Stock Market Crash Highlights Importance of Financial Literacy

Business journalist Daniel Dunkley is a regular opinion contributor to Things.

OPINION: In a strange and volatile year like 2022, even business giants can take a hammer blow in the stock market, just ask Mark Zuckerberg. Last week Meta, Facebook’s parent company, saw its value plummet by $232 billion, setting a new record for the biggest one-day drop in stock market history.

Meta’s 25% reversal came after the Silicon Valley group reported weaker-than-expected earnings and fell to a net loss of US$10 billion as it invested in the metaverse, the virtual world immersive which he hopes will become the future of social media. The news was delivered in an already jittery market.

The colossal fall was not an isolated incident. Indices including the NZX50 and the US S&P 500 have slipped into correction territory this year as investors sell stocks amid fears of rising inflation, the unwinding of accommodative monetary policy and a faster-than-expected increase in interest rates from the United States to New Zealand.

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Over the past few weeks, most New Zealanders will have noticed some wild volatility in their KiwiSaver accounts, with many pension savers being exposed to big US companies like Facebook, either directly or indirectly. Turbulence is expected to continue throughout the year as interest rates rise and inflation leaves its mark on the world’s largest economies.

Riskier assets, such as tech stocks, saw even steeper declines. The Nikko AM KiwiSaver Scheme’s Ark Disruptive Innovation fund, which invests in tech companies such as Tesla, Zoom, Spotify and Coinbase, has fallen more than 40% from its post-pandemic peak as investors retreat from companies considered more vulnerable to rising interest rates.

Once again in a stock market correction, leading investors, KiwiSaver managers and financial advisers urged investors not to panic. Retail investors and savers, including Nikko clients, were urged to stay the course with their investment strategies, not to ‘lock in’ losses by changing in a bear market and to ensure that they were in the right fund based on their investment schedule and risk. tolerance.

In 2020, these warnings have gone unheeded. According to the FMA, about $1.2 billion of KiwiSaver funds shifted from growth to conservative strategies during the March 2020 stock market crash, with most crystallizing their losses and missing out on recovery as markets rebounded. Fund managers said most panickers were young people.

Indices including the NZX50 and the US S&P 500 have slipped into correction territory this year.

Koji Sasahara/AP

Indices including the NZX50 and the US S&P 500 have slipped into correction territory this year.

Calls for calm are particularly relevant in 2022, with so many Kiwis exposed to the stock market through easy-to-use investment platforms such as Sharesies, Hatch or InvestNow, or holding assets subject to extreme fluctuations, such as cryptocurrencies. . Many younger and newer investors may not have experienced a proper downturn before.

As more Kiwis have easy access to their retirement strategies and pour more money into DIY investment platforms, the pandemic highlights the importance of financial literacy and the value of money lessons from the youngest age. While some children are lucky enough to be taught about investing and saving by their parents, most of us leave school or home without knowing the basics.

Those from more affluent families or students entering financial industries after school tend to be better equipped than lower-income families when it comes to money, further widening the inequality gap across New Zealand. Zealand and affects household finances.

Te Ara Ahunga Ora/Retirement Commission’s triaged service has attempted to fill the financial literacy gap in recent years. Its Sorted in Schools program, a voluntary, free learning course for children in grades 9 and 10 designed for the New Zealand curriculum. Children learn to manage their savings, investments, debts and set financial goals, with teachers of different subjects able to deliver the course.

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Stuff columnist Daniel Dunkley says financial literacy is key.

Sorted has also developed financial capability resources for middle Māori education in te reo Māori for 9-10 years, focusing on financial identity and sustainability, covering areas such as KiwiSaver, retirement savings, l insurance and investment.

According to Sorted, 76% of high schools and 77% of kura have enrolled in Sorted in Schools, while 66.5% of schools have used the program in the past year. Of the students who completed the program, 94% said they felt more comfortable talking about money and better equipped to find answers to their money questions.

Nick Thomson, Director of Financial Capabilities at Te Ara Ahunga Ora, says, “The sooner you learn these skills, the more time you will have to make the right decisions throughout your life. This time can make all the difference in making sure you’re doing the best you can with the money you have.

“Having these skills is so important that people don’t do things like lock in their losses when they switch KiwiSaver,” he adds. “My biggest money lessons came from my mistakes. Luckily, I didn’t make any big ones. But it’s so easy to make a mistake when you’re not equipped with the knowledge.

Nick Thomson says the earlier people learn financial skills, the better.

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Nick Thomson says the earlier people learn financial skills, the better.

Early lessons about money will become increasingly important as the financial divide between younger and older age groups widens. With today’s teens further from their dream of home ownership than ever before, and often saddled with heavy student debt, it will be increasingly vital to get on the right financial path quickly.

Programs like Sorted in Schools are a great start to getting more young New Zealanders on the path to literacy and financial capability. However, a large number of students are still likely to leave school without having the knowledge to make good financial decisions when entering the workforce.

As younger generations face a greater challenge than ever to build wealth, the question arises, should money lessons like Sorted’s be made part of the curriculum, or even mandatory?

If every New Zealander was equipped with these crucial life lessons at school, surely we would all be better off.

Sarah J. Greer