The retirees who failed finance

Baby boomers fall into two distinct tribes when it comes to financial awareness, according to a new study.

Australians aged 55 to 64 achieved the highest score in a measurement of ‘financial consciousness’ – 52.5 out of 100 – while those aged 70-plus failed with a score of 47.8.

The Financial Consciousness Index (FCI), which was developed by Deloitte Access Economics for comparethemarket.com.au, tested 3000 people nationally to uncover their “ability, willingness and sophistication to make a change to improve their financial wellbeing”. It measured the extent to which a person was not just financially literate, but whether they were conscious of their ability to influence their own financial outcomes.

The FCI results were in stark contrast to a 2018 YourLifeChoices survey on financial literacy, which recorded strong confidence in managing money matters among members.

The FCI found, as expected, that age, income and education were big influencers of financial consciousness.

However, the authors were surprised that only 40 per cent of Australians met a basic threshold for financial literacy and capability. Also, that 41 per cent of Australians with a mortgage did not check interest rate changes because “they either have no interest, don’t know what the RBA cash rate is or do not see the relevance to them”.

It found that consumer trust in financial institutions had taken a hit as a result of the financial services royal commission. Forty-five per cent did not trust insurance companies or retail banks.

The index noted a direct relationship between low test results and reduced financial wellbeing. It classed 39 per cent of baby boomers as financially vulnerable, that is, those who underperformed in the combined financial wellness and financial consciousness components. “This implies nearly 2,585,588 over-55s across Australia feel little job security, regularly struggle to pay household bills and are unable to put savings aside,” the authors concluded.

General manager of banking for comparethemarket.com.au Rod Attrill, said: “The 55 to 64-year-old age group have the experience and motivation to manage their finances actively in a bid to improve their future financial position.

“Whereas, it appears that the over-70s may have ‘taken their foot off the gas’ somewhat, perhaps believing that there’s not much they can do to have a real effect on their financial outcomes. This is a concern when so many older Australians are in a position of financial vulnerability.

“Undoubtedly, we feel (the survey) demonstrates that many older Australians need greater education, empowerment and understanding to enable them to take tighter control of their everyday finances.”

YourLifeChoices’ 2018 Retirement Income and Financial Literacy Survey, which attracted more than 5000 respondents, painted a picture of confident groups of retirees.

In the 55–69 group, 71 per cent said they managed their financial affairs either well or very well and 72 per cent of those aged 70-plus said the same.

When asked how well they understood their finances and investments, 63 per cent of those aged 55–69 said well or very well, and that figure rose to 66 per cent for those aged 70-plus.

When asked about their confidence in their long-term financial futures, the numbers were 53 per cent and 54 per cent respectively.

The real question in relation to those who feel confident is whether that is based on gut feeling or performance. Or is it that these retirees don’t know what they don’t know, are deluding themselves and could be better off?

Given that most of us are happiest when we live within our income – whatever that might be – whether we are able to successfully stick to a budget in retirement is perhaps the most interesting question yet to be addressed.

Take the financial consciousness test here

Are you able to stick to a budget? At what age did you learn good financial skills?

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The costs of living longer
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Written by Janelle Ward

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