It may not come as a huge surprise, but newly released survey data has revealed that Australians with low levels of financial literacy are less likely to make regular contributions to a savings account, less likely to be able to draw on an emergency fund and less likely to pay off their credit card balance.
Those are all takeaways from the 2018 Household, Income and Labour Dynamics in Australia (HILDA) Survey released today by the University of Melbourne.
First conducted in 2001, the survey tracks a number of aspects of the lives of 17,000 Australians including employment, education, finance and housing.
The 2018 report highlighted a number of divides when it came to the financial literacy of participants, who were each asked five questions on numeracy, inflation and risk.
For example, the first survey question asked respondents to calculate the interest accrued after a year on a $100 savings account balance if the account had a steady interest rate of 2% and no fees.
According to the results, age proved a significant factor in performance, with participants in the 15-24 age group among the lowest performers on average, with results steadily increasing until the 55 to 64 age group.
There was also a substantial split when it came to gender, with 49.9% of men answering all five questions correctly compared to 35.4% of women.
Melbourne University’s Professor Roger Wilkins, one of the lead researchers on the HILDA Survey, expressed his surprise at the performance given how relatively simple the questions were.
“I couldn’t believe the number of people not getting things right,” he was quoted as saying in The West Australian.
“For instance, only 45% of 15 to 24-year-olds got the question on inflation right. You get to a point where a lot of people think the right amount of financial risk is zero risk and that’s not how the world works.”
The downside of poor financial literacy
The HILDA report also revealed some concerning takeaways in relation to personal finance, chief among these was the propensity for respondents who scored lower on the financial literacy survey to have poorer outcomes when it came to saving.
Of the survey participants who scored two or below, 23.4% admitted that they did not put any money into savings at all. That compared to just 17.1% of people who were rated highest for financial literacy (those who scored five out of five on the survey).
The least financially literate group in the survey was also found to be ‘highly likely’ to report being unable to raise $3,000 in the case of an emergency - 43.6% compared to 12.4% in the most literate group.
While those who scored two or fewer were less likely to own a credit card than those who scored a perfect five (25% compared to 69.4%), they were more likely to ‘never, rarely or not very often’ pay off their full credit card balance(22.7% compared to 17.2%).
'Clueless' first home buyers
The new results from the HILDA Survey may only add to the concern about the financial literacy of young Australians, coming just weeks after the release of a survey from ME Bank which found that many first home buyers were ‘clueless’ when it came to property knowledge.
ME’s survey of 1,000 young first home buyers found that while close to 70% of respondents indicated a feeling of confidence when it came to making financial decisions, more than half failed the basic property buying literacy quiz provided by the bank.
According to ME’s research, 85% of first home buyers didn’t know that there’s no cooling-off period when buying at auction and 78% didn’t know that they would need to pay a deposit on the day of the auction.
“Financial literacy is a valuable asset and one of the biggest money savers over time, especially when it comes to buying what is likely to be the biggest investment of your life,” said ME Head of Home Loans, Patrick Nolan.
“But like it or not, financial decisions including buying a property is best made on facts – a hunch or a guess could lose you thousands."
However, when it comes to personal finance, it’s never too late to learn. Whether you’re thinking about starting up a new savings plan or are in need of some guidance as a first home buyer, Mozo has a range of guides and tips to help you on your way.