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At a time when investment markets globally have become increasingly accessible to retail investors, there’s no lack of evidence that many young adults don’t have the skills to make sound financial decisions.
The education system is often blamed for financial illiteracy, and more could and should be done to arm today’s youth with a basic understanding of finance in schools. But what’s more alarming is the absence of financial education in Australian households.
That was one conclusion from a recent study conducted by independent research agency ‘The Lab’ on the role of life insurance in superannuation. The study found that financial issues were rarely discussed in Australian homes and this had a negative impact on children’s ability to make financial decisions when they become adults themselves.
Without basic knowledge of how financial instruments work and their benefits and risks, young adults may fail to embrace financial challenges and many could become bystanders of the financial system which could leave them vulnerable.
Simon Berry
Senior Manager Insights & Analytics
The Lab research shows that just 30% of Australians are aware they have life insurance in superannuation. But once they’re aware of it however, they see its inclusion as a real positive.
Another example is the latest ANZ Survey of Adult Financial Literacy in Australia. In this study, only 50% of participants could recognise an investment as “too good to be true”, with the inability to recognise a poor investment most evident in people aged under 40 and in lower income households.
The lack of financial literacy may allow financial institutions to be portrayed as complex and opaque, breeding a culture of disengagement between young people and these organisations. Proposed changes as part of the ‘Protecting your Superannuation Package’ in the May budget may not help much either, with unintended consequences seeing many young people left without insurance despite being able to opt-in. Read more on the budget reforms here. This could contribute to financial institutions being seen as untrustworthy.
Research shows that just 30% of Australians are aware they have life insurance in superannuation.
This disconnect is compounded by a language barrier that AIA Australia openly concedes, acknowledging that the language the finance industry uses can discourage people from engaging. We need to make a conscious effort to address current barriers and pain points including:
It all adds up to a perfect storm. Young people fail to get a financial education at home or at school, only to enter the workforce and find they must make financial decisions with institutions that seem to be speaking in a foreign language.
As an industry, we need to better engage with young people, using clear, simple language and suitable means of communication. We’ve begun this journey through the simplification of our letters and policy documents, and the development of the ADVISE and EDUCATE components of LIFEapp 2.0 (our online underwriting tool), however there is more to be done.
If you’d like to learn more about ‘The Lab’ findings, contact your Client Development Manager or Strategic Partnership Manager.