Consumer credit survey released

15 March 2005
A research report on consumer credit issues has been released today, says Consumer Affairs Minister Judith Tizard.

The report entitled Identifying Consumers ‘At Risk’ – Benchmark Survey of Consumer Credit Behaviour and Knowledge was released by the Ministry of Consumer Affairs. It details the results of research on consumer credit issues that the Ministry undertook in August and September 2004.

The research was conducted in the context of the new Credit Contracts and Consumer Finance Act that comes into effect on 1 April 2005. In total, 700 people were surveyed by telephone.

"This research has been designed to assist the Ministry in the development and delivery of a targeted public awareness campaign to inform consumers about the new credit law," said Judith Tizard.

Nearly half of all respondents reported that they had not borrowed at all in the past twelve months.

The research found that a significant number of people interviewed said that they knew little or nothing about money matters (23 per cent). 24 per cent of respondents did not know whether or not there is a limit to the rate of interest charged and 21 per cent did not know whether a person has the right to cancel a loan.

Twenty-nine per cent of people interviewed accepted that they were not good at saving, with 22 per cent stating that they worried about spending or borrowing beyond their means.

Of the people who had borrowed, 29 per cent said they were challenged in understanding the documentation accompanying credit agreements. In particular, they were unsure if credit agreements contained the details of the cash price of the goods.

The research showed that people less than 40 years of age, households with children and Māori and Pacific peoples are more likely to report that they have difficulty in understanding financial matters.

A copy of the research report is available on the Ministry of Consumer Affairs website – Research section.

A summary of the main research findings is following.

Summary of main findings

Identifying Consumers ‘At Risk’ – Benchmark Survey of Consumer Credit Behaviour and Knowledge

Introduction

New legislation regulating the provision of consumer credit will take effect on 1 April 2005 (The Credit Contracts and Consumer Finance Act). Given that the Ministry of Consumer Affairs is responsible for providing appropriate, accurate and accessible information to both consumers and business, it has decided to meet this obligation through a targeted ‘public awareness campaign’.

This campaign will be primarily targeted at consumers, and especially those consumers who borrow (or have an interest in borrowing) money, and those considered to be most ‘at risk’ of experiencing a bad deal.

The benchmark survey was conducted between 31st August and 23rd September 2004 with a nationally representative sample of n=701 New Zealanders, 15 years of age and over. The margin of error for the total sample was ± 4.2%.

Given the research objectives, the benchmark survey collected information in the following areas:

• Attitudes to money matters in general.
• Awareness of credit and lending options.
• Respondents’ credit and borrowing behaviour.
• Awareness of borrower’s rights and obligations.
• Awareness of lender’s obligations.
   

Attitudes to money matters in general

Overall, the total population’s attitudes (confidence and competence) to money matters are as follows:

• A large proportion (23%) of the population in general reported they “know little/nothing at all” about money matters.
• Two-thirds (66%) of the total population reported worrying about spending and/or borrowing beyond their means.
• Over one-quarter (29%) accepted that they’re not good at saving.
• About one in five (22%) admitted that they run out of money before payday.
• One in five (19%) don’t pay attention to how much they spend.
• Only 10% reported not being confident about making decisions about money matters.
   

Borrowing behaviour in general

Key features of the total population’s borrowing behaviour are as follows:

• Nearly half (47%) of all respondents reported they had not borrowed in the past 12 months. One-fifth (22%) reported borrowing for a major purchase for their home (e.g. refrigerator, washer/dryer, or television), while 13% report borrowing to buy a car.
• Overall, based on the total sample, 28% of all respondents reported mostly borrowing for essential items in the past 12 months, whereas 19% reported borrowing for non-essential items.
• Given the nature of the purchases/expenses being covered, most finance was arranged via the retailer concerned (e.g. hire purchase) (29%), via a bank loan (26%), via a finance company (17%), credit cards (9%), and family/friends/Iwi (9%). Of note, Pacific Peoples (17%), Māori (15%), and younger respondents aged 18-29 (18%) were significantly more likely to report borrowing from family/friends/Iwi.
• Again, given the nature of the purchases/expenses being covered, the amounts involved were relatively significant - 69% reported borrowing over $1,000 (36% report borrowing over $5,000). Importantly, younger respondents aged 18-29 (42%), Pacific Peoples (51%), Māori (14%), and those with household incomes of less than $40,000 (47%) were significantly more likely to report borrowing less than $1,000.

Opinions/beliefs about agreements/contracts held

Key features of the total population’s opinions/beliefs about the agreements/contracts they held are as follows:

• Just over three-quarters of borrowers (79%) reported having an agreement/contract.
• About half (46%) of those respondents who reported signing an agreement or paperwork claimed they read it themselves, 27% reported someone took them through it, and a further 22% reported they read it themselves and someone took them through it. Only 4% claimed they did not read their contract.
• Most respondents (71%) reported they were very confident they understood everything they needed to in their agreement; a further 29% reported they were somewhat/not at all confident.
• In terms of what their agreement/contract contained, a high proportion claimed it did not contain the following information or they didn’t know:
  
  • Details about the cash price of the goods for an HP – 11% claimed this was not covered (28% didn’t know).
  • What to do if you wanted to cancel the agreement – 13% claimed this was not covered (27% didn’t know).
  • What to do if they wanted to pay the loan off early – 13% claimed this was not covered (11% didn’t know).
• Eight per cent (8%) of those who signed an agreement/contract reported having any problems or issues with their agreement/contract.
   

Opinions/beliefs about contracts in general

Key features of the total population’s opinions/beliefs about contracts in general are as follows:

• Many respondents claimed the following statements were either false, or they didn’t know whether they were true or false:
  • There is a limit to the rate of interest charged – 43% claimed this was false (24% rate they didn’t know). 
  • A person has the right to cancel a loan – 35% claimed this was false (21% didn’t know).
  • A person has the right to fully repay a loan at any time – 21% claimed this was false (7% didn’t know).
  • A person can apply for changes when they are unable to meet payments –13% claimed this was false (17% didn’t know).
• A person has the right to change their mind about taking out a loan – 11% claimed this was false (12% didn’t know).