This article was published on 24 September 2011. Some information may be out of date.

Harsh words worth listening to

I’ve been hesitant to write about a recent speech by Paul Mersi in which he told off New Zealanders for their attitudes to money.

After all, a convincing speaker at another recent function told of the power of appealing to people’s aspirations rather than telling them what they do wrong financially, and how well that has worked in his country.

In the end, though, I think we also need to listen to Mersi — a director, consultant and colleague of mine on the Savings Working Group.

The term “financial literacy” should be replaced with “financial ignorance”, he told a Workplace Savings NZ forum. “Many investors refuse to take responsibility for their own actions. They see the government as Them. They don’t know where the government money is coming from, but They will provide. “

He added that people don’t understand risk. “Someone earns a lot playing professional sport and says, ‘I’ll put it in a speculative property deal’…. They put all their investments in one asset, and say, ‘The government will always bail me out.’ All the money lost in the finance companies was because individuals made stupid decisions.”

There’s hyperbole here, of course. For one thing, many property and finance company investors are not being bailed out. But there’s still a worry that New Zealanders don’t always appreciate financial risks.

And with all the great changes on the financial scene — the birth of the Financial Markets Authority (FMA), the registration and licensing of financial advisers and others, the signing up of a wide range of financial businesses to disputes resolution schemes — comes the concern that we will think we no longer need to watch where we invest. Nanny State will look after us.

The FMA states clearly that its role “is not to direct investors’ capital or remove risk from investing. No regulator can prevent all loss.” Listen up, folks!

Mersi also had some sharp words about KiwiSaver. “People are moaning about trust being broken because of the constantly changing rules. This is a free gift for goodness sake.

“Let’s say one butcher offers free saveloys and the other doesn’t. After a while the first one offers only half as many saveloys. It’s still a good deal. KiwiSaver is still somebody else’s money for nothing.” Good point.

The news media “are not helping” with financial literacy, says Mersi. “They report the Telecom share price changed by a cent. That’s only in relation to yesterday. Only frequent traders care about that. For most New Zealanders, it’s irrelevant.

“Where’s the stuff teaching people about big trends? There’s something wrong if people are checking their KiwiSaver balances every day.”

Again, this is hyperbole. Some of us do write about the bigger picture. But there is too much emphasis on the short term.

Long-term investors would do well to listen to Warren Buffett — one of the world’s richest people through share investing. His advice: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

FOLLOW-UP

In response to my recent column about the victims of loan sharks, a reader writes:

“in my job as a budget advisor in Wellington, my colleagues and I meet these situations every day. It is very difficult offering suggestions as to how to deal with their weekly shortfalls.

“Practically every person I meet in debt wants a job, which would solve most of their financial problems. This is where the rich could help. Provide jobs, meaningful ones, that contribute to society so people can short-circuit loan sharks and the benefit system, all of which demotivate and disempower people. I do not see the political will or programmes to create more employment.”

The challenge is there.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.