Various studies on financial literacy in Australia show little improvement in recent years.
On of the best, the Australian Financial Attitudes and Behaviour Tracker, sponsored the Australian Securities and Investments Commission, showed only about a third of investors know what diversification means and other basic concepts, such the higher the return, the higher the risk.
Norman Morris, communications director of Roy Morgan Research, says a lot of the issues raised in the royal commission were as a result of how customers purchased financial products and the extent to which their needs were understood and taken into account.
“Many of the problems reported were a result of consumers having insufficient financial literacy skills for the product they were purchasing, and who were obtaining it through a channel not designed to focus on their best interests,» he says.
Theresa Mills, chief executive of Money 100, which provides financial literacy programs to workplaces, says the commission’s findings only confirm that consumer protection laws alone cannot produce the best outcomes for consumers.
It’s much better to organise the system around people’s abilities, rather than trying to raise people’s competencies alone
“There is an alarming lack of financial capability nationally,” Mills says.
«Does financial literacy help. Yes,»agrees Susan Thorp, a professor of finance at the University of Sydney.
«The number of people who have basic financial competence is less than half, so financial literacy is a really slow moving and difficult thing to adjust,» she says.
«People have to make financial decisions that are ever-more complex and it’s difficult for financial literacy to keep pace with that,» Professor Thorp says.
«It’s much better to organise the system around people’s abilities, rather than trying to raise people’s competencies alone to manage the system», she says.
Tim Dean, founder of Credi.com, has developed an online system that allows parents to document loans to their children.
He is planning to launch a debit card by the middle of the year that allows parents to lend to their adult children, so they avoid excessive fees and damaging their chances of getting a home loan, if their bank statements show they have paid late fees with «buy now, pay later», apps such as Afterpay.
Dean has lent money to his two sons and he monitors their repayments. His sons have replaced high-cost credit with the bank of «mum and dad.»
«I want to help them out and help them to be responsible with money and to learn from the process,» he says.
«It has completely transformed the way we deal with money in the family,» he says.
Writes about personal finance for Fairfax Media, Sydney, Australia.