New report finds over a third of Australians are financially illiterate

A local financial adviser has reiterated the crucial role planners play in a client’s wellbeing following a new study that found more than one-third of Australians are financially illiterate.

The research — undertaken by the University of Newcastle as part of the Financial Literacy Program with Greater Bank — found that just 66 per cent of Australians can be classed as financially literate.

Lead author of the report, University of Newcastle Business School researcher from the College of Human and Social Futures, Professor Christina Boedker, noted that only around one in four people answered all five financial literacy questions correctly.

Ms Boedker said that the research showed the significant impact financial literacy has on a person’s financial and general wellbeing.

“With rising living costs and high interest rates, the importance of having higher levels of financial literacy, backed up by financial planning activities such as having a household budget or setting longer-term savings goals, is as important as ever, as it leads to greater financial wellbeing,” Ms Boedker said.

“This in turn feeds into overall life satisfaction, with regression analysis showing that individuals with higher financial wellbeing experience significantly higher levels of general life satisfaction.”

Speaking to ifa following the report’s release, senior adviser at Tribeca Financial, Nathan Fradley, said the results show how important advisers are in supporting a client’s financial wellbeing.

“Financial literacy is so fundamentally important. It both helps bridge income inequality gap, as well as reducing the cost of a variety of social and financial government programs — but most of all, financial literacy leads to financial wellbeing, the sense of security and freedom of choice that can come from knowing where your money goes now, and what that means for you in future,” Mr Fradley told ifa.

“Advisers play a key role, both in making the right decisions, but also preventing poor decisions and most importantly preventing inaction — which can be in a lot of cases the most detrimental.”

The report also found:

• Around 43 per cent of young people aged 18 to 24 years reported that they could not meet their personal debt obligations.
• Young people have the lowest levels of financial literacy and financial autonomy of all age groups.
• Women have lower levels of financial literacy, but demonstrate better financial planning behaviours.
• While younger men have higher levels of financial literacy, they are less likely than women to apply their financial knowledge to make good financial decisions.

Mr Fradley added that “great” advisers aren’t there to distribute financial product, but to understand what is most important to them and understand their options and what is possible.

“Advisers give peace of mind to enable clients to take the right risks, but only because they have confidence in their understanding of their options; not relying on multiple bits of information from family members and friends,” he said.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.