1 in 3 Australians – 6.4 million people – don’t “feel equipped” to make informed financial decisions during times of inflation, as a lack of financial literacy takes its toll.
The figures were revealed in a 2023 survey by Finder. The findings showed young Australians were the most vulnerable, with 49 per cent of people aged between 18 and 25 claiming to feel unprepared to make financial decisions, as opposed to only 18 per cent of Australians over 60.
This news comes after Australia’s highest inflation increase in decades has left many Australians tightening their belts. Data from the Australian Bureau of Statistics (ABS) revealed inflation had risen to 7.8 per cent for the year to December 2022 quarter – the highest level since March 1990. The latest monthly inflation data for February 2023 shows inflation has decreased slightly to 6.8 per cent.
What this means for students
For already struggling university students, this rise in inflation is set to make ‘interest free’ student HELP loans rise by 7.1 per cent in June, raising the average student debt by an additional $1500.
With repayments only required once reaching an income threshold of $47,014, these HELP loans have largely been ignored by students. But as indexing forces these looming payments to rise, many students are now learning how these payments will impact access to disposable income and borrowing capacity.
These growing interest rates have also hit Australian students at home, with the cost of living skyrocketing nationwide. Results from Finder’s monthly Consumer Sentiment Tracker have shown a growing concern with rising prices across housing, petrol, grocery and energy costs, with no reprieve in sight.
What is financial literacy?
Financial literacy is understanding financial concepts and performing basic financial tasks. These tasks may include lodging tax returns, managing superannuation and ensuring you have enough money to look after yourself and your family.
Although the concept is broad, there is a set of five questions about interest rates, the stock market and mortgages that were used by the Household, Income and Labour Dynamics in Australia survey to measure an individual’s level of financial literacy.
Alarmingly, the results showed a decline in financial literacy for those aged 15 to 24, with average scores falling from 3.4 to just 2.9 out of a possible five points for young Australians.
Mo’ money, less problems
In a 2022 research report, Financial Wellbeing and General Life Satisfaction in Australia, the University of Newcastle found that, unsurprisingly, improving financial literacy leads to better financial outcomes and higher overall life satisfaction.
Lead author of the report, University of Newcastle Business School researcher from the College of Human and Social Futures, Professor Christina Boedker, said the results from a nationwide survey clearly showed the benefits of financial literacy.
“With rising living costs and high-interest rates, the importance of having higher levels of financial literacy, backed up by financial planning activities such as having a household budget or setting longer-term savings goals, is as important as ever, as it leads to greater financial wellbeing.
The University of Newcastle undertook the research as part of the Financial Literacy Program with Greater Bank, validating the need for a greater focus on financial literacy and financial well-being, particularly among young adults.
Greater Bank Chief Financial Officer, Bob Moffat, said the research highlighted the need for more financial education programs.
“The research clearly shows that improving financial literacy can have significant benefits, so we want to make financial education available to more people,” said Mr Moffat. “We’re doing just that through the Greater Bank Finance Academy’s financial literacy outreach program that has been developed by the University of Newcastle. The curriculum-based program teaches students about money, saving, planning, and investing.”
“We also see the possibilities of rolling out similar programs for young adults, with the University of Newcastle research also finding that younger people are more likely to suffer financial hardship. Across all age groups, more than one in eight received financial hardship assistance in the previous 12 months, which is a statistic we want to improve,” he said.
“These outcomes could potentially be reduced through improving financial literacy, which will have a flow-on effect throughout their lives.”
