Many Australians have a poor understanding of money

17 August 2018

The latest HILDA study shows low levels of financial literacy, especially among women and Millennials, writes Gayle Bryant.


People aged under 25 are the least financially literate, while those approaching retirement – aged 55 to 64 – are the most financially literate, according to the latest Household, Income and Labour Dynamics in Australia (HILDA) survey.

In response to a series of five questions, 49.9 per cent of males answered all five correctly compared with 35.4 per cent of females.

The series of questions used in the study assessed basic competencies in financial concepts such as inflation, portfolio diversification and risk versus return – topics also relevant to superannuation.

There is obviously a significant opportunity to improve the financial literacy of Australians, including their knowledge and engagement with their superannuation.

The Australian Securities and Investment Commission March 2017 report titled ‘Australian Financial Attitudes and Behaviour Tracker’ highlights Australians’ knowledge of the value of their main super fund.

It found the majority of people surveyed had at least some idea of their balance, with a third saying they exactly knew their balance or almost exactly. Around a quarter of those surveyed did not know their superannuation fund balance.

The link between financial literacy and poverty

Writing in The Conversation, lead report author Roger Wilkins, from the University of Melbourne, says these results matter as the HILDA report shows that low financial literacy is associated with poor financial wellbeing.

“For example, the poverty rate among people with low financial literacy is over twice the poverty rate among people with high financial literacy,” he says.

Wilkins adds that women are overrepresented in poverty statistics and other measures of socio-economic disadvantage and “low financial literacy cannot be ruled out as a factor in these outcomes”.

Financial literacy is also strongly associated with household income and household wealth.

“People with little money are unlikely to take much interest in financial concepts … and unfortunately this is likely to help perpetuate their low financial wellbeing.”

Wilkins adds the findings suggest much more work needs to be done to improve financial literacy in Australia, “across genders, generations and income groups”.

The gender pay gap persists

In other findings, the HILDA report showed the gap between what men earn and what women earn is alive and well.

Despite more women entering full-time work, the mean weekly earnings of full-time employees between 2001 and 2016 increased 23 per cent for males and 22 per cent for females.

The fact that women now hold more university degrees than men isn’t making much difference. [In 2016, 35.7 per cent of women held degrees compared with 31.1 per cent of men].

The HILDA survey began in 2001 and tracks 17,500 people in 9500 households. The latest findings also show stagnating household income. In 2006, the median household had a disposable income of $79,160 (at 2016 price levels) while in 2016, the median household income was only slightly up at $79,244.

However, real incomes, adjusted for inflation, rose 1.8 per cent between 2015 and 2016. And of course there was very large growth in income between 2003 and 2009, which was attributable to the mining boom. During this period, real income growth was 29 per cent.

Higher rates of underemployment

People aged 65 and above face the highest level of income inequality within their age group, compared with other age cohorts. This may be explained by a growing minority of the age group not retiring and therefore receiving higher incomes.

Another possibility is that “growth in the number of retirees with significant superannuation holdings and other assets has increased inequality among this age group”, the report stated.

The poor growth in household incomes is being attributed to the rise in part-time work and underemployment.

For example:

  • men aged between 18 and 64 increased their part-time employment from 10 per cent in 2008 to 14 per cent in 2016
  • at the same time, full-time employment fell from 73.3 per cent in 2008 to 67 per cent in 2016
  • full-time employment for women was down on its pre-global financial crisis peak of almost 40 per cent.

Underemployment has risen to above 8 per cent after being below 4 per cent for most of the 1980s and below 7 per cent for much of the 1990s and early 2000s. However, the report also found that for most workers, underemployment is short-lived with 68 per cent no longer underemployed after one year, rising to 98 per cent after five years.

The research also uncovered a long-term result of the GFC: while Australia escaped the worst effects of the crisis, it was a turning point from which some workers never fully recovered.

“From 2001 to 2008, employment participation had been rising and unemployment had been falling. Since then, the labour market has been relatively flat, with the proportions of men and women employed remaining below their 2008 peaks and the proportions unemployed remaining above the 2008 trough,” it stated.

Ready to improve your financial literacy? ANZ’s MoneyMinded program is an easy-to-use set of activities that is proven to increase people’s understanding of, and confidence with, their day-to-day management of money.

Does your super need a boost?

To make a concessional (before-tax) contribution, speak to your employer about salary-sacrifice.

For non-concessional (after-tax) contributions or personal contributions (on which you intend to claim a tax deduction - you must notify the fund), ANZ Smart Choice Super customers can make a contribution via BPAY.

Biller Code – 169060
Reference Code – member number (this is a combination of your ANZ Smart Choice Super BSB and account number.)