The financial impact of not being prepared to ‘weather life’s storms’ is the theme of this year’s Sorted Money Week, running from September 3-9.
Building an emergency savings account, assessing insurance cover and writing a will to protect loved ones are three areas the Commission for Financial Capability (CFFC) is asking New Zealanders to think about during the annual public awareness campaign, now in its seventh year.
“To be really resilient as a population we need to know that we can weather the big financial hits of an unexpected event,” says the head of the CFFC, Retirement Commissioner Diane Maxwell (below).
The first area of focus is insurance. CFFC’s research has shown that New Zealand ranks surprisingly low for insurance cover among OECD countries. We rank 35th out of 45 countries on insurance spend at 2.5% of GDP, compared to the OECD average of 8.4%. New Zealand sits well below the USA in 6th spot at 11.2%, the UK in 9th at 9.2%, and Australia in 21st at 4.9%. We are ranked similar to Argentina, Hungary and Iceland in our investment in house, vehicle, life, health and income insurance.
The CFFC’s own Financial Capability Barometer quarterly survey of 2000 New Zealanders backed up the OECD figure, finding only half of those surveyed could count on insurance to cover property loss due to theft, serious damage to their home through disaster or weather, or car crash or major breakdown.
Income protection was one of the least favoured forms of insurance, with only 15% of Kiwis taking it out, despite 42% saying their income varied ‘a bit’ or ‘a lot’.
Maxwell said the Kiwi “she’ll be right” attitude could have something to do with New Zealanders’ lackadaisical attitude toward insurance. Another could be cultural expectations that extended family and community would help in times of hardship.
“We don’t advocate everyone having every form of insurance – some costs you can absorb and your needs change over time – but insurance is there to make sure you don’t incur a big, unexpected bill you can’t pay. The risk is people are thrown into debt.”
Another area of concern was that only 59% of Kiwis aged 18-34 had car insurance, possibly because the cost for under-25s is so high. In Britain, devices placed in cars to assess safe driving have reduced many young people’s insurance premiums by up to 40%. The CFFC is challenging New Zealand insurance companies to consider a similar initiative to make it more affordable for our young people to have insurance if they’re on the road, and to drive more safely.
New Zealanders also tend to under-insure their homes. A 2016 Treasury report estimated 85% of our houses were under-insured by an average of 28%, where the insurance policy would not pay out enough to rebuild a home fully. This equates to a total market under-insurance of $185 billion – more than the $176 billion owner-occupiers currently have in mortgages.
“When something bad happens you want to be looking after your people and your wellbeing, not stressing about how much money you’re going to need to repair the damage,” says Maxwell. “Let the insurers do the heavy lifting financially while you look after the rest.”
For guidance on saving, insurance and wills, visit sorted.org.nz
What is Sorted Money Week?
Sorted’s annual Money Week this year runs from September 3-9. Money Week is an annual, national campaign, now in its seventh year, run by the Commission for Financial Capability to encourage New Zealanders to think about where they’re at with their money, and get sorted if need be.
For more info visit moneyweek.org.nz