THE RETIREMENT COMMISSION
By Lyn Morris
Enterprise New Zealand Trust
Background and history ……………………………………………………….…… 4
Essence statement………………… …………………………………………….… 6
The Framework of the PFM Curriculum …………………..…………………..….. 8
Framework Diagram ………………………………………………………… ..……9
The Framework in Detail ………………………………………………………….. 10
Strand – Income and Money Management………………………………….. …..14 Strand - Financial Planning and Wealth………………………………………..…15
Terms in Personal Financial Management ……………………...….…………... 17
Planning of a Personal Financial Management programme of work …..…….. 19
Template planner – Kiwi Conservation Trip……………………………...……….21 Template planner – Topic approach……………………………………………….22
Knowledge Strands …………………………………………………………….….. 23
Concern about rising financial illiteracy has been growing since the early 1990s
both in New Zealand and in many countries overseas. Worldwide political,
technological and social events have highlighted the poor state of financial
literacy and have driven moves to include Personal Financial Management in
Why did this happen?
In the 1980s, a combination of political, technological and social changes
impacted on the way people think about and use money.
? A desire by governments for people to make their own decisions about
their financial future. The move was to devolve decision making from
governments to people.
? Demographic changes, with the Baby Boomers moving towards
retirement and with Generations X and Y increasingly demanding instant
gratification rather than deferring their spending activities.
? Globalisation of financial markets which, for New Zealand, included
floating the dollar and removing exchange controls.
? The change in the way customers and financial institutions interact.
? A change in retail hours, which provides more flexible hours and
opportunities for part time work.
? A changed attitude to debt, making it more socially acceptable than
The changing nature and functions of banks, building societies, insurance
companies and credit unions have resulted in highly complex and interrelated
financial institutions. The proliferation of ATMs has resulted in 24 hour access
to money. The use of cards has conceptualised transactions and made
financial activity less concrete in nature for the current generation. Credit and
loans have now become more widespread and socially acceptable. A range of
credit cards are offered to students over the age of eighteen, often with enticing
There have been many changes in financial activity and environments.
Deregulation of the financial services industry has increased the number and
range of financial products, providing increased choice for many.
Education costs have become more expensive for the consumer, with student
loans taking a high profile in both student and parental thinking. Taxation rates
have fallen from the levels experienced several decades ago. The Inland
Revenue Department has taken on functions such as collection of ACC levies
and repayment of student loans.
Government moves since the mid-eighties to manage or reduce the cost of
welfare, health and education have forced all consumers to plan their lives with
greater care and insure themselves against possible personal risks and
To take advantage of increased choice, today's consumers require greater
levels of financial capability than those of three decades ago.
Some of the results of these changes are:
? People making up their own minds about how to plan for their retirement
rather than relying on a government provided transfer payment.
? Rapid use and uptake of technology in financial activity, including ATMs,
EFTPOS, internet and telephone banking.
? A prematurely affluent teenage population – one which has money
available for aspirations without having to fund their needs and
? A rapid increase in debt, with student loans the norm, and hire purchase
and credit cards part of normal consumerism.
Many of these changes are part of the lifestyle of the current school age
population. The parents of our students often feel ill-equipped to help them
become financially literate.
Implications for education and society
? Large focus on marketing and consumer goods to the school age
population is evident.
? Money, debt and consumerism loom larger in student thinking than
several decades ago.
? Students are socialised into a working/spending/debt cycle.
? Students are focussed not only on schooling, but jobs, as well as sport
and the many other activities they get involved in outside school. Jobs
have become high priority as the teenage culture needs money.
? Students are working longer hours than earlier student generations did.
School teenagers are prematurely affluent.
The question needs to be asked – are these changes of any significance for the
education system? Personal Financial Management needs to be addressed
both at home and at school.
The importance of Personal Financial Management and
Becoming financially literate is the ideal result of Personal Financial
Paul O'Neill, at the United States hearing on Financial Literacy held by the
Senate Committee in 2002, describes personal financial literacy as
“The ability to read, analyse, manage and communicate about personal
financial conditions that affect material well-being. It includes ability to discern
financial choices, discuss money and financial issues without (or despite)
discomfort, plan for the future and respond competently to life events that affect
everyday decisions, including events in the general economy”.
Personal Financial Management is learning directed towards building financial
capability. The outcome of Personal Financial Management Education should
be a financially literate person.
It leads to the personal ability to make informed judgements and to take
effective decisions regarding the use and management of money. A functional
financial literacy description is a basic level of knowledge and skill required for
an individual to effectively manage personal finances.
What will my students be learning?
Personal Financial Management takes a multi-disciplinary approach, that
develops the knowledge, awareness, attitudes, values and skills that will
develop capability in individuals and the community to make wise financial
Financial decisions can be both straightforward or complex and are frequently
overlaid with emotional considerations and cultural, religious and social values.
An integrated multidisciplinary holistic approach to teaching and learning is
appropriate for meeting the aims of Personal Financial Management.
The Personal Financial Management Framework involves a way of thinking
(mindsets) which impacts on the interwoven knowledge strands, competencies and values to achieve outcomes.
The aims of Personal Financial Management are for students to develop:
Aim 1 an appreciation of the mindsets applying to financial behaviour
Aim 2 knowledge and understanding of financial information and
processes and the impact they have on daily living Aim 3 personal financial management competencies that encourage
confidence in undertaking financial activities Aim 4 recognition and development of their personal values set which
makes it possible for them to achieve their personal goals.
Personal Financial Management aspires to enable students to make informed
choices and financial plans as they move from dependence to independence
and, in the process, recognise their personal responsibility to increasingly
manage their own circumstances.
Difficulties arise when individuals attempt to make the best decisions for
themselves, within their cultural and economic values, but have neither an
understanding of the underlying mindsets, nor a satisfactory knowledge base,
nor sufficient levels of capability from which to operate. Only when they gain
these capabilities can they make behaviour-changing decisions, or recognise
whether current behaviour patterns are likely to allow them to reach their goals.
Personal Financial Management is fundamental to becoming financially literate.
Personal Financial Management competency descriptors
Effective personal financial management requires people to accept personal responsibility for the effects of their decisions on themselves and on others, within a legal and ethical context and to:
? set personal financial goals appropriate to personal values and changing
circumstances, plan how to achieve the goals, implement the plan, monitor
progress, and review goals
? understand the benefits and importance of financial independence
? identify and manage personal financial risks and opportunities
? understand the influence of time and the importance of personal
commitment on the achievement of financial goals
? make informed financial decisions
? evaluate financial decisions and their consequences
Using language, symbols and texts
? be confident with key terms and concepts of personal financial
? select and use financial tools interactively to achieve financial goals
The Framework of the Personal Financial
Personal Financial Management takes place within a coherent and integrated
framework to achieve the outcome of developing a financially literate person.
The Personal Financial Management Framework consists of a group of
mindsets which impact on the interwoven knowledge topics, key competencies
and values to achieve outcomes.
Students will achieve this outcome by creating a framework of understanding
about the mindsets, and developing knowledge and understandings about
financial activity as they study:
? the nature and role of income people receive
? how people manage their money
? the nature and importance of financial planning
? the significance of personal wealth creation
and by becoming skilled in the Personal Financial Management competencies
as they use financial tools and language:
? to enable them to participate responsibly in society
? to support social cohesion and community well-being.
Knowledge strands +
Personal Financial Management competencies +
? Our financial responsibility is up to us as individuals in the first instance.
Financial planning Financial decisions
is affected by: ? goals and decisions ? impact on income, wealth and
well being ? time, knowledge and
commitment ? vary according to our situation
and stage of life ? incentives
? make trade offs between ? risks
saving, spending and ? legal and ethical
? have consequences today and
in the future. Knowledge P F M Values
Income and Money Managing self Diversity
Management Community and participation
Financial planning Equity
and Wealth Using languages, Integrity
symbols and texts Care for the environment
Innovation, inquiry and
? Take responsibility and manage one’s own financial well-being. ? Exercise long-term thinking, commitment, self discipline and personal
responsibility in relation to personal financial management. ? Evaluate the consequences of a range of choices with regard to one’s
? Recognise, understand and apply financial knowledge to meet
personal, family and community needs during the life cycle. ? Develop, exercise and practise personal financial management skills to
achieve personal, family and community needs.
? Recognise, evaluate and take responsibility for managed risk taking. ? Evaluate income and savings strategies.
? Investigate, interpret and communicate key personal financial ideas,
? Identify priorities and understand and evaluate the consequences of
personal financial choices in the short, medium and longer time frames. ? Reflect on personal financial knowledge and apply it to related
? Develop a sense of responsible stewardship for financial resources. ? Evaluate legal and ethical implications and considerations.
The Framework in Detail
Mindsets are underlying competencies, ways of thinking and behaviours. They are the basis for how people manage their money – manage in a large context
– and are similar in nature to the Key Competencies identified in the research outlined in the OECD DeSeCo Project. What mindsets are important?
As students move from dependence on the financial security of their family to relative independence, their level of personal responsibility increases. I t is important that they accept responsibility for their actions and acknowledge their responsibility to personally manage their financial activity. Although family will always be important and significant, with the demand for “rights” comes the acceptance of personal “responsibility” for their actions. Rights and responsibility are two sides of the same coin. People cannot expect to exercise personal rights and still require in the current environment, the community and government to make decisions for them and look after them financially.
Goals and decisions
Goals and decisions affect financial planning. Decisions and goals can be short or long term in nature. Financial decisions made in the short term can have long term consequences and so affect planning for the future.
Time, knowledge and commitment
Financial planning has three key elements – the time frame available, the
knowledge base used to undertake the plan, and the level of commitment to the plan. The longer the time frame, the more flexibility is available, the greater the tolerance for poor decisions at an early age and the greater the opportunity to recover from mistakes. Decisions need to be made with an understanding of the information available. Poor decisions can emanate from a lack of knowledge. Once a decision is made and factored into the plan, the long-term outcomes will depend on personal commitment to the plan.
People respond to different incentives.
Incentives motivate people to do things. People are motivated by such factors as personal acknowledgement, community recognition, personal self worth, goals, non-financial rewards as well as financial ones. In order to motivate people to carry out a financial plan, the appropriate incentives need to be part of their plan.
Risk is part of financial planning and needs to be understood and managed. With any decision, there is always a risk involved. Financial risk and reward are usually inversely related and risk is not necessarily bad. Students need to analyse the extent of the risk relating to a decision, and rather than be put off taking action, they need to consider the risk element and be aware of alternative possible actions.