an email address hasn’t. Surely they’ve been on the receiving end of at least one fraud attempt in the preceding five years? It seems so prolific in my world. I guess I’d assumed we all got it. Must be all the time I spend with the cyber security folks in WiTWA that’s made me hyper-aware of it.
Erring on the side of caution
The heightened intolerance for anything unsolicited has affected my business and volunteer work.
In August I had to call and text several WiTWA Award nominees. I could not get through via email to inform them of their nomination. Leaving aside the brutal fact that these women reported that they’d immediately assumed it couldn’t be them as they weren’t award worthy (they are definitely worthy): it was a sign of the times for me.
Still, better they report than give a scammer their banking password, so I’ll live with it …like I have a choice, right?
I also learned two terrifying facts:
- ‘Nomophobia’ is a thing. It’s the short form of ‘No Mobile Phone Phobia’. I’m going to start going out without my mobile to build up my tolerance.
- Quantum computing could mean death to passwords. A calculation that would take the world’s fastest supercomputer 10,000 years to complete can be done in 3.2 minutes on a quantum computer. Password hacking could be 958 million times faster. I think I’ll turn two-factor authentication on for everything I have right now…
Tax is cool
We had three speakers on the topic of tax. All were delighted to find an audience willing to listen to them. Guess they’re used to tougher crowds.
Professor Bernadene de Clercq of the University of South Africa is curious whether there are tax principles that transcend country borders. Great topic. I’d hypothesise you could sum it up as:
- Taxes are intended for public good. Consider it your contribution to society.
- Taxes are inevitable. Aim to legally minimise it, but don’t try to avoid entirely as that’s likely to land you in trouble.
Professor Andy Lymer of the University of Birmingham discovered that when you take a student who’s earned decent money from working, then teach them about how tax works, they’re more willing to avoid taxes than if they haven’t worked before.
All I could think on this was: I wonder how much the current political climate has to do with this outcome?
I’d be curious to see country stats where apathy for government’s use of funds varies. For example: in Australia, distrust in our politicians is a unifying theme. In New Zealand, they have Jacinda Ardern (‘nuff said).
Dr Toni Chardon of the University of Southern Queensland ignited hope for future generations of accountants. She’s using exam question examples that encourage students to consider context, not just maths. For example, take a question examining whether it was financially better for an employee to salary sacrifice a lease vehicle. After the technical calcs, the question prompted thought around whether the employee really needed a new car. Would she have been better off financially overall exploring other options?
Yay!
Side note #4: there was a message of tax literacy being a separate thing from financial literacy. I don’t get this. In my mind, tax is part of personal finance. We pay it from our wages (as income tax) and our pockets (as taxes on goods and services). Teaching tax professionals is one thing, but teaching everyone about tax should be part of personal finance education. Seems a no-brainer to me?
The cost of owning a vagina
I’m aware that this a controversial issue to some people. It’s not to me, as you might have guessed.
The data is clear-cut. I think anyone questioning it has too much time on their hands and not enough self-awareness to recognise their biases.
If you don’t believe there’s a gender pay or retirement gap, or you believe this is due to inherent qualities of women: this is your cue to leave.
Still with me? Great.
The afternoon explored three aspects of gender impacts in personal finance:
This tells us that in high income countries, you’re more likely to be self-employed if you’re male than if you’re female. Prof Preston investigated whether this might correlate to financial literacy. Her investigation drew on the rich data of the Household, Income and Labour Dynamics in Australia (HILDA) Survey. She found:
- When financial literacy was treated as exogenous (i.e. has an external cause), it explained 1.3% more of the gender gap than just base specs (like demographics, field of study and wealth effects).
- When financial literacy was treated as endogenous (i.e. has an internal cause), it explained 30.7% more of the gap than just those base specs.
So, looks like financial literacy goes at least some of the way to explaining the self-employment gender gap.
PhD candidate Elizabeth Mitchell of Melbourne Polytechnic and Griffith University also drew on HILDA to investigate the impact of divorce or separation on women’s financial wellbeing. It will likely not surprise you to learn that it does have an impact. The effect can be felt up to eight years after the split.
The saddest chart was this one:
It shows that in the four years post split, access to Centrelink support goes down. At the same time, disposable cash drops. So, the women have less access to cash, and they can’t get government support. That’s ridiculous. Still, I’m not surprised.
Dr Tracey West of Griffith University talked about the impact of financial socialisation by gender. This is how much you talk about money. My key takeaway was this:
If you own a vagina (i.e. you’re a woman) and you have vagina-owning offspring (i.e. you have a daughter): what you say about money has significant impact.
So, fellow vagina-owning parents:
- No more saying ‘I’m not good with money.’
- No more saying ‘I’m not good at maths.’
- No more saying ‘I leave the money stuff to [insert partner’s name/role].’
…especially if your daughter is around. It’s not helping them.
Day Two was wonderful. But there was still one more day to go – the practitioner’s day, where we explored what’s happening in the field. Stay tuned!
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Lacey Filipich is the co-founder and director of Money School. She helps parents raise financially savvy kids and helps adults get on top of their finances. Connect with her on LinkedIn and follow the Money School Facebook page to learn more.