Financial literacy among Australians has dropped, while stress levels surrounding finances are increasing, according to two new reports.
A survey conducted by the University of Newcastle on behalf of Greater Bank found that more than a third of Australians are financially illiterate, and that figure is on the rise.
Surveying 575 women and 536 men aged from 18 to 90 years, Greater Bank and the University of Newcastle found that respondents answered 62 per cent of five financial literacy questions correctly. In contrast, the Australian Financial Capability Survey, published last year by the federal government, reported that 68 per cent of respondents were financially literate, suggesting a potential 10 per cent drop in literacy over 12 months.
The University of Newcastle report, titled Financial Wellbeing and General Life Satisfaction in Australia, also found that improving financial literacy leads to better financial outcomes, which in turn leads to higher overall life satisfaction.
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Lead author Professor Christina Boedker said: “We found that just 66 per cent of Australians can be classed as financially literate.” Only around one in four people scored 100 per cent, answering all five financial literacy questions correctly.
“We also found that financial literacy has a significant impact on a person’s general wellbeing, not just on how people perceive their financial wellbeing. This in turn feeds into overall life satisfaction, with regression analysis showing that individuals with higher financial wellbeing experience significantly higher levels of general life satisfaction.”
In a separate study, AMP’s 2022 Financial Wellness report found that stress is higher than ever and has almost doubled over the past two years. The report says the increase has been driven by employees’ dissatisfaction with their financial situation and the practical difficulties of meeting monthly expenses.
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According to the report: “The COVID pandemic underlies many of these issues. It has created vast emotional and financial uncertainty over the past two years and is now driving economic forces (labour shortages, supply chain bottlenecks, inflation, higher rates) that cloud future financial prospects.”
Women feel the pinch
Looking more closely at the estimated 953,000 Australian employees described in the report as “severely financially distressed”, it found that 27 per cent of women were feeling financially stressed – an 8 per cent increase on the 2020 figure.
This broadly ties in with the University of Newcastle findings, in which women reported lower levels of financial satisfaction compared to men, specifically those aged 18–24, 25–35 and 35–44.
For part-time workers, the ‘financially distressed’ figure is 26 per cent (also up 8 per cent) and for 30 to 44-year-olds, it is 25 per cent – a 12 per cent increase on 2020.
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The AMP report, the fifth since it was introduced on a biennial basis in 2014, focuses on “easing the pressure”, and proffers strategies for doing just that, including clarifying your financial situation, building a budget, setting financial goals and consulting an expert.
Interestingly, the University of Newcastle report found that although people who are financially literate are less likely to experience financial hardship, they are also less likely to be satisfied with their financial situation. The report suggests this could be the result of the ‘ignorance is bliss’ effect.
For many though, that ‘bliss’ would be unlikely to last. Similar to AMP’s report, the Greater Bank study concludes that younger Australians (aged 18–34) require more support and assistance to improve their financial wellbeing.
Given that both AMP and Greater Bank are looking to build their customer bases, it is hardly surprising that both are advocating consulting financial experts, but looking beyond those commercial motives, the advice is likely to be beneficial to those who take it on board.
Has your financial stress level increased over the past couple of years? What have you done to relieve it? Why not share your experience and thoughts in the comments section below?
