Women can deal to debt

There’s something mothers and fathers need to share with their daughters. Learn about money.

That’s everything about money – from interest rates to credit scores.

In New Zealand, it was little more than a generation ago that single women were unable to get a mortgage to buy a home without sign-off from a male family member.

How funny it would have been if a solo mum could get a bank loan with her son as a cosignatory.

We have progressed further legally but for many women, money matters and debt are still a bit of a no-go zone and we often leave that business to men.

All relationships work out who does what but when it comes to finances, the Debtfix crew would like to see women get more involved in money.

The Commission for Financial Capability’s Barometer Survey 2020 investigated the financial knowledge of New Zealanders from January to June 2020.

Questions were relatively general and focused on the impact of interest rates, how time affects the value of money, inflation and risk and return for investments.

The research indicated that with age comes financial wisdom but it’s not an equal learning curve and women fall behind men in their financial literacy across all ethnic groups.

In the survey, women with children understood less about money matters than women without any offspring, and single women achieved a higher financial knowledge score than women in relationships.

Women’s understanding of interest and the impact on debt

The survey indicated the gender gap was the most significant when coming to grips with simple and compound interest, which impacts on debt repayments.

Misunderstanding the maths and compounding interest rates gets many people into trouble, especially with high interest loans.

Here’s a simple example.

Let’s say you borrow $500 at a compounding interest rate of 20% per annum with monthly repayments of $10. After one year you have paid off $120 and were charged $76 for the interest owed.

At the start of the second year you still owe $456. At the end of year two you have paid off another $120 and charged $67.20 interest. Therefore, at the start of year three you still owe $403.20. You have paid back $240 over the last two year but have only reduced the debt by $96.80.

This is a very simple calculation to try and highlight how compound interest works. Your credit card works in this way, and if you only pay off the minimum each month it will take you a long time to clear the card balance – if ever.

Debt following a relationship breakdown

From Debtfix’s research, many women find themselves drowning in debt when a relationship comes apart.

The women may have signed mortgage and unsecured loan agreements without investigating the interest rates, repayment structure or what assets may have been offered as security.

It is easily done, especially when many women are working, caring for children, and doing the cooking, shopping and housework.

Debtfix isn’t here to judge.

We want to empower women – maybe leaving the loo cleaning to the blokes while women step inside the household finances zone.

Financial problems put huge pressure on relationships and if both people understand more about money, they could both be more accountable and less frustrated by their partner.

Ask questions about debts and money

To better understand money, finances and debt we all need to ask questions.

Women can get involved with conversations with bank managers, mortgage brokers and accountants to understand the household finances.

Check the bank transactions and have the confidence to ask about interest and fees, which are often negotiable.

For unsecured debt, make sure you understand what is being arranged especially for quick but expensive online loans.

If you see an email that is confusing, find out what it means for the household money.

The only dumb question is the one we don’t ask.

Money isn’t a dirty subject

There are many different money personalities, and plenty of men and women have a ‘she’ll be right’ approach.

That can be OK when you are earning big dollars but if you are like most of us – you’ll need to budget and set financial priorities.

When women have children they get busy, sleep-deprived and may become stay at home mums – all of which can make them reduce their involvement in household finances.

Even the smartest savers who no longer earn a fulltime income can feel disempowered when it comes to financial decisions.

Talking about money and setting financial goals together is such a positive thing to do but seems to be beyond many of us.

There are lots of good books women can read to gain a better understanding of money.

The Debtfix crew likes The Barefoot Investor and Becoming Money Wise.

If you need help understanding debt give our crew a call and we’ll listen to help you learn.