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  • The importance of financial literacy for Australians


    The Lab

    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

    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:

    • the legal tone of documents,
    • use of jargon,
    • the lack of visuals and a clear checklist,
    • lack of reliable calculator tools,
    • having too many options, and
    • long lists of terms and conditions.
       

    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. 

    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

    AIA Global aia.com

    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

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    Copyright © 2021. AIA Group Limited and its subsidiaries or affiliates. All rights reserved. Priority Protection and Priority Protection for Platform Investors products are issued by AIA Australia Limited (ABN 79 004 837 861, AFSL 230043). AIA Vitality, a personalised, science-backed program that supports members every day to make healthier choices, is available with eligible products issued by AIA Australia. AIA Health with AIA Vitality is issued by AIA Health Insurance Pty Ltd ABN 32 611 323 034, a registered private health insurer governed by the Private Health Insurance Act 2207, Private Health Insurance Rules 2007 and the AIA Health Insurance Pty Ltd Fund Rules. The information on this website is current as at 14 January 2021 and may be subject to change. It is general information only and is not intended in any way to be financial, legal, tax, health, medical, nutritional or other advice. You should consider your own personal circumstances and needs and view the relevant product documents, fact sheets, fund rules and terms and conditions before making a decision to acquire such products. If necessary you should obtain professional advice from a financial, tax, medical or health professional. Unless expressly stated, any views or expressions of opinion (including any video content) do not represent the opinion of AIA.
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