Expert says financial advice is key to emerging from a downturn

Expert says financial advice is key to emerging from a downturn | Insurance Business

Expert says financial advice is key to emerging from a downturn

Despite New Zealand’s success in containing the spread of COVID-19, experts say long-term economic recovery is unlikely to be V-shaped – however, good financial literacy and advice will be at the heart of how well businesses and individuals can cope.

Economist Cameron Bagrie says New Zealand is at an interesting junction in its path to recovery, and with customers’ risk appetites changing, the role of insurance, mortgage and investment advisers will be more crucial than ever.

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“I’m not a financial adviser, but the advice I am giving people at the moment is to go and get some financial advice,” Bagrie said.

“There’s nothing wrong with taking on appetites for a higher return – but people need to understand that there is a balance between risk versus return, and there’s no free lunch.”

“Right now, COVID is acting as a lightning bolt for change,” he explained.

“We’re going to get into some debate into livelihoods versus lives. In New Zealand, we’ve gone through Alert Levels 4, 3, 2 and 1 – so what will the appetite be for going back to Alert Level 2? That’s going to cost jobs, and I don’t think society will be up for it. But if you think about what we’re starting to see in some parts of the globe, they’re having to take the lockdown back up a level.”

Bagrie says that New Zealand has managed to emerge from restrictions sooner than most other countries – however, it also depends on the international economy more than the average nation, and with the US seeing over 130,000 COVID deaths, an economic rebound looks increasingly unlikely. He says recovery is more likely to look U or W-shaped, especially with the ongoing hit to the tourism sector and the immigration standstill.

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However the dice falls, Bagrie says that financial literacy will be a huge learning point for New Zealand businesses, as well as the value of good financial advice.

“This is a temporary disruption, and I think we will get back on track. The million-dollar question is when,” Bagrie said.

“One of the big learnings out of the GFC was to make the financial system safer and more resilient. One of the learning points of this financial downturn will be the vulnerability of small and big businesses, and that’s because financial skills are not their strong point. Some really small initiatives could make a big difference.”