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

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.

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.

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.

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.

Building habits

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.

Sources:

1. Allianz, Playing with a squared ball: the financial literacy gender gap

2. University of Newcastle, Financial wellbeing and general life satisfaction in Australia

3. BlueVine, How literate are small business owners with their finances?

4. University of Queensland, Manifesting your way to bankruptcy

5. University of Newcastle, Financial wellbeing and general life satisfaction in Australia

6. Glassbox, Empowering the next generation: How BFSIs can improve customer financial literacy