Why there’s opportunity in improving financial literacy
Australians want to be empowered to improve their financial education. We unpick the problem and deliver a blueprint for brands to make a difference.
Australia has a financial literacy problem
Research shows that more than 1 in 4 Aussies lack sufficient skills and knowledge to make sound financial decisions.1 Younger people aged 18-34 and women have the lowest levels2, and it’s also a particular issue for small business owners – most do their finances themselves but nearly half consider themselves to be financially illiterate.3
What’s behind this ignorance?
There are a range of risk factors that exacerbate the issue:
Advice has become increasingly unaffordable
Advice costs have increased, caused by a decline in adviser numbers against a landscape of increased living costs.
The power of finfluencers
Gen Z is almost five times more likely to get financial advice from social media than older people,1 which has fuelled the rise of, often unlicensed, ‘finfluencers’.
The rise of manifestation theory
A proportion of people believe they are able to ‘manifest’ their own financial success through positive self-talk and visualisation – they are more likely to make risky investments and become bankrupt.4
Perceived complexity… and inertia
When it comes to finances, many Australians don’t even know where to start.
And when we perceive something as too complex or difficult, our default is to do nothing.
The two components to financial wellbeing
Financial wellbeing is inextricably linked to mental health and leads to greater general life satisfaction.5 However, there are two components to financial wellbeing – not just the knowledge but also the ability to put that knowledge into practice; that is, financial literacy and capability.
There are ways to address the barriers to each of these components using behaviourally driven tools and by understanding all the elements of delivering financial education most effectively.
Financial literacy will improve intentions, but it cannot improve our actions. Behavioural facilitation and literacy need to work in tandem.”
Dilip Soman and Nina Mazar, editors of Behavioral Science in the Wild
Addressing barriers to financial literacy
Educating in the key areas
Five key areas for financial literacy are: Spending/budgeting, Saving, Investing, Managing Debt and Borrowing. These form the building blocks of basic financial know-how.
Delivering information at the right time
Just-in-time education – that is, meeting the need when it arises for greater salience and mental availability. Teachable moments when we are more receptive to education make learning more effective.
Communicating in the most effective way
Simplicity, brevity and interactivity are everything when it comes to demystifying the complex: think simple, short and focused videos and bite-sized chunks of content.
Using the right channels
Social media platforms have grown as sources for financial information for Gen Z and Millennials, but more ‘official’ sources of expertise such as financial websites/apps, newspapers/magazines and well-known experts remain popular.
Practical steps to overcome obstacles
Providing tools to make it easy
The simple 50/30/20 budgeting rule of thumb – putting 50% of your money towards needs, 30% towards wants and 20% towards savings – is a common way to make money management much easier, simplifying a complex process with an easy-to-remember rule.
The popularity of programs such as ANZ Saver Plus shows the power of incentivising saving over a period of time with matched contributions, but also the power of building a savings habit.
Rewarding good behaviour
Helping consumers set financial goals, and rewarding behaviour that enables them to meet those objectives, nudges them to improve their personal financial responsibility.
Encouraging saving through defaults
Round-up apps like Wisr’s can be used either for saving or for paying off debt faster, giving people an automatic, painless way to put money aside.
Making safe spending salient
Up’s Pay Day feature helps control spending by making the spendable amount salient: see what you can safely spend and make sure there’s enough left for upcoming bills.
How financial brands can help
People want help from financial brands to build their confidence, providing the simple education to help them take control.6 There is a big opportunity for financial brands to be a source of support for literacy, as well as provide behaviourally driven tools to facilitate capability.
Have these ideas inspired your own plans to connect with customers? Get in touch with us today to discover how we can help.
- University of Newcastle, Financial wellbeing and general life satisfaction in Australia