Shane Wright, Economics Editor | The West Australian
The saying that a fool and their money are soon parted dates back to the 16th century.
It was a bit of wisdom imparted by a British farmer and musician called Thomas Tusser who also managed to list 10 things that cheese should not taste like.
In Tusser’s day, the biggest financial threat to someone with a little money was the king and his ability to tax all and sundry to help wage war. Of course, a one-way meeting with an axeman was also a passing danger.
Move forward to the 21st century and the financial world would have Tusser in an absolute spin.
The issue at the heart of Tusser’s idiom — financial literacy — is front and centre of a debate that has a long way to run.
Two seemingly unrelated developments have highlighted how Australians are being made light-touches for those who want to line their pockets with your hard-earned.
Opening the latest round of hearings at the banking royal commission, counsel assisting Michael Hodge went to some lengths to highlight a problem clearly at the heart of the superannuation sector.
While consumers are supposed to oversee their investments, what chance do they have if they can’t understand it?
“Australians might protect themselves by monitoring what is happening with their super. But the available research suggests, as a general rule, that consumers do not do this and nor are they equipped to do so,” he said.
This is more than the traditional “buyer beware” argument.
In the case of superannuation, every Australian is forced into the system whether we like it or not.
And, clearly, most of us don’t have the time or necessary skills to oversee a such a long term investment as super. It’s actually one of the reasons for superannuation — people are terrible at making long-term decisions, from personal finances to that extra piece of cake (which has its own saying, a moment on the lips, a lifetime on the hips).
That means we’ve had to outsource our trust and our management to a group of people who, sadly, have shown they don’t always have our interests at heart.
Hodge pointed to a survey from 2006 that found about 46 per cent of people aged between 15 and 74, or seven million Australians, would struggle to understand simple documents such as job applications, maps and payroll forms.
In terms of higher level literacy and numeracy, about half of all Australians were short of what was considered the minimum to understand complex demands of everyday life.
Mr Hodge also highlighted work by the Productivity Commission, which in a survey as part of its research into the superannuation sector found that as Australians got older their levels of literacy and numeracy deteriorated.
The Productivity Commission suggested that broadly Australians are less financially literate in matters relating to superannuation and retirement planning than in financial matters generally.
Separately, the latest release from the long-running HILDA survey — which has tracked 17,000 Australians since 2001 — also revealed some troubling insights into national financial literacy.
It found the young, the old, singles, people without a job and those without a high education all struggled with ordinary financial concepts.
We’re talking simple interest calculation, inflation and the concept of money illusion.
Of five questions, just 35 per cent of women and 50 per cent of men managed to get all correct.
People over 65 or between 15 and 24 were most likely to fail to get any of the questions correct.
Given these pieces of insight over the past two weeks you’d think there would be government ministers, their shadows, business leaders, community groups and unions demanding an overhaul of our financial literacy systems.
You’d be wrong.
Sports Minister Bridget McKenzie recently garnered headlines around the country for her call to make sport compulsory in the nation’s schools.
Some commentators went as far as to describe the idea as “radical” and “long-needed”, as if PE was last part of the schooling curriculum when Danny lettered in athletics at Rydell High.
But where are the headlines demanding compulsory financial literacy?
Where’s the anger from our reactionary shock-jocks and bleeding heart meme creators about the failures of policy leaders to get financial literacy right?
We want to make sure our kids don’t become obese but there’s not nearly enough attention given to ensuring our kids go into an increasingly complex world without the ability to differentiate between compound interest and a deposit rate.
The Australian Securities and Investments Commission does provide classroom resources to help school teachers boost the financial literacy of their students.
It ranges from encouraging Year 4 students to become “detectives” as they work through the gimmicks used by advertisers to separate them from their pocket money to upper high school lessons in lodging a tax return and comparing debt products.
That’s a positive effort by ASIC and one worth pursuing.
But if you’re up against something as eye-catching as making kids fitter and preparing them for the next summer Olympics, learning how to compare interest payments on credit cards could be a tad boring.
And while ASIC hopes to develop the tools among our young they face a world filled with financial sharks, Ponzi scheme promoters or those who promise unrivalled returns at no risk.
Then there is the sheer complexity of our financial system in which a conga line of ticket-clippers want their share of billions of dollars.
This is a country where almost three-quarters of us go to an accountant hoping to maximise our tax returns.
Only one other developed country in the world has a higher rate.
Personal income tax returns for most people are not that complex but seemingly in this nation they require specialists who, for a handy fee, will pull it all together for you.
Makes the days of teaching the kids the importance of putting some money in a bank-supplied money box seem quaint.
We require licences to drive. You need training to be a doctor or a nurse.
You even need reasonable English skills to be a journalist.
But when it comes to financial literacy, we’re on our own.
Once the royal commission into the banking sector is done, we need a real inquiry into making all Australians financially literate.
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