The extent to which financial behaviour can explain over-indebtedness amongst New Zealand families
6. Conclusions
Multivariate analysis of data from the Ministry of Social Development’s Survey of Living Standards 2004 has shown that financial behaviour does affect the likelihood of being over-indebted, other things being equal. The financial behaviour in question is that families live from one pay to the next all or most of the time and do not regularly save a portion of their income or save for goals all or most of the time.
Given this finding, a sensible policy response is to ensure families are aware of the wider benefits of saving or the opportunity costs of impulsive spending. To go beyond this, more information about how families acquire and apply their financial knowledge is needed.
The finding in this study, however, should be further tested for robustness. Results from the 2009 Knowledge Survey provide an immediate opportunity for doing this. A number of issues with the underlying LSS 2004 data were identified that could be examined further. There is also a considerable amount of additional information in this dataset that may shed light on the origins or differences in financial behaviour between families. Although the survey data are becoming dated, they are still relevant in exploring relationships between variables.
The following diagram summarises what this research has found, and the questions that remain. The diagram shows that 25 percent (1,177) of all families sampled experienced some form of financial strain in the previous 12 months. Most of those families (1,029) were using mainstream credit and around two-thirds (752) were in a negative equity situation at the time of interview.
By contrast, less than half of the 75 percent (3,477) of families who experienced no financial strain were using mainstream credit (2,211) and just over one-fifth (795) were in a negative equity situation.
Irrespective of how the outcome group of families is defined, the diagram shows that the marginal effect of behaviour is still strong. The effects of ethnicity or culture, the early learning environment and financial literacy on behaviour are worth exploring further.
| Problem debt definition 1 | Problem debt definition 2 | Problem debt definition 3 | |
| All families 4,654 100% of EFUs |
Families using mainstream credit 3,240 70% of EFUs |
Families in negative equity (ie owe more than own) 1,547 33% of EFUs |
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| Financial strain | 1,177 25% of EFUs |
1,029 22% of EFUs 32% of families using credit 87% of families in strain |
752 16% of EFUs 49% of families using credit 64% of families in strain |
| No financial strain | 3,477 75% of EFUs |
2,211 47% of EFUs 68% of families using credit 64% of families in strain |
795 17% of EFUs 51% of families using credit 23% of families in strain |
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| Marginal effect of behaviour | 23% | 20% | 21% |
| Further effects to explore: what effects behaviour? |
Ethnicity/culture? Gender? Early learning? Financial literacy/knowledge? |
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