Mind the gap! How advisers can improve client financial literacy

In an era where financial information is everywhere – from online calculators to online 'experts' and AI-generated advice – it would be easy to assume New Zealand borrowers are more financially literate than ever before, and in some cases, that's true.

But as many mortgage advisers will attest, access to information does not always translate into understanding, and understanding doesn't always translate into action. A new initiative between the Booster Foundation and Massey University's Fin-Ed Centre highlights just how wide the gap remains – and the urgent need to close it.

Debbie Reed, Mortgage Adviser at Loan Market Hastings, pictured above left, says the spectrum of knowledge among clients still remains extremely broad.

"The variance of financial literacy is very wide in New Zealand. Some have very clear ideas and goals and plans in place to achieve it, whilst there are many that don't understand the basics."

READ MORE: What mortgage advisers need to know about the revised Financial Advice Code

For advisers, the opportunity (and responsibility) lies in bridging that gap – turning general knowledge into personalised strategy, and helping clients build the financial habits that lead to stronger loan applications and better long-term outcomes.

And while tools like AI and online platforms can be helpful, Reed notes they can also mislead clients, particularly when people pay for advice that is already freely available or fail to filter quality information from noise.

Cameron Muggeridge, partner and mortgage adviser at Loan Market Remuera, pictured above right, says that clients do seem to be better prepared than they were a decade ago, with a stronger foundation of understanding. However, he warns that one of the biggest challenges is the growing reliance on anecdotal advice, often from friends and family, whose experiences may no longer reflect current lending realities.

"Many clients arrive with well-intentioned insights, but they sometimes overlook important factors such as timing, differing financial profiles, and the evolving lending criteria that have changed significantly over the last eighteen months."

The result is a common modern disconnect in that borrowers may understand concepts in theory, but still struggle to apply them effectively to their own situation.

So both advisers point to a clear theme, where the biggest literacy issues often sit less in knowledge and more in behaviour.

READ MORE: Partnership boosts youth financial literacy

For Reed, budgeting remains a major concern, particularly among households under pressure. She also notes that discretionary spending choices can be surprisingly common even when finances are strained, including 'spending on lotto tickets when they can't afford the basics'. Meanwhile, buy now pay later platforms such as Afterpay are adding further pressure to already tight budgets.

And Muggeridge sees a similar pattern.

"The most notable gap we see is not in the technical understanding of interest rates or credit scores, but rather in financial discipline and the practical application of that knowledge.

"Many borrowers know what they should do – reduce debt, build savings and manage spending – but delay taking action, and it's precisely that delay which can cost them."

However, improving financial literacy is not about delivering a crash course in finance, but more so about structuring information so it's digestible, relevant, and delivered at the right moment.

Reed says the key is knowing when to have certain conversations.

"At a first meeting it is important to explain how banks make decisions, and what can be done to improve their position. Once a house is secured, then that is the time to go through the different structure options."

Muggeridge likes to take a staged approach, particularly for first-home buyers. With first-home buyers driving a significant share of new lending activity, the stakes for getting that early education right have never been higher.

"The initial meeting focuses solely on the fundamentals, we don't need to delve into a 20-year financial outlook in the first twenty minutes."

And for clients under financial hardship, he believes education must start with empathy.

"My priority is to understand the 'how' and 'why' behind their current situation," he says.

"This process is less about being incredibly directive and more about guiding clients toward options that are realistic and empowering rather than punitive."

Financial literacy becomes the most powerful when it's turned into a plan and for Reed, the first point of contact/pre-approval preparation is often where the biggest value is created.

"I spend time helping them to come up with a plan to get there, and am available to touch base along the way, whether it is budgeting or reducing debt etc."

And Muggeridge views his role as part strategist, part accountability partner.

"I would describe myself as a constructive challenger, asking thoughtful questions and reviewing their financial plans to ensure they are both sound and effective."

For Reed, explaining the 'why' behind bank decisions is also crucial.

"Explaining why is critical to clients' understanding, for example why missed payments are a concern and what impact an over-reliance on afterpay has."

Muggeridge says financially literate clients experience a smoother lending journey overall which is why both believe that improving financial knowledge shouldn't sit solely with the borrower. They see advisers as having an important role to play in the wider community, with Reed noting that education within the industry should be supported and incentivised and the right behaviours rewarded.

She also points to major opportunities for education through community channels such as school events, first-home buyer seminars and local outreach. And Muggeridge agrees, describing advisers as a crucial link across the client's broader financial picture. As Andrew LavuLavu reflects on the shift toward financial capability and education in mortgage advice, the role of the adviser as educator is increasingly being recognised across the industry.

"We hold a fiduciary duty to act in the best interest of the client as well as holding the role of educator," he says.

However, he warns the industry must remain sustainable to support this level of service, especially as commission structures change.

"The subtle shift towards more upfront-only commission models presents challenges, especially for investment into additional ongoing support that clients truly benefit from."

For advisers to continue building financially capable borrowers, Muggeridge says the industry must enable long-term relationships, not just transactional lending. As in many cases, advisers are not only helping clients secure lending, they're helping them build financial resilience.