60% of Aussies fail basic financial literacy test proving confidence isn’t everything
Aussies are confident that they know what they’re doing when it comes to their finances, but the majority don’t have the financial know-how to back it up, according to a new study from online bank ME.
The ME survey of 1,500 Aussies showed that only 13% would rate their financial knowledge as “below average.” But when it comes time to put that knowledge to the test, a massive 60% failed a basic banking literacy quiz.
Personal loans, credit card repayments and compound interest were among the things commonly tripping people up.
Nic Emery, Head of Deposits and Transactional Banking at ME, said the disparity between how much Aussies think they know and what they really do understand about their own finances may lead them to make poor banking decisions.
“Among the most worrying findings, 74% had no clue about home loan comparison rates, meaning they may not be aware of the fees they’re paying,” he said.
Another major finding revealed that 73% of Aussies didn’t realise that only making the minimum payment on a credit card balance would mean they could be paying off that debt for decades.
Mozo calculated that for a cardholder with an average credit card debt of $4,000 and an interest rate of 17.25%, it would take 26 years and 10 months to pay off that debt, assuming they were making minimum repayments and not putting any new purchases on the card.
According to Emery, lack of financial education was a hurdle for many Aussies, with 35% admitting they hadn’t made efforts to educate themselves or expand their knowledge about banking products and services.
“Some Aussies fail to educate themselves because they find banking dull and complex and think they know best, while others find working with numbers difficult and put their head in the sand,” he said.
But a working knowledge of personal finance can save Aussies thousands of dollars, and it may not be as hard as you expect to brush up on your financial literacy.
“A few good rules of thumb to start with are to review your banking products annually like you might an electricity or insurance contract, and be prepared to switch if you’re not getting a good deal. It’s easy once you know how,” said Emery.
Need to brush up on your financial knowledge? Check out our personal finance cheat sheet.