The importance of financial literacy for Australians

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.

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.