David Chaplin has done a fine job of exposing the fragile concept of financial literacy. Check out his column over at the New Zealand Herald. While David cheerfully makes fun there is a serious point underlying the humour: financial literacy is something everyone can support so long as no one actually defines it. The challenge is that all is not as it seems.
Financial literacy is most often talked about in connection with these 'good things:'
- Saving more generally
- Increasing KiwiSaver contribution levels specifically
- Reducing debt generally
- Reducing 'bad' debt, such as credit cards
- Buying a home
- Avoiding scams
- Investing wisely
The problem is that these generalisations cannot apply uniformly. Even something as simple as 'save more' isn't actually applicable to everyone. When my children are contemplating further education their new debt position will rise. Any decent financial adviser can think of several common situations in which saving is the wrong answer - not just a little wrong, a lot wrong in terms of maximising long-term financial well-being.
KiwiSaver was David's example, but given the overwhelming weight of debate on the side of increasing contributions it seems only fair to mention situations in which mandatory increases in contributions will cause harm such as: reducing the disposable income of the poor - who should spend more on essentials such as a better diet and education, locking up capital in a form that cannot be accessed to start one's own business - reducing entrepreneurship, taking money away from repaying all that bad debt journos keep banging on about...
Buying a home isn't a one way bet either. The more you read, the more confused a new buyer might become. Are house prices overvalued (should I therefore rent while I can save) or is home ownership such a key to a happy retirement that I should obtain a property at any cost? Once again, the examples could be extended.
Financial advisers should see their opportunity here. Financial literacy, when limited to general concepts and sufficient skills to make good financial decisions is fine. One size-fits-all prescriptions extended to the point of prejudice are unhelpful in the extreme. As Chaplin pointed out, they can end up sounding eerily like financial scams.
On the other side of a hill of cheap generalisations is personalised financial advice. The law says you can only get that from a financial adviser.