Key financial concepts

The activities and tools at Sorted have been developed using Key Financial Concepts suggested by the Enterprise New Zealand Trust, based on their experience teaching financial education programmes in New Zealand schools.

We believe these concepts are important for kids in developing financial skills. By taking the time to read them, you’ll get useful information to help your kids understand money matters.

Click on a concept to view key ideas for each one:

1. Our financial responsibility is up to us as individuals
2. We all respond to different incentives
3. Time, knowledge and commitment are the keys to financial planning
4. Our goals and decisions influence our financial planning
5. The consequences of the financial decisions we make today will affect us in the future
6. Our financial decisions have an impact on our income, wealth and the wellbeing of both ourselves and others
7. Trade-offs we make at the margin for spending, saving and borrowing determine our financial wellbeing
8. Our financial choices vary according to our situation and the stage of our life
9. Our financial choices are guided by the law
10. Risk is part of financial planning and needs to be understood and managed

Find out more about the 8 rules to help Sorted parents teach their kids about money.

1. Our financial responsibility is up to us as individuals

Key ideas to keep in mind:

• By working, we earn income
• Saving is important if we want to be financially independent
• Deciding to work and earn income is a positive thing for both our present and our future
• As we earn and spend money, we develop a credit history that influences our ability to borrow money.

2. We all respond to different incentives

Key ideas to keep in mind:

• Satisfying our needs and wants is an incentive
• The incentive to earn income is a powerful motivation to work
• Our personal values determine what our incentives are
• Our personal preferences and values mean we manage our money in different ways
• Not all decisions we make are based on money
• Often there are other factors to consider in managing our money that will affect more than just us as individuals.

3. Time, knowledge and commitment are the keys to financial planning

Key ideas to keep in mind:

• If we want long-term wellbeing, we need a financial plan
• Our financial planning evolves as our priorities change
• Planning includes such activities as setting goals, budgeting, managing risk, debt management, saving and investing
• We should monitor our earning and spending over time to get the big picture on our finances
• We should be aware of the importance of compound interest regarding long-term saving and debt
• We need to understand that inflation affects spending, saving, debt and investment.

4. Our goals and decisions influence our financial planning

Key ideas to keep in mind:

• Our choice of career, education, skills and economic conditions all affect our income
• Spending too much time working for income often means sacrificing family, community and leisure time
• Saving means choosing to delay spending on items or activities
• Investing is for longer-term goals, increasing our net worth or building up retirement funds.

5. The consequences of the financial decisions we make today will affect us in the future

Key ideas to keep in mind:

• By saving today, we reduce the choices we have today but increase the choices we’ll have in the future
• We need to keep the future in mind when we weigh up costs and benefits today
• There’s always an element of uncertainty when we estimate future costs and benefits
• Credit costs are future costs – we must pay back what we borrow in the future.

6. Our financial decisions have an impact on our income, wealth and wellbeing

Key ideas to keep in mind:

• Making personal savings can be good for both our own financial wellbeing and that of our communities
• To use credit appropriately, we need to make well-informed decisions
• Public spending on education, health and welfare depends on the national income and taxation.

7. Trade-offs we make determine our financial wellbeing

Key ideas to keep in mind:

• We should learn to assess the proportion of our income we can save and spend, and the amount we can borrow
• The choices we make about how much to save for later in life will affect the amount of income we have today.

8. Our financial choices vary according to our situation and the stage of our life

Key ideas to keep in mind:

• Throughout our lives, we’ll be making financial decisions
• Our financial priorities change depending on our age and the stage of our life
• The skills, values and knowledge we gain enable us to earn income in the future
• By earning income, we get the opportunity to save for our retirement.

9. Our financial choices are guided by the law

Key ideas to keep in mind:

• Our income has to come from legitimate jobs and activities
• Paying taxes on our income and spending is a legal requirement
• Borrowing money may create opportunities for us, but we also have to pay it back
• If we make decisions outside the law, we may suffer the consequences

10. Risk is part of financial planning and needs to be understood and managed

Key ideas to keep in mind:

• Keeping records of our finances is a key to managing risk
• Risk management strategies such as taking out insurance helps avoid, control and transfer risk
• To get high returns on investment, we may have to take greater risks
• By diversifying our investment – not having all our eggs in one basket – we can reduce risk.