Speech to Financial Literacy Summit

  • Simon Power
Commerce

If you were to ask me to say in a few words why financial literacy is important to me, it would be something like: "Because it contributes to the financial wellbeing of New Zealanders".

That's because it does what it says – the more financially literate we are, the better placed we are to make decisions that enhance our wellbeing. No matter who we are. That’s why summits such as this are so important.

Ladies and gentlemen, it’s my pleasure to welcome you to the Financial Literacy Summit 2011. This is an ideal opportunity to build on the progress of the summit of 2009, and it's great to see so many interested in this vital subject.

I'm speaking to you today both as the Minister of Commerce, with responsibility for the oversight of our financial markets, and in my role of less than two months as Minister of Consumer Affairs, with responsibility for helping to create an environment that promotes good and accurate information flows between suppliers and consumers.

A key theme of my address today is around co-operation in policy and thinking affecting the financial sector, including credit provision, with the overall aim being to increase the confidence that consumers – or investors – have to interact with the financial sector.

The key objective of financial literacy is to help give consumers the ability to interact well with the financial sector so they're in a position to make informed decisions. And with my dual responsibilities, I have the opportunity to promote greater co-operation in work and thinking across the financial sector, and I have identified this as a priority for the next few months.

As many of you know, over the past 2½ years I've been focused on a programme of regulatory reform in the financial sector with one thing in mind – promoting confidence in our financial markets.

When this Government came to office in December 2008 we knew that serious changes had to be made if we were to rebuild the confidence of investors which had been shattered by the collapse of finance companies and the global financial crisis.

My focus was on putting mechanisms in place to ensure financial market participants were acting with integrity and competence, to ensure that the regulator had the tools to oversee the sector, and to ensure that consumers had access to redress where issues arose – and that they also had access to information so they could make informed investment decisions.

By any measure, progress has been swift.
•We have required that debt issuers give investors tailored disclosure documents, and that companies in moratorium have to report progress to investors.
•We are implementing the financial adviser regime.
•We have improved the regulation of auditors and trustees.
•We have made KiwiSaver fund managers more accountable.
•We are making great progress on the huge review of securities law.
•And we have a new regulator, the Financial Markets Authority, up and running and already firing shots over market integrity and competence.

In short, this Government has delivered a more robust regulatory regime for financial markets with investors firmly in mind. Our capital markets are the key to improving the financial wellbeing of all New Zealanders. But remember, the Government cannot remove all risk from investment decisions.

Financial literacy – that is, the ability of consumers and investors to understand financial products and concepts, and to understand how to seek redress if things go wrong – has been an underlying principle of this reform agenda.

Financial literacy is essential because it empowers people to make informed decisions about their money that fit the circumstances of their lives. However, this is an area where we can do better – much better.

The prevalence of ‘low-ball' offers in recent months has highlighted for me that this is an area we should be focused on. For example, would certain people become involved in this type of behaviour if investors knew more about how their investments worked?

Improving co-operation and the financial literacy of investors is designed to complement our work to improve the quality and consistency of information received by investors as part of the regulatory reform programme.

Last month, at the annual awards for the Institute of Finance Professionals, I announced that ministerial responsibility for the Retirement Commission would be transferred from the Ministry of Social Development to the Ministry of Economic Development. 

The rationale behind this was simple: the functions and objectives of the Retirement Commission are a much more logical fit with the Commerce portfolio and the financial sector legislation administered by Ministry of Economic Development than with Social Development. That change will happen on 1 July, although to be honest we have already started thinking about this area, and I have held discussions on this with the Retirement Commissioner. 

I intend working with both the public and private sectors to identify further steps to enhance investor literacy and to secure it firmly as a vital part of the newly emerging framework.

The National Strategy for Financial Literacy, which has been in place for three years, has demonstrated the importance of collaboration between the public and private sector, and has led to some great programmes in the community, in schools and tertiary education, in workplaces, and in the finance sector

In that regard, the Government welcomes the opening of the Centre for Personal Financial Education by Westpac and Massey University last week. A certificate programme for personal financial educators and a 20-year study to identify why so many people struggle with their finances are great initiatives. I'm sure that with the Retirement Commissioner on the board all points of view will be well represented. We will watch results with interest.

There's no doubt that if we are to make the headway that is so essential then there must be a co-ordinated approach to financial and investment literacy. And having responsibility for the Commerce and Consumer Affairs portfolios is perfectly suited to achieving that.

My first priority is to take a careful look at the Government’s existing efforts to ensure we're getting the most out of our resources – to reduce duplication across organisations and departments so we get best value for the money.

I also want to ensure that the co-ordinated efforts are consistent with the Government's policy direction.

Currently, the Retirement Commission is the main agency working in the financial literacy space, and it's doing a very good job. But we need to do more, and I'll be working with the commissioner to explore a wider framework for the delivery of financial literacy. That's one of the reasons we have moved the commission into the Commerce portfolio.

A clear area where financial literacy and regulatory reform intersect is around the disclosure of information.

The work on financial literacy complements the progress we have made on improving quality and consistency of information received by investors as part of the regulatory reform programme – such as clearer disclosure requirements of KiwiSaver fees, and the review of securities laws looking to overhaul the requirements around disclosure for financial products.

In the KiwiSaver area, which is becoming a more and more important vehicle for mum and dad investors, we released a discussion document on the proposals at the end of last year, and I expect to report back to Cabinet on this in the next few months, with regulations drafted next year.

Though in part the Government’s next steps will be focused on improving investor literacy, I'm committed to aiming for higher levels of financial literacy across the breadth of financial decision making.

From basic decisions on budgeting, to issues of debt, savings, and ultimately investment, it is critical that New Zealanders are armed with the right skills to make informed decisions. Not only does financial literacy link clearly with the financial sector regulatory work, there are also obvious links at the consumer credit end of the spectrum. 

Addressing concerns with respect to irresponsible lending is my priority as Minister of Consumer Affairs.

It's been clear to me for some time that we must have a close look at what is happening with regard to consumer credit.

From afar, I have been aware there are gaps in the system that allow the unscrupulous to take advantage of the unwary when it comes to access to consumer finance in these tough economic times. And when that happens it's too easy for the unwary to agree to something they don’t fully understand and become trapped beyond their means.

The preying on of vulnerable people by loan sharks has to stop.

With that in mind, I am announcing today that I am to host a financial summit in Auckland in August which will bring together representatives of the financial sector and community groups.

I want this summit to achieve three things:
•I want it to report back with an action plan that has initiatives to help vulnerable people trapped in a debt spiral caused by lack of financial literacy, consumer choice, and high compounding interest rates.
•I want it to send a clear message to all financial sector providers – from the bigger and more mainstream ones to the small, third-tier ones – that they all need to practice and commit to responsible lending and responsible consumer debt management.;
•I also want the summit to decide on a clear direction about how the Government can best contribute to improving the financial literacy of all New Zealanders.

This will be an action-oriented summit. I will approach the discussions with an open mind but I'm expecting them to result in outcomes that address irresponsible lending.

The Credit Contracts and Consumer Finance Act is the primary law affecting credit provision. Essentially, it provides for disclosure of information to help credit consumers make decisions about loans.

The key question that needs to be asked is whether the Act needs to be amended to provide more protections for consumers – including from irresponsible lending – or whether the same outcomes can be obtained from voluntary industry initiatives.

There are many such organisations that are transparent and responsible and open. But there are others that aren't, and I'm signalling to that second group today that their days are numbered.

Officials are working on the details of the summit, and I expect they will be in touch over the next week or so to invite your input and to help plan the next steps, and I look forward to that. We need to make changes in the area of consumer credit – and we will.

Ladies and gentlemen, this financial literacy summit is a great initiative and I thank the Retirement Commissioner for hosting it – as well as the sponsors who are supporting it.