Detailed knowledge findings for 2006

Asked what a person needs to think about to work out how much to save for retirement, 80% mentioned lifestyle and the amount of spending required in retirement; almost half mentioned their current situation and their ability to save right now; 40% mentioned the income they will have when they retire; 10% mentioned life expectancy as a key factor.

  • This was an area of knowledge particularly challenging for people with household incomes of $20,000 or less. For people in this group New Zealand Superannuation (NZ Super) replaces current income in retirement.
  • Most, 83%, knew that NZ Super is paid at 65 but a third thought that it is income-tested and a quarter did not know. Nearly 30% thought it is asset tested and 25% did not know.
  • Knowledge of NZ Super increased with age; those over 50 were more likely to know the actual level of NZ Super ($13,302 after tax for a single person living alone) and the fact that NZ Super is not affected by personal income or assets.

Debt and interest

Consolidation of debt was a relatively weak area of financial knowledge; fewer than half identified grouping of debts together in one low interest loan as a good way to pay off debt.
Compound interest was less well understood. When presented with two scenarios, just over a third were able to identify that one saver (who saved a smaller amount than the other but over a longer period) had more money.

A fifth, 20%, of mortgage holders could not give the correct answer as to when it is best to have a fixed rate home loan.

Mortgages

  • A quarter of people with mortgages did not appreciate that making fortnightly rather than monthly payments would be the better payment option for reducing interest paid.
  • 24% of mortgage holders did not know the meaning of the term 'equity'.
  • A fifth, 20%, of mortgage holders could not give the correct answer as to when it is best to have a fixed rate home loan.
  • Asked to choose from a range of options as to the best way to finance an investment property, half of people with mortgages did not choose the cheapest option of borrowing against an existing property.