Published on December 16th, 2014 | by admin0
Brushing up on your financial skills
Back in the day, managing one’s finances required no special skills – people worked, chose a bank for life, saved for the things they wanted and went on the pension when they downed tools at 65.
Fast forward to 2014 and it’s a very different story. The young have double-digit HECS debts and soaring house prices to contend with, mature folk must grapple with the complexities of self-funded retirement and ubiquitous access to consumer credit lays traps for the unwary of all ages.
The recent budget from the Abbott government has yet again hammered home the message that looking out for ourselves, rather than relying on the state, will continue to be the order of the day. But does the average Aussie have the financial literacy to do so?
Or are we ill-equipped to make informed judgments and effective decisions on all the complex financial matters modern life demands we deal with?
Unfortunately it’s the latter, says Peter Mordaunt, a financial literacy lecturer in Macquarie University’s faculty of business and economics.
Lots of people battle with the basics: understanding how things like compound interest, interest free periods and mortgage offset accounts work. And many struggle to set and stick to a personal budget.
“People’s levels of financial literacy range from ignorant to over-confident,” Mordaunt says. “Most people don’t know how to control money and allow it to control them.”
“Finances these days are dreadfully complex. People need to prioritise what they should focus on – don’t get overwhelmed by it.”
The good news is that there are plenty of courses and resources available for those who want to improve their financial nous. Money takes a look at a few of them.
Launched in 2011, the Australian Securities and Investments Commission’s MoneySmart site aims to be a one-stop shop for personal finance. It offers free information and guidance on decisions, from choosing a home loan to paying for a funeral in advance. Tools include a budget planner, mortgage calculator and retirement planner.
The site receives 400,000 visits a month. Central to its popularity is the way information is offered in a ‘’life stage’’ approach, rather than in overwhelming, generic dumps, senior executive leader of the MoneySmart program Miles Larbey says. For the under-25s, there are tips for buying a car and moving out of home, while the over-55s section offers advice on retirement planning, powers of attorney and the cost of aged care.
“People tend to learn best as they need the information,” Larbey says. “Life events typically prompt financial decisions. The site is designed to help people take action and research has shown that most do.”
Centrelink Financial Information Service
A long-standing education and information unit within Centrelink, the Financial Information Service (FIS) hosts over 2500 free, public seminars around the country each year on a plethora of money related matters.
Themes range from the generic – “creating wealth – getting started” and “understanding shares” – to specific subjects, such as “running your own super fund” and “salary sacrifice”.
Information can also be provided personally, by phone or at appointment, and the service is open to all.
Most of FIS’s custom comes from mature folk who are approaching or planning for retirement, according to a Department of Human Services spokesperson. Around 78,000 people attended seminars last year, while a further 150,000 received calls and consultations.
Financial illiteracy is often intergenerational in low-income households but direct intervention to teach people the basics can break the pattern, The Smith Family’s head of policy and programs Wendy Field says.
The charity is one of several that delivers Saver Plus, an education and matched savings program developed by ANZ and the Brotherhood of St Laurence, which has been accessed by 20,000 people since 2003.
Participants, who must have a Centrelink concession card and some regular income from work, are encouraged to share money ideas and adopt planning and budgeting strategies, via a series of informal workshops. Those who make regular deposits towards a savings goal over 10 months have their contributions matched, up to $500.
MoneyMinded, another education program developed by ANZ in 2002 and delivered by charities throughout Australia, consists of a series of workshops, customised from 20 available modules. They include “Understanding paperwork” and “Dealing with debt”. More than 240,000 people have participated since its inception.
In addition to helping people use their resources more effectively, equipping them with basic skills provides a sense of agency and control, Field says.
Want to learn about estate planning or find out what the equities market is up to? Ask your super fund, says Energy Super’s chief executive, Robyn Petrou. Industry funds have been encouraging their members to become more finance savvy for the past 20 years and offer a plethora of free seminars, webinars and online videos on all matters financial.
Educating retail investors – from rookie dabblers to those who know the difference between fundamental and technical analysis – has been part of the ASX’s remit for 30 years.
In recent times its focus has shifted from free courses and lunchtime seminars to webinars, online courses and interactive tutorials on all matters market related, ASX head of investor education Tony Hunter says.
Introductory modules explaining the trading process and how the market works are most popular, while the cognoscenti are catered for with sessions on topics including options, exchange-traded bonds and interest-rate securities.
Participants are typically men in retirement planning mode but Hunter predicts an upswing in interest from the younger generation, as financial responsibility continues to sit earlier and heavier on their collective shoulders.
There are plenty of pitfalls for individuals who don’t have the skills to manage their finances effectively. Common behaviours of those with poor financial literacy include:
- Over-spending on credit cards.
- Using buy now, pay later consumer credit agreements.
- Taking out unsuitable insurance policies.
- Getting payday loans at ruinous rates.
- Being derailed by bills and expenses they haven’t budgeted for.