The recent ANZ-Retirement Commission Financial Knowledge Survey suggests that many Kiwis have a bit to learn in this area.
For example, the majority of credit card holders, 94%, understood that paying the minimum on a credit card meant that money was still owed. But 20% did not know that paying off the full amount on the credit card each month would give interest-free days on purchases.
The Financial Knowledge Survey also revealed that many people have trouble understanding the concept of compound interest.
When you save, the bank (or financial institution) adds interest to your savings at regular intervals - for example, every month. If you don't touch the interest, but let it add to your lump sum, then you start to earn interest on your interest as well as on the original amount you saved. This is called compound interest.
To watch the power of compound interest at work, visit
Sorted’s savings calculators.
Compound interest applies to borrowing too. Just as you earn compound interest on savings, you pay compound interest on the money you borrow.
For example, if your monthly credit card repayments don’t cover all the interest charged that month, the unpaid interest will be added to your balance. Then next month, you will be charged interest on that interest.
You can use Sorted’s get out of debt calculator to see what impact changing your repayment amount has on the interest you pay, and the time it takes to repay, your credit card and other loans.
Find out more
To find out more about saving and managing debt, visit the Retirement Commission’s free and independent website
www.sorted.org.nz. Sorted is packed with helpful information, tools and calculators to help you manage your personal finances.
