Australia is one of the world’s wealthiest countries and, with this fact, people from other territories may believe that its citizens have high levels of financial literacy. According to the October 2019 list of the World Economic Outlook Database, Australia ranks as the 14th nation in the world with the largest economy. With a nominal gross domestic product (GDP) of $1.38 trillion, the International Monetary Fund’s report affirmed that Australia is in the same top-20 group as the other First World countries like the United States, Japan, and the United Kingdom. Also, the largest country in Oceania is a developed nation with low levels of public debt, unemployment, and inflation. It has strong exports and service sector, as well as a stable financial system.
Australia is affluent in natural resources as well, and it is a leading exporter of food and energy. In 2019, with $53,825, Australia landed on the 10th position in the world on the measure of GDP per capita. All of these descriptors confirm that Australia is an industrialised nation, which commands a majority of the world’s wealth and functions as an engine of progress. However, studies conducted in recent years indicated that, when it comes to knowledge about one’s personal finance situation, Australia needs to do more to make sure that its citizens are financially literate.
Surveys That Paint an Image of Australians’ Financial Literacy Level
In recent years, several national research projects have consistently demonstrated that the Australian people’s financial literacy levels generally require improvement. These studies affirmed that citizens have a poor understanding of the essential knowledge relating to personal finance. Here are four of these research endeavours:
A. 2015 Global Financial Literacy Survey
Based on this research project that Standard and Poor’s researchers undertook, Australia placed ninth around the world for the percentage of adults who fulfilled their benchmarks for financial literacy. However, when it comes to the gap in financial education between the wealthy and the impoverished, the country ranked first. The 2015 survey found that merely below three-quarters of people living in the most affluent 60 per cent of Australian households were financially literate. On the other hand, just half of those in the most impoverished 40 per cent of families made the grade.
B. 2017 Financial Capability Survey
Superannuation pertains to the people’s pension fund. It is the money that citizens pay while they are capable of working. When they reach old age, they get to receive this payment. Based on this 2017 study that the Australian Securities and Investments Commission conducted, merely 35 per cent of the people were aware of the precise value of their superannuation.
C. 2018 Financial Consciousness Index
This research undertaking by Deloitte Access Economics discovered that almost one-third of the populace is financially gullible. These citizens struggle from the inability to retire conveniently at 65 years old. Also, they have employment insecurity dilemmas.
D. 2019 Household, Income and Labour Dynamics in Australia (HILDA) Poll
The 2019 findings of the HILDA survey indicated that 50 per cent of men were able to answer all five basic finance queries correctly, while merely 35 per cent of women could do the same. The poll questions related to fundamental concepts in finance, such as portfolio diversification, inflation, and interest calculation. An explanation for one of the survey discoveries is that men tend to take more interest in financial matters, reflecting the conventional gender roles and norms.
Also, the HILDA study indicated that people with the highest financial literacy in Australia are those who are approaching their retirement. These adults, who typically have more money than the younger generations, find financial concepts becoming more relevant to them. Another explanation for this research finding is that people nearing their retirement age are the most engaged with their superannuation. Hence, they are more focused on personal finance-related matters. Meanwhile, young people below 25 years old are the least financially literate. This reality justifies the fact that Australian schools need to launch specific programs that aim to develop the youth’s financial literacy.
These four studies presented the fact that socioeconomic status, gender, and age are some of the significant factors that determine whether an Australian citizen is financially literate or otherwise. Furthermore, they indicate the necessity for the country’s governing bodies, private sector, and citizens to cooperate and address these inequalities when it comes to who is financially literate and who are not.
Significance of High Financial Literacy and How People and Society Benefit
Financial literacy is the capability of people to comprehend how money works in the world. Besides, this knowledge or competence involves people’s understanding of how they earn, manage, and spend their hard-earned money sustainably in their lives. According to the HILDA survey, if people have low levels of financial literacy, they typically have deficient financial wellness. Plus, poverty rates among the least financially educated are twice as high as the most literate cluster, as per the study. Roger Wilkins, who is the deputy director of the HILDA project, affirmed that the more economically disadvantaged a person is, the lower is his level of financial literacy. The following are the advantages of being financially literate.
Financially literate people . . . .
- Have a greater tendency to save their hard-earned money.
- Are less vulnerable to suffer from financial stress.
- Are capable of becoming more informed about how to spend their hard-earned salaries.
- Are more likely to get involved in decision-making that relates to their household’s budget.
- Can make sure that they and their families are well provided for and can have a more sustainable financial future.
- Values financial education and learns more about how to manage their finances well.
- Can generate more wealth.
With citizens having high financial literacy, society also benefits. The 2010 Financial Literacy Report of the Commonwealth Bank of Australia indicated the following three social advantages:
- Surge in the Australian GDP by $6.2 billion yearly;
- Generation of 15,000 jobs; and
- A ten-per cent increment in the yearly income of the least financially literate Australians.
Mark Tanner confirmed that financial education is tremendously significant. The finance associate lecturer at the School of Business of the University of Queensland pointed out that, when people are financially literate, they get to augment their financial situations. Also, he relayed that, aside from financial literacy, what is important is what people could do with this knowledge. Tanner instructed the public to translate their financial education into positive behaviour. Indeed, people of all ages, gender, and socioeconomic status with high financial literacy can better grasp elementary financial concepts. They become well-equipped to make decisions that pertain to financial management, which they need for daily survival and the long haul as well. Above all, highly financially literate citizens aid the Australian economy in maintaining its status as among the wealthiest countries in the world with a flourishing economy.