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Getting to a higher level of financial literacy in Australia

The practical benefits of improving financial literacy.

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This month marks the 20th anniversary since the United States’ government under former President George W. Bush passed legislation officially proclaiming April as Financial Literacy Month.

Financial Literacy Month is quite a big deal in the U.S. Every April, all U.S. state governments, schools, and a wide range of organisations and companies, undertake various initiatives aimed at improving financial literacy, including educational workshops, financial events, and broader marketing activities.

The aim is not just to highlight to Americans the importance of being financially literate, but to give some practical guidance on how people of all ages can improve both their financial knowledge and economic wellbeing.

Australia is not at the same level in terms of having a national, co-ordinated approach to developing financial capabilities across the population.

Government-funded strategies have been limited to date. Private financial education programs are being run in some primary and secondary schools to help students learn about the basics of finance and money. But these programs are not part of the standard school curriculum.

Low literacy levels

The 2020 Household, Income and Labour Dynamics in Australia (HILDA) study, funded by the federal government, found after a survey of around 17,000 Australians that while income and wealth levels here are rising, financial literacy is low in different segments of the population.

The HILDA study included five financial literacy questions covering numeracy, inflation, portfolio diversification, risk versus returns, and money illusion (purchasing power).

Those in older age categories tended to achieve higher scores, although there were large differences in financial literacy scores across demographic groups and between individuals based on their level of education. Not surprisingly, it was lowest among young people aged between 15 and 24.

So, what are the practical benefits of having a good level of financial literary?

At the most basic level, it can help people to better manage their money. But even simple lessons, such as understanding how compounding works and the significant wealth benefits it can deliver over the long term, can have profound outcomes.

Investor levels still surging

It is evident that levels of financial literacy are not necessarily deterring individuals from investing.

According to the Australian Securities Exchange (ASX) Investor Study 2023, 10.2 million Australians were making investments outside of their family home and superannuation on the ASX when it conducted its research in November 2022.

Of those surveyed, around 20 per cent said they had only begun investing since the end of 2020. One-third said their first investment had been individual shares on the ASX, and for 14 per cent their first investment had been into an exchange traded fund (ETF).

Yet, having a higher level of financial literacy can potentially go a long way in guiding people on key principles such as the importance of setting financial goals and minimising costs, the roles of asset allocation and diversification, and the benefits of having a long-term, disciplined investment approach.

At a younger age, learning basic skills such as budgeting and saving can help a person to take their first investment steps, whether that’s saving up a deposit for a house or investing on the share market.

People in their 30s and 40s tend to be focused on securing and expanding their wealth, sometimes increasing their investment exposure to higher-risk assets.

Older age groups – especially those in their 50s nearing retirement or in their 60s who have already retired – can look to tilt their investments towards income-producing assets.

An ongoing process

In reality, building up financial literacy and knowledge at an individual level should be an ongoing process to prepare for different life stages.

These days, many people are learning the basics and building up their knowledge by reading financial books and listening to podcasts.

But one also should not overlook the important role of professional financial advisers in the financial literacy process, to receive considered advice at key life moments.

Many Australians probably recognise the benefits of receiving financial advice, but do not take the actual step of engaging an adviser.

That is a shame, because advice can go a long way to helping people plan well ahead so they can achieve a financially successful retirement.

Typically, an adviser can guide people in a wide range of areas including saving and budgeting, superannuation contributions, investment strategies, debt management, insurance coverage, and estate planning.

There is no doubt that more can be done on a broad co-ordinated level to improve financial literacy across Australia.

At the same time, there are also obvious steps that people can take themselves to improve their knowledge, and that can readily be accomplished with help from a professional adviser. 

 

 

 

By Balaji Gopal, Head of Client Experience, Vanguard
April 24
vanguard.com.au

Louise Laing

Louise founded Salus Private Wealth to offer high quality personal advice to clients who want to work closely with an adviser for the long term. Her philosophy that understanding each individual and their motivations and needs is key to an enduring and successful financial planning relationship is at the heart of the business.

She first engaged the services of a financial adviser herself when she was in her early 20s (long before becoming one) and believes the non-judgemental support and education about her position and options provided at this early stage has allowed her to make confident decisions in different aspects of life since then.

This confidence and positivity in making choices, financial or not, is what she wants to give to her clients.

Superannuation & Retirement

Superannuation is one of the largest and longest duration investments most people in Australia have, making it a critical part of long-term planning even if retirement feels like a distant objective. For those in the lead into retirement, we design strategies so you have peace of mind that when you start to draw on your retirement savings, you have liquidity and stability to support that.

Legislation and rules are changed regularly, so advice can help you take advantage of opportunities to build for the future. We are authorised to provide advice on and to SMSFs.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Insurance

Protecting your wealth, lifestyle and family is high on the priority list for many clients and this is an area of advice need that can change very quickly. Ensuring you have the cover you need can give peace of mind that what’s important is taken care of in the event of illness, injury and death, but we also make sure over time you are not paying for cover you no longer need.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Estate Planning

While talking about death doesn’t seem like a particularly appealing prospect, it’s a topic we see as a vital part of financial planning. Importantly, it’s a topic for every adult, regardless of their stage in life. Without a proper estate plan assets may not be passed where you’d like them to go, family conflict can ensue, and in the event you lose capacity there may not be an authority in place for the person you would choose to make those decisions for you to do so. While it can be an uncomfortable subject, we are experienced in facilitating these conversations as part of our advice process.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Strategic Debt & Cashflow

Managing debt efficiently can have a material impact on your financial wellbeing and lifestyle. Having a solid plan to understand where your money goes and manage cashflow and debt can eliminate stress and set you on a positive path toward achieving your goals.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Investments

Once we have a clear understanding of what we are aiming for and how you feel about taking on investment risk, we can help direct your funds into appropriate investments to meet your goals. This includes recommending the investment structure, consideration of tax implications, asset types, and putting together a suitable blend for you. You will have transparency of and access to view your investments, providing security.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

Aged Care

Aged care needs can arise suddenly. The complexity of managing this can be a significant challenge at a time when your focus should be on the person requiring care. We can assess the alternative funding options to ensure you make an informed choice in the best interests of the person requiring care.

Contact us today to discuss how we can work together: (02) 8044 3057 or email us at info@saluspw.com.au

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The Trustee for Laing Weaver Family Trust T/A Salus Private Wealth (Corporate Authorised Representative No. 1305571) and all our advisers are Authorised Representatives of Finchley & Kent Pty Ltd, Australian Financial Services Licence No. 555169, ABN 50 673 291 079, and has its registered office at Level 63, 25 Martin Place, Sydney NSW 2000.

Finchley & Kent Pty Ltd Australian Financial Services Licence applies to financial products only. Please note that Property Investment, Tax & Accounting, Mortgages & Finance are not considered to be financial products.

Disclaimer: The information contained within the website is of a general nature only. Whilst every care has been taken to ensure the accuracy of the material, The Trustee for Laing Weaver Family Trust T/A Salus Private Wealth and Finchley & Kent Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.