Financially literate? ‘Yes we are’

Are you financially literate? How would you rate your level of financial literacy?

We recently invited YourLifeChoices members to participate in our Retirement Income and Financial Literacy Survey. In just three weeks, 5064 members responded. We had several aims. One was to understand our members’ degree of financial literacy. Did they manage their own financial affairs? If so, how well and with what degree of comfort and success?

We also sought feedback on key financial fronts including the adequacy of the Age Pension, understanding of products such as health insurance and energy and phone plans, and to gauge which issues were causing most concern.

We learnt a lot about our members.

But first, how to define financial literacy?

Financial literacy is the ability to understand how money works, how someone makes, manages, invests and spends it wisely – or has the nous to employ a financial adviser and/or accountant to perform some of these tasks.

Does that describe you?

The survey indicates that many respondents would say, ‘Yes, it does’.

A massive 86 per cent said they managed their own financial affairs.

Just over 70 per cent said they had managed their finances in the past few years either well (50.4 per cent) or very well (20 per cent).

Sixty-three per cent said they understood their finances and investments well (50.5 per cent) or very well (13 per cent).

More than half (52 per cent) said they were either confident or very confident about their long-term future.

But for some retirees, could self-confidence – and perhaps a distrust of the financial services sector, given the events that prompted the banking royal commission – mean that they are missing out on maximising income and savings? Could it sometimes be a case of not knowing what you don’t know?

The Australian Securities and Investment Commission (ASIC) says: “Advisers mostly add value by helping you sort out your financial goals and working with you to develop a plan to achieve them over time.

“Most importantly, working with an adviser will help you turn thought into action, especially if you tend to put things off.”

Joe Stephan, Director at Stephan Independent Advisory, told YourLifeChoices that clients often remarked they weren’t aware certain strategies existed.

He said financial planners regularly reviewed plans to adjust the impact that outside forces (legislative and market changes) could have on them.

“If you choose to manage your own affairs,” he says, “how much time will you spend reviewing all aspects of your strategies? How accurate, non-conflicted or detailed would your reviews be? How effective and confident will you really be with your own review?”

The counter argument was summed up by James Shipton, the Chair of ASIC: “… financial services is one of the least trusted industries. We need confidence that the people in banking, insurance and funds management will keep their promises, act in our interests and live up to community expectations. We also need to trust that directors, auditors, mortgage brokers and financial planners will do their jobs with competence and honesty.”

The YourLifeChoices survey also canvassed your concerns in other key areas.

Eighty-six per cent of respondents said the Age Pension was either too low or far too low for a ‘reasonable retirement’.

Seventy-two per cent said they had private health cover, but 25 per cent said their health insurance bill was the single biggest challenge to being able to live within their budget. Fifty per cent said health insurance policies were too complicated to understand properly.

Energy costs (18 per cent) were the second biggest challenge, followed by housing (17 per cent).

With the main political parties already jostling ahead of the 2019 Federal Election, a banking inquiry in full swing, downsizing legislation taking effect from 1 July and costs always heading north, we’re here to keep you informed.

Key findings of the Retirement Income and Financial Literacy Survey

Which best describes where you live?
Own your own home outright 68.44%
Own your home with a mortgage 15.86%
Rent 10.96% 

Do you manage your own financial affairs?
Yes 86.41%
No 13.59% 

How well do you think you have managed your financial affairs over the last few years?
Well or very well 70.6%
Poorly or not well 9.04%

How well would you rate your current understanding of finances and investments?
Well or very well 63.37%,
Poorly or not well 9.45% 

The Age Pension entitlements are too complicated to understand properly.
Agree or agree strongly 46.46%
Disagree or disagree strongly 26.7% 

Superannuation is too complicated to understand properly.
Agree or agree strongly 40.52%
Disagree or disagree strongly 32.65%

Do you have private health insurance?
Yes 71.98%
No 27.68%

Health insurance is too complicated to understand properly.
Agree or agree strongly 50.48%
Disagree or disagree strongly 27.47%

What is the single greatest challenge to your ability to live within your income?
Health insurance 25.03%
Energy 18.23%
Housing costs 16.91%
Health bills 10.61% 

What are your preferred strategies to stretch/supplement your retirement income?
Downsize 39%
Annuity 11.11%
Reverse mortgage 4.4% 

Do you or your partner own shares?
Yes 45.81%
No 52.76%

Is it time the family home became part of the assets test for an Age Pension?
Yes 21.34%
No 70.15%

For more details from our financial literacy survey, read the March edition of our Retirement Affordability Index™.

Related articles:
Retirement income concerns
Has retirement made you a scrooge?
Age Pension too complicated

Janelle Ward
Janelle Ward
Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.
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