‘Costing us a fortune’: Australians still failing basic financial literacy tests
By John Collett
Australians continue to rank poorly in financial literacy, with a new study showing just over a quarter of people struggled to answer a set of fairly simple questions on the basics, such as interest rates, inflation and investment risks and returns.
The study by Allianz, a global insurance and asset manager, asked more than 1000 people in Australia and in six other developed countries a total of nine questions to test their understanding of basic financial information.
RMIT academic Angel Zhong says many Australians struggle with financial literacy.Credit: Eamon Gallagher
While just over a quarter in the Australian survey had poor financial literacy, almost 60 per cent had average literacy. Less than 20 per cent had high literacy.
Consistent with other studies, women were found to have lower financial literacy at 34 per cent, compared to 16 per cent of men scoring poorly. Millennials and Gen Z lag behind Baby Boomers in financial literacy.
The Australian results are roughly similar to other developed countries. “Low financial literacy really hurts,” says Ludovic Subran, chief economist at Allianz. “In fact, over long investment periods, like when saving for retirement, it can literally cost you a fortune.”
The results match academic studies of financial literacy. The Household, Income and Labour Dynamics in Australia (HILDA) survey of about 17,000 people in 2020 showed a sharp fall in the financial literacy of younger Australians – particularly those under 24 – since the 2016 HILDA survey.
Allianz’s Subran says the good news is that making smart financial decisions is not rocket science.
“By acquiring basic knowledge and skills, people can move from low to average financial literacy and put a lot more money in their pockets,” Subran says.
Angel Zhong, associate professor of finance at RMIT, says the results of the latest study confirm that many Australians struggle with financial literacy. “It is concerning, as there’s a positive relationship between financial literacy and financial well-being,” Zhong says.
The Australian Curriculum does include consumer and financial literacy content in maths, humanities and social science subjects. However, the extent to which schools are teaching financial literacy can be ad hoc.
Some of that gap is being filled by Talk Money, a program provided by Ecstra Foundation, a charitable foundation, that offers financial literacy programs for free to all government and non-government schools in years 5-10.
Since the beginning of 2022, when it started, the program has reached almost 190,000 students in 830 schools across Australia, with numbers continuing to grow, the latest figures from the Foundation show.
RMIT’s Zhong says the starting point is with schools. However, because of financial literacy’s importance, she would like to see it offered as a standalone subject in schools.
There needs to be more programs for the general community, particularly for those communities for whom English is not their first language, Dr Zhong says.
The costs to governments of funding financial literacy education would be outweighed by the benefits of helping to provide Australians with a brighter financial future, she adds.
Mark Humphery-Jenner, associate professor of finance at UNSW, says those who are less financially literate are not only likely to be less well-off financially but are more vulnerable to being misled by “charlatans”.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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