How can financial know-how improve our wellbeing?

This episode of Money and You looks at how financial education (what we've called "know-how") can improve our overall wellbeing.   

We spoke to two people who know a thing or two about this topic:  

• Tom Hartmann, Personal Finance Lead at Te Ara Ahunga Ora Retirement Commission

• Kate Reddington, Sorted Website Lead at Te Ara Ahunga Ora Retirement Commission

Watch the YouTube video or read the conversation below. 

Important note: This episode was filmed during Level 4 lockdown in August 2021. 

Welcome to Money and You. With me today, we've got Kate Reddington and Tom Hartmann from the Sorted team. Welcome, guys. Thanks for joining me. 

Kate: Kia ora. Thanks for having us. 

Tom: Kia ora. 

Some people might know what Sorted is all about, and some people might have never heard of it. So if you could give a bit of an intro to what Sorted is, and the work that you do there. 

Tom: So I've had the privilege of working on Sorted for close to 10 years now. It's New Zealand's free money guide. A lot of people don't know this, but Sorted is put out by the Office of the Retirement Commissioner, and it's for everyone. And it's not trying to sell you anything. It has a lot of really good information, so that people can lift their money skills, make informed decisions about things like debt and KiwiSaver and mortgages.

My role really has a lot to do with creating the guides, the blogs, and the tools – all the information that goes up there on a regular basis to in order to inform people. 

Kate: Yeah, thanks, Tom. Kia ora, my name is Kate and I am the Sorted website lead. We work really closely with Tom, who is our Personal Finance Lead, our go-to and kind of knowledge base.

I’d just reiterate what he said – Sorted is a great place to get trusted, independent advice, and to motivate you to improve your financial wellbeing, which is a really important part of wellbeing that I think some people sometimes don't necessarily consider. 

But it's great to be here. Thanks for having us.  

Kate, you mentioned financial wellbeing, and that's something that Money and You is all about. We're trying to help improve Kiwis’ financial wellbeing and financial confidence. 

We talk about all these different terms: financial know-how, financial literacy, financial wellbeing, what are we actually talking about? Are they all the same thing?  

Tom: I was really glad that Kate mentioned financial wellbeing because that's essentially what we're after. But in order to get there, we need financial capability. And what we're talking about there is just basically the ability to manage money well. 

It's complex. There's a lot behind it in terms of behaviours, attitudes, things that we've been brought up with. But essentially, what we're after, and when we're talking about financial wellbeing is that we're able to meet all our present commitments right now. And then also have resilience for the future so we also are in a good place to meet those future commitments. 

Kate: Yeah, absolutely. And it's been really interesting, even in my relatively short time at the Commission compared to Tom. I have been here for about four years and it's been interesting to see the transition from financial literacy as being the end goal of financial capability, which I think is, as Tom said, a bit more behavior and attitudes based in addition to that knowledge, to this concept of financial wellbeing, which is really all of it together.

So the knowledge and skills and understanding but also the attitudes and behaviours really support financial wellbeing as well. So it's been a really interesting evolution. I think there's been lots of incredible people doing a lot of research in this space that have sort of built this more holistic view. 

Tom: So there's this huge gap between knowing the right thing to do and actually doing the right thing, right? And the whole game is sort of to bridge that so you can start with information. But you really have to get to a place where you're actually doing something different. And that doing something different gets you that better result, which gets you towards that wellbeing that we talked about.

You know, if we had a magic wand, everybody would have financial wellbeing. But we don't, so we try to lift financial capability and then wellbeing will come out of that. 

So it's not about having a lot of money, necessarily, it's about having those tools and the knowledge to manage it better. Is that what you would say?

Kate: Absolutely. And I think as well, what's really important is thinking about what that means to you. The financial wellbeing aspect, it's very different for different people. And you're absolutely right, it is not dictated by how much money you have, but more how you manage it, as Tom was saying, and how you're on top of your current lifestyle, and your resilience for the future. 

So all of those things I mentioned before tie into it, but it's definitely not connected necessarily to how much you have. It's a lot about meeting your needs comfortably. And people are in very, very different situations, depending on their households, and what their commitments are, and how many dependents they have, and all this sort of thing.

So it's definitely not about everybody being rich, but about being able to meet everyone's needs comfortably, whether it's for you personally, or it's for your whānau, your extended family. You know, everybody has different situations that they need to accommodate and provide for. 

I guess there is probably a broad spectrum of how we're tracking in terms of our financial capability or wellbeing. What have you found in terms of how we're faring in that space? Are Kiwis good at managing their money? Do we have a high level of financial wellbeing, or do we need to improve it? 

Tom: We know that there's a lot of work to be done in financial wellbeing but in terms of our capability, we actually score pretty well on some things. And we could score a lot better on other things. 

So for example, day-to-day budgeting, tracking our expenses, and not using debt so much, we actually do pretty well comparatively – even internationally. Where we get ourselves into trouble is more that long-term thinking. Well, what we find more challenging, I should say, is more that long-term thinking and actually understanding financial products and comparing them, telling them apart, making sure we're selecting the right ones for our needs. That's where it gets complicated. 

Kate: From some recent research, what I found really interesting and really encouraging as well was just the different strengths of different kind of groups in New Zealand and that we all have different things that we're really good at. I think where we can kind of share that knowledge, I think will really make some headway. 

We've been in and out of lockdowns now for 18 months or so. And research that we've done at the FSC has shown that COVID and these lockdowns have had an impact on Kiwis’ wellbeing overall and also on our financial wellbeing. Is that something that you've also noticed over the last 18 months or so? 

Kate: It's definitely impacted different groups in different ways. And so we've definitely seen that it's sort of almost enhanced the inequalities, I think. So for people that have suffered a loss of income or a change in circumstances, they've been hit really hard, and it's had a big impact on their finances.

Whereas on the other hand, for some people lockdown’s been really positive for their financial behaviours, because obviously, in lockdown, you can't really spend your money. So that's really allowed some people to work on their savings and build their emergency funds, which has been really positive. 

So it's definitely impacted different people differently, but for a lot of people, it has been really tough. 

Tom: For so many people that experience of lockdown is horrible in the sense financially that you can't earn an income the way you're used to earning it. But one of the things I really like about lockdown is, as Kate mentioned, is it sort of is an opportunity to hack your finances because all of us were so habitual that lockdown has come along and interrupted that. And so it's an opportunity to ask ourselves: well, okay, what do I want to continue? What don't I want to continue? What can I do differently?

And it turns out that a lot more is up to us. And actually, it seems, and when we're in that routine, that frenetic pace of life, there's not really that opportunity to really take stock or take a moment and make some key decisions like that on what to do and what to continue and what to not continue. 

You're both in the business of helping to educate New Zealanders and help grow their financial capability and their wellbeing. What do you do to improve your own financial wellbeing and financial capability?  

Kate: I equally love and hate this question, because it's a little bit embarrassing, but also, I think it's quite relatable in that when I started at the Commission as a learning designer, my financial capability... I wouldn't say it was that good!

Money hadn't been something I'd really spent a lot of time or energy thinking about. So I've gone on this learning journey whilst supporting other people on this, which has been a pretty incredible experience, actually, and if I think about some of the things that have really helped me in that journey, honestly, it has changed my life. 

So when I started, there were three things that were sort of the core things that really changed my life. One of them was tracking my spending, and seeing exactly what I was spending my money on. That was a real eye opener. 

The second thing was sitting down and thinking what's really important to me, and it sounds easy, and maybe a little bit silly, but understanding that really allowed me to understand what I wanted to spend my money on, which therefore made it easier to identify what I didn't want to be spending my money on. And that in itself was such a game changer. 

The third thing, I would say, was having an emergency fund. That was something that I had no idea about the concept of, which for a lot of people listening might think that's really silly, but actually, it's more common than you might think. And just that process of building that safety net. And look, it did take me a while, but just chipping away at it, automatic payments over time. 

Over a couple of years, I've built this little emergency fund that I know is there. So if something does happen if I have like emergency car repairs needed or a dentist appointment, I know that I can cover that without using my credit card or going into debt.

I didn't realise how much finances were stressing me out until I had that emergency fund in place. I just had no idea and having that emergency fund in place, it’s like a safety blanket. It's a security. Knowing that, you know, you've got your expenses covered. And when emergency happens, you're okay and yeah, that's been a big change for me. 

Thanks so much for sharing. In relation to that emergency fund that you mentioned, that's something that some people watching or listening might have heard before, but weren't quite sure of what it meant. And essentially, it's a fund that you have for an emergency, right? Some people might call it a rainy day fund, or something similar. So that when your car breaks down or something happens, it's there for you. 

There are different perspectives on how much you actually need in that fund. Is there a perspective at Sorted as to how much you should have in an emergency fund to feel secure?  

Kate: Yes, but the answer is, it absolutely depends on you and your situation.

We generally recommend starting off aiming for $1,000. If you don't have a car, or you don't tend to have too many emergencies (which I mean, lucky you!) then maybe you can start with $500, or something along those lines. But that first $1,000 I think is a really great place to start. And then from there, how you build it is up to you. You might want to sort of slow down a little bit if you've got other priorities. But getting to that $500 or $1,000 first I think is a really great start. And then just keep building it.  

A lot of people talk about having three months of expenses, and that's a great goal. But that’s not going to happen overnight. I mean, neither does $1,000. But yeah, I think chipping away at it regularly. And whatever makes sense for you whether that's $5 a week, $50 a week, whatever works for you on your budget. Yeah, I guess that's the long answer. But the short answer is, whatever is right for you, in your situation. 

Tom: Just to add to that, if you work backwards from the risk you're trying to cover as Kate mentioned, for example, a car repair. Well, if you don't have a car, you might not need that much. But lots of times when we think about having three months’ worth of expenses set aside, it might frighten you off at first if you're just getting started.  

But the idea there is if you're out of work, if you go through a redundancy or something like that, if you couldn't work for three months, or even you know, some people are self employed and might need more like six months or something like that. If their income is interrupted that’s the goal of that. Some people might not need that if they have income protection insurance or something like that. So it really depends on what you have in order to cover those risks. 

Tom, what strategies have you used to improve your financial wellbeing and perhaps the wellbeing of your whānau and people around you? 

Tom: This has definitely been a learning journey for me as well. I mean, my background’s in journalism, and then I worked in the mortgage industry. So I understood finance a little bit, and this and working on Sorted brings those two things together.  

But I can't say that I was a genius with money. In fact, I got myself into a lot of trouble overseas by managing our household on credit on two gold cards from American Express. You know, it wasn't the best way of doing things.

I was someone who had made a lot of money, but then spent a lot of money, made a lot of money and spent a lot of money and that sort of flatlines over time, you really never get anywhere.  

I am someone who needs to be as automated as possible. That's why systems like KiwiSaver, systems like automatic payments, they work really well for me.

Probably the most fundamental thing that's made the most difference is that idea of paying yourself first. This is a way to save and if you're not familiar with it, it's basically when you earn money when you get paid, instead of paying everyone else first – all the bills you have in your life and all that – and then hoping to save whatever's left over (because usually what happens is there's not enough left over) is you actually funnel money towards your goals.  

This has been really helpful to me to hack our finances to get the results out of it that we want in order to hit our goals. So I think that's been probably the most fundamental thing.  

Now in the past year or so I've been trying to focus on what savings is most meaningful to us, you know what savings makes the most difference. So, for example, if you find a bargain or something like that, you're saving money, that doesn't really make that much of a difference, especially in the long term. If you're saving for your next holiday, that's good, because you're not putting yourself in debt. But over the long term that really doesn't do it. So what part of our savings is really going to increase our net worth over time?

We've been calling that meaningful savings. You know, that's been really good. And that's really what all of getting sorted and all of personal finance is about. If you can pinpoint those meaningful savings, that's really driving your position upward, what we want is growth. And the higher that is, you know, the better position you're going to get in quicker. 

What are your tips for the Kiwis out there that are wanting to make some small little changes that will alleviate the stress a little bit? 

Tom: Again, to me, this is a great opportunity for us to hack our financial lives.

One thing, if you ever want to see how habitual you are, is download the last three months of bank statements and just look at exactly how you've spent your money. You'll see yourself going back to the same places pretty much. I mean, maybe I'm more habitual than other people who are more creative and do lots of new things! But I find that you know, you end up going back to the same store, the same cafe and so on. You can easily see what your behaviours are, what you've been doing up to now, and it's really easy, actually, while everything's interrupted to just say, oh, yeah, you know what, I think I'll do something different, or just make some adjustments, here and there.  

And the other thing I recommend, if you have some extra time on your hands, because lots of the activities are on pause at the moment, is you could look into what your KiwiSaver settings are like, what your investment settings are like, and also look to do a lot of those things that maybe we with the pace of life don't have time to do. Like, are you paying too much in fees? 

We've got this great calculator on Sorted that actually shows you estimates until you reach 65 of how much you're going to pay in fees, you know, and that's tens of thousands of dollars behind the scenes. If you just take a look and run some of your numbers also for the long term, like whether you're on track for things like retirement starting earlier, you can make those little adjustments and just see what you're on track to achieve. And then if you need to make adjustments you have the time to do that. It's actually a lot easier than leaving it to the last minute. So those are a couple things that come to mind. 

Kate: Yeah, definitely. Great suggestions, I would support those for sure as well.  

One place that could be a good place to start if you have a bit of capacity, mentally and emotionally – and if you don't, that's absolutely fine – but on the Sorted website, we have this wonderful section called six steps to get sorted. And what it does is it just gives you a really good overview step by step of things to kind of get on top of to put you in a really good position moving forward. And I think for a lot of people they'll be able to go so and check the boxes and feel really confident about the direction that they're heading. Some people will recognise there's some things that they need to work on.

It's this really straightforward checklist type thing that support to get your emergency fund started, get on top of your KiwiSaver settings, tackle your debt. And there's just six steps that really support people building their confidence with their money. 

And the other thing I would also say is that there's some good help on Sorted. On our main page on the carousel, we've got some helpful articles about where to go if you need a bit of extra support. So there's the COVID-19 government site with a bit of a tool that shows you what you might be eligible for. 

Finally, I would also recommend the great people at MoneyTalks. MoneyTalks is a free helpline ran by FinCap and they have financial mentors on call who can help you and support you with any money concerns you might have. And they provide an excellent service. And we're really lucky to have them actually.  

So I guess that those would be my sort of three things to leave people with. 

Thanks so much for all those tips and resources. Hopefully people watching or listening to this will find something to help them and even if it's just doing one of those things, it can make such a huge difference. So I really appreciate you sharing all that with us today. Thanks for joining me again.  

Kate: Thank you so much for having us here. It's been it's been great to be with you. 

Interested in some of the resources mentioned above? 

• NZ Government Covid-19 Financial Support 
• MoneyTalks website (or call 0800 345 123)
• FinCap website
• 6 Steps to Get Your Money Sorted
• KiwiSaver Fees Calculator

Want to improve your financial know-how and wellbeing?  

• Take a look at our list of personal finance resources for Kiwis 

• Find out how to get help with your finances