A source of money smarts and it’s just down the road

Banks could be the go-to guys for financial advice but their customers need to demand it – loudly.

There has been much discussion recently about why some people on significantly higher than average incomes find it hard to save.

At the other end of the spectrum are those on low incomes who are drowning in a sea of high-interest, short-term debt with ever-increasing repayments that keep them trapped in poverty.

It seems that financial management skills are lacking across all socio-economic groups. Only in the past decade has financial literacy been part of the school curriculum and even now it is not compulsory for schools to teach it.

Most people want to be able to save, or at the very least keep out of short-term debt, but not everybody has learned how to do so.

There are stories in the media of clever people who have paid off their mortgage in five years, fought their way back from massive credit card debt, or spent an entire year living by bartering in order to save money.

However, such people are a small minority. Becoming good at financial management is a bit like training to become a good athlete; while you know the basics of what needs to be done, it certainly helps to have a good coach to show you the formula for success and to keep you on track.

How do you find such a person? You could ask a friend or family member, but most people don’t like discussing their financial situation with people they know and, anyway, how likely would it be that a friend or family member is any better at financial management than you?

You could attend a ‘‘get rich quick’’ seminar, but most probably the only person who will get rich is the presenter you pay a big fee to.

You could ask a financial adviser, but there are very few financial advisers who offer services in the area of financial management. They will advise you on your insurance or investment needs but shy away from helping you with managing income and expenses because the cost of providing such advice can easily outweigh what people are willing or able to pay.

There is one institution that should be able to help: your bank.

The keys to managing your money successfully include:

having clear goals of how you want your money to work for you;

setting up your bank accounts in a way that channels income between savings and different categories of spending;

monitoring your spending against a budget you have set;

borrowing money at the least possible cost and repaying debt as quickly as possible;

The less efficiently you manage your money, the more profit the bank makes.

borrowing only what you can truly afford to repay; and

ensuring you have adequate risk protection and an emergency fund.

Your bank is in a prime position to help you achieve all of these things.

There are three key reasons why banks don’t do this.

Firstly, it can be argued that the less efficiently you manage your money, the more profit the bank makes.

From the bank’s point of view, the more money they can lend you, up to your maximum borrowing capacity, the higher their profit should be.

That’s why, if you are a good credit risk, they will offer to increase your credit card limit or lend you more money.

Secondly, they really don’t want the cost of employing staff to provide this kind of advice because the expense eats into their profit.

Thirdly, and most importantly, their customers don’t demand this kind of help.

Although customers might ask for help, it is not easy to find a staff member who can provide sound, ongoing personalised advice on financial management. The requests for help need to be made much more loudly.

Some banks make a bit of an effort by producing reference guides on their website and offering an array of different kinds of accounts.

Kiwibank stands out from the rest in that regard. However, what most people need is easy and inexpensive access to an expert who can help them come up with a personalised plan.

The Commission for Financial Capability has developed a National Strategy for Financial Capability with the stated aim that all New Zealanders have a current financial plan to support their life goals and are prepared for the unexpected through having insurance and emergency funds.

Let’s demand that banks put their customers first and take a leading role in achieving that aim.

Liz Koh is an authorised financial adviser and author of Your Money Personality: Unlock the Secret to a Rich and Happy Life, Awa Press. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.