Our future is in safe hands, with Australian teenagers rating very well in a recent global survey of financial literacy, but the rest of us might be thankful for a new national plan aimed at helping us manage our money better.
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In a recent financial literacy assessment by the OECD, Australia’s 15-year-olds were rated fourth out of the 18 countries and economic areas that participated. It is an encouraging sign that younger generations are likely to be better protected than their parents and particularly their grandparents who have lost billions of dollars in failed investments.
Authorities know there is a lot more to be done to better protect all Australians. Hence the announcement on Friday of a three-year strategy, which is co-ordinated by the Australian Securities and Investments Commission, to improve the financial literacy of all Australians by providing a national framework within which government, business and the education sector can work.
Launching the strategy in Sydney, Steven Ciobo, the parliamentary secretary to the Treasurer, said: “Being able to make the most of your money, manage financial risks and avoid financial pitfalls can have a positive impact on the financial wellbeing of individuals, families and communities.”
Under the strategy, which comes despite the Government cutting the regulator’s funding in the May budget by 12 per cent for 2014-15, ASIC will enhance its MoneySmart website and extend its MoneySmart Teaching program to more schools.
Households have to make hundreds of financial decisions that earlier generations did not have to. Researchers have coined a term - financialisation - for the process. Households make decisions on how much to borrow to buy a house and which lender provides the lowest interest rates and whether it is better to fixed the interest rate or to take a variable interest mortgage.
Then there are decisions about mobile phone and internet plans and, perhaps, biggest of all, working out how to afford a comfortable retirement. Financial products are becoming more complicated.
The process of financialisation has been rapid. Only 30 years ago, those who had superannuation were in defined benefit schemes, where they received a percentage of their final salary for the rest of their lives.
As for getting a mortgage, it was a matter of going to see bank manager, cap in hand, to ask for a mortgage - no one shopped around.
Individuals take more of the financial risks rather than governments or employers. That is why there has been a lot of effort put into lifting financial literacy, though lack of literacy is not the only reason that billions of dollars have been lost, mostly by older Australians, in failed investments and through negligent financial advice.
Much of the effort in improving financial literacy has been directed at lifting the financial literacy levels of children. People are being swept up in the process of financialisation at younger ages, whether it is working out the best mobile phone plans or how to manage student debts.
Younger people have less job security than earlier generations and will not be getting the age pension until age 70, making saving for their retirement all the more important.
Modules covering financial literacy are being added to the Australian school curriculum. There is evidence that better financial education is having an effect, though other factors are likely involved. The evidence comes from the international testing of 15-year-olds on their financial literacy levels.
The Programme for International Student Assessment, run by the OECD, tests students in science, mathematics and reading. In 2012 it added, for the first time, a test on financial literacy.
The results, which were released last month, show Australian 15-years-olds achieved an average score of 526 points, which was significantly higher than the OECD average of 500 score points. Only two economies, Shanghai in China and the Flemish community of Belgium, performed significantly higher than Australia.
The Australian Council for Educational Research, which analysed the Australian results, notes that almost 82 per cent of students tested reported having a bank account. According to the Australian Communications and Media Authority, almost 90 per cent of teenagers have a mobile phone.
A report by Westpac on children and money released in 2013 found that children who work for their money and track their money in an account are more likely to appreciate the value of money than those who do neither. Katherine Lane, principle solicitor at the Financial Rights Legal Centre, welcomes the financial strategy.
She says financial literacy is about explaining how a car loan works and how the interest works, which is good. However, she thinks the strategy should also educate people about how to avoid problems and show them where to access information to help them make the right decisions.
“Avoiding problems is just as important as financial information,” she says. Lane says she doubts whether financial literacy education would have helped anyone avoid the financial planning disasters.