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Financial literacy for older Australians has gone nowhere

In 2004, I attended the launch of the Federal Government’s Consumer and Financial Literacy Taskforce (CFLT). The event, held at the State Library in Victoria, featured the ‘who’s who’ of financial services. ‘Money’ host, Paul Clitheroe, was the newly-appointed chair and Mal Brough was the Finance Minister in the Howard Government who held responsibility for the outcomes.

The future of financial literacy for all Australians looked rosy indeed.

A report (shared by Assistant Treasurer, Helen Coonan, June 2004) had identified a major absence of consumer financial literacy and the taskforce had been formed to fix it. During the launch, I asked which specific cohorts would be a focus for this new initiative. The answer was that high school children, Indigenous Australians and those of a cultural or linguistically diverse (CALD) background had been identified as most at risk of low financial literacy.

Fair enough. I then asked, given the demographic spike of some 5.4 million baby boomers hurtling towards retirement, if pre-retirees with scant financial literacy might also become a priority.

"Yes, that’s a good idea, they’re definitely on our radar", was the reply from the Chair.

Well, here we are nearly two decades later and it’s fair to ask how these ambitions have helped financial literacy for retirees in the meantime. Have we made any progress at all?

I fear not. There’s a big fat zero on the Taskforce’s report card.

Where is the financial education?

Along the way we’ve seen a steady stream of government enquiries, many for all the right reasons. Some were politically charged, such as the Tim Wilson-led ‘retiree tax’ parliamentary enquiry which was a thinly-veiled campaign vehicle for the Liberal Party during the 2019 election year (I can say this as I attended one of the local town hall meetings).

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had a broad scope and was forced on a government reluctant to reveal the depths of financial impropriety, which it ultimately did. We’ve also seen initiatives such as Financial Adviser Standards and Ethics Authority (FASEA) come and go with little real impact.

Are consumers any better off, especially as the Quality of Advice Review from lawyer Michelle Levy proposes to unwind some of the consumer protections brought in over the last decade? 

Depending upon the esteem in which you hold financial advisers, you may view the departure of nearly 40% of advisers from the industry in the past few years as a good or bad thing. Either way, the number of providers of financial advice has shrunk dramatically and it’s hard to see what has replaced this service.

Understanding superannuation is essential

When the Taskforce was launched in 2004 and compulsory super was just over a decade down the track, there was $649 million of savings held in superannuation. Today that amount is $3.3 trillion, dwarfing nearly all other pots of money in the Australian economy.

It’s easy to think of this money in its aggregated form, but this is essentially the life savings of nearly 16 million individual men and women.

Commentators still cling to the Association of Super Funds Australia (ASFA) estimates for ‘comfortable’ retirements, which means that the oft-quoted target of a $1 million nest egg is generally accepted as necessary to lead a reasonable retirement lifestyle. But this is at odds with ASFA’s own measurements of actual savings: an average nest egg at retirement of $310,240 for males and $246,632 for females or, worse still, the median amounts of $138,337 and $107,897 respectively.

The gap between rich and poor older Australians has widened considerably since 2004 and our retirement income system supports this gap.

Here’s how. The more work income you earn, the more you get from the ‘flat’ Superannuation Guarantee contribution (SG) rate, currently 10.5%.

Say you are Sally, earning $200,000 p.a., then $21,000 per annum is automatically invested in your nominated super account. This balance will compound nicely. Sally may also contribute extra and be able to afford a good accountant, also perhaps the establishment fees for a SMSF.

Or maybe you’re Larry, who does his own tax return, as his salary of $25,000 doesn’t allow for outsourced financial assistance. His SG contribution is also 10.5% per year, but only a $2,625 contribution will hit his super account annually. On such a low salary, he’s unlikely to make extra contributions. Sure his balance is growing, but far below the rate of Sally’s.

Since 2004 there has been a proliferation of fintech products and online advice. Now social media ‘influencers’ are offering guidance on how to grow your wealth. Not only has this added to the noise and confusion around financial advice, as legally questionable as it might be, such ‘influencers’ may also have been the preferred source of information for the (predominantly young) superannuants who withdrew funds during the Covid years, reducing their ultimate super savings to a shadow of what they may have been.

Information needs to reach the right people

Which brings me to the 2020 report from the Retirement Income Review (RIR) and its findings. It seems to be largely satisfied with our system, albeit noting certain pressure points along the way.

I am surprised. As a long-time observer of consumer confusion over shifting retirement planning goal posts and legislation, unlike the RIR, I am far from satisfied with the status quo.

I think financial planning for retirement in Australia is in dire shape. It feels as though we’ve been running up and down on the spot for the last 20 or so years.

The need has never been greater - but who is going to break this strife? Australia is predicted to have more than 10 million retirees in the next 20 years, and according to Money magazine, 40% of super funds’ assets will then be held by retirees. The RIR has called for much more emphasis on decumulation. That’s fine, but the products are complex and product information is even more so. Most Product Disclosure Statements (PDS) can at best be described as the antithesis of plain English.

Some 71% of retirees are still on a full or part age pension. The combined income and assets test for entitlement is far from easy to understand and the application length and process is a nightmare for many, some of whom give up. Others get on the phone and join the 43 million calls a year that Centrelink still can’t manage. For those who are - or will be - self-funded and often self-directed investors with the motivation to seek out information, there is a plethora of material. But ASIC finds that most Australians still don’t know the difference between general and personal advice nor what they can reasonably expect from the product vendor or adviser.

There is too much at stake to get this wrong. The potential for increased income (and therefore life opportunities) for millions of retirees, not to mention the benefits to the wider economy and health savings, deserves urgent attention.

There is much we could do better, starting with widespread government ownership of the need for improved financial literacy. Consistent, authoritative information could be delivered through TAFE institutions, local governments and workplaces, just as we do with language education. The beleaguered Centrelink Financial Information Service (FISO) offering could also be significantly bolstered.

But who has the political will and energy to change this landscape of confusion and complexity? The answer eludes me. If anyone can see a glimmer of light in this depressing and wasteful scenario, I’d be delighted to hear what it is.

 

Kaye Fallick is founder of STAYINGconnected website and SuperConnected enews. She has been a commentator on retirement income and ageing demographics since 1999. This article is general information and does not consider the circumstances of any person.

 

16 Comments
Brad
October 10, 2022

Investing for your future years via super or any other means is a bit like vaccinations, exercise & eating healthily - not always pleasant but one knows that it is just something that needs to done.

While teaching the basics of money management & investment in schools would be far more beneficial than some of the rubbish taught to our young people today, the will, self discipline, maturity or drive to stick at it for a working lifetime is also required. Most people don't have these traits or won't do the work to develop them; and, worse still, won't make the effort to self educate from the plethora of free information that there is today. They will get the retirement that they deserve & no amount of hand wringing about the super system will change that.

Stewart
October 10, 2022

I have enjoyed good financial literacy for a little over a decade now, and believe me, it wasn’t always that way. Something had to “click” for me and it was a divorce from a horrible marriage and a life changing new partner and marriage that manifested that “click”.
In my experience, during that horrible time, I had my head in the sand when it came to finances. The higher the debt spiral got, the less interested I was in solving it.
I see that same attitude now in a lot of friends and family. Some I have been able to help, others simply don’t want to know or talk about it.
And there lies the problem with regards to financial literacy. Many just don’t want to talk about it or address it in any way. Objections such as “financial advisors are crooks” or “we keep having bad luck, I don’t need to talk to a Financial Councillor, I just need enough money to fix this problem right now” . Even the fact that Financial Councillors are a free community service doesn’t seem to be enough of a carrot to get help.
This is also why a lot of older people get caught up with get rich quick scams and tunnel vision as far as their finances go. They are simply running out of time and want a quick fix to their financial situation. Their lack of financial literacy simply means they are unable to distinguish good investments from bad ones.
This old saying is still so true, “ those who understand compound interest earn it, those who don’t pay it “. Be on the side who earn it folks !

Bev
October 10, 2022

Stewart your comments about people not wanting to know how to fix their financial issues is so true. I too have tried to help friends. Also the last one about understanding compound interest. It is not rocket science. I am hopeless at maths but I understand it.
These are the issues as I see it -
People don't start saving and investing safely at an early enough age. To benefit the most it is a long term thing.
Young men spend their money on cars, booze, good times and these days body art and piercings.
Women spend their money on clothes, shoes, make-up, beauty products and treatments, drink too much and copy the boys with the body art etc. We can all limit what we buy and do without feeling deprived. It is a mental thing.
Individuals, no matter whether male or female need to think about and plan for their future at a much younger age.
They need to spend time educating themselves about the Superannuation schemes they are in and different types of investments without expecting to "get rich quick".
Scott Pape and Noel Whittaker are two financial advisers who have always given sensible, helpful advice. You don't have to be a genius to understand what they are saying and put it into practice. You just need to read the right books which are probably available from your local Council library for free.
Although an ordinary worker I have NEVER paid interest on my credit card as I pay the bill in full EVERY month. If you can't afford something, don't buy it.
Make out a sensible budget and stick to it.
Don't let your friends talk you into spending money on something you don't really want or don't want to do.
Eat sensibly and exercise. Good food costs less. Walking around your neighbourhood every day costs the price of a pair of socks and sneekers.
The big one is, and the reason you need to start young if you are an ordinary worker, is to own your own roof over your own head. And preferably a house as you then won't be wasting money on body corporate fees that fluctuate. You can then decide if and when to do renovations and whether to do them yourself or pay a tradie.
If you can't get anywhere with the earnings from one job then get a second job. I did, and it made a big difference.
I have done all these things. I am now retired and quite well off and have never felt deprived. You just need to sit down and think it through and not be unfluenced by your spendthrift friends.
I guess self discipline is the real issue here.

Dnw
October 10, 2022

I suspect the media and advertising has a significant effect on people's attitudes to finance.
Consider all most all the advertising for financial services, they show an attractive male or female adviser sitting with a beamingly happy couple of usually older people looking at the adviser's laptop. One imagines the couple are looking at the future wealth projections.
The point being reinforced is that only the expert can deal with these complex issues. So there is no point in trying to understand it yourself.

Lyn
October 09, 2022

Graham, glancing at this article with not yet real depth of reading but get general idea, maybe you should look into setting up equivalent of UK's 'u3a'. Gather from UK friend covers anything from exercise to financial understanding in casual classes held anywhere/any place to suit demand, some in castle grounds, in Oz could be by the beach with picnic. She takes grandchildren to some classes in holidays. Groups of people with interest come together to share knowledge/ learn something new. Helps all, newbies learn on a casual basis, thus not flouting any financial law. There's plenty of people on this site judging from Comments who know their Maths & those who could share life's financial lessons, even if only how to work out interest rate or compounding that should have been learned in school. All these reired people with possible time to share life's lessons, Never too late to learn. L

Kevin
October 09, 2022

CBA was listed in 1991,last of the big 4. CBA $6 a share NAB $7 a share ANZ $4 approx WBC $4 approx. $21K bought you 1000 shares in each of them.Approx 9 months wages back then. Double your shareholding in each of them approx every 13 years .Change that to fit in with whatever it is you want to see. That takes 2 minutes to work out. People will deny for 20 generations. Doubling your shareholding every 13 years and doing nothing for 40 years then 1 is the starting point,after that 2,then 4, then 8.After 40 years you have 8000 shares in each of them,people will deny that,it might be roughly right .

Kevin
October 09, 2022

8000 shares in each of those banks in 2031 at whatever the price is on 30/6/31 or 31/12/31. On those dates less than 1% of the population will own 8000 shares in all or any of them .They will still deny every day of the last 40 years though. What would you expect to change in the future?.

Kaye
October 10, 2022

Hi Lyn, I love the idea of working with the U3A to help combat financial literacy deficits - brilliant! warmest, Kaye

Lyn
October 17, 2022

Hi Kaye, I hope with your background you will investigate as sorely needed, add a little fun to it & if built then they may come as saying goes.

Richard Clough
October 10, 2022

Lyn, a great idea to gather in like minded groups to share information about what others have learned.
Share clubs are another group idea. They focus discussion on a range of investment issues, political policies, economic issues and financial decision making as well as financial performance of companies being considered, looking at factors such as Financial Health, ROI, ROE, P/E ratios etc. They also encourage doing personal "homework", to bring ideas to the next group meeting. Regular reading of financial information is important to keep informed of changes in the financial markets.

Lyn
October 17, 2022

Richard, as Comments /article show, peoples' eyes really do glaze over when finance comes up due lack of understanding/never taught, casual groups definitely needed where people don't feel 'stupid' and in a fun setting if poss to make it fun but through a recognised provider such as U3A, hope Kaye looks into it. In 1996 I asked 9 people I knew if they'd join together to make a "share" group as you described, to learn more from each other's ideas, to learn together, not 1 taker, so Kaye is right, how does change come?

Lyn
October 09, 2022

Crumbs, what an issue this week's issue is. I've only just got past first 2 articles and there's more................. to get het up about. Need sleep before more detailled reading, maybe why only 3 comments yet.

Kevin
October 07, 2022

A good article but it starts from the day they are born until they day they die. The super example is annoying,a lifetime of if anybody wants any money,get it off the super funds. A working lifetime of the tax man takes most of the money.Then close to retirement this changes to "they "will take all of my pension off me if I have any money.Listening to general advice on the radio.Caller "Hi Fred'can you help me. ( Fred) probably. A relation has died and I have been left around $1.5 million,his ( her) house and some cash and super.I'm worrying myself sick,"they" might reduce my pension. Caller "Hi Paul,can you help me. Paul,probably. I bought 2 houses for negative gearing,it doesn't work. How? Well the first few years I got a tax rebate,now the rent covers all costs and I pay more tax , I don't get a rebate. Paul,that's good,have you had good gains on the houses. Yes,they have roughly doubled in value,but I pay tax on the rent and somebody at work ( or the pub) said "they" will not give me a pension.A further problem is I have been told that if I sell the houses I will pay CGT.I'm not rich,after paying off mortgages etc I'll have around $500K,it doesn't seem fair when rich people don't pay any tax. Paul.You will only pay tax on $250K,the CGT discount.Worst case is you'll pay almost half in tax.You'll pay approx $120K in tax. That still isn't fair,why should I have to pay any tax The Woolworths annual report arrived yesterday.The brief breakdown,an average of 22.7 million customers per week .We employ 197,773 people,that seems a bit too exact but is probably correct.Revenue of $60.8 billion.People seem to think that revenue is profit,try telling them it isn't. Shareholder breakdown is 105,151 people own between 1000 and 5000 shares.This is 0.4% of the population. None of this is difficult to breakdown.Add on all the truck drivers,electricians,builders and subcontractors that depend on Woolworths.Then farmers,Fruit growers ,dairy farmers etc.The people they employ. Meals and provisions donated to second chance and charities etc,I'd like to see more of that done and no waste. All people see is $60B profit,I get ripped off,why doesn't the govt do something about it and make them pay more tax. Why don't people buy shares in WOW if they make huge profits and have no competition .The answer of course is ,they'll go bust,I'll lose all my money,it's too risky. What can you do to educate people.Rantbover,good article.

Andrew Smith
October 05, 2022

Important issue but one would argue that it is not restricted to older people but seems to run across generations?

Suboptimal financial literacy is apparent when Australians of any age, and RE media, speak of or boast about their property (nominal) price gains when in fact, they have lost part of their shirt in real terms; not understanding the time value nor money nor costs etc.

Some ideas and metrics to get people thinking about property and liven up the proverbial 'dinner party' is to state that prices can go up while real value declines, property price should double each decade (@ 7% discount rate) to maybe just tread water (on all costs) and real value could be calculated via long term market rents p.a., calculated at 7%; the latter would make the headline 'price' seem 'toppy' in most cases.

Like critical literacy in an age of media based PR, agitprop and outright misinformation etc., there needs to be education starting at school age, while most post school adults desperately need a 'crash course' in financial literacy.

BeenThereB4
October 05, 2022

Very nice article Kaye BUT you have not mentioned that a significant segment of the community is "not engaged" with financial matters. Typically "Mr" looks after the SMSF and "female spouse" leaves it to him. Again, typically "Mr" passes away before his spouse and she does not know what to do. Hence the need for financially-aware and trustworthy family-members / friends / financial adviser.

Kaye Fallick
October 11, 2022

Hi BeenThereB4 (haven't we all :-) )
I get this example, there are some common gender responses to challenges of financial planning. But I think at the base of the problem in recent times is that it is very hard to expect engagement after such a massive hit to trust in an industry that was found wanting? Interested in how to foster and support trustworthy sources of advice - what say you? warmest, Kaye

 

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