Why financial literacy is a win-win for Australia

What do Australian 15-year olds have in common with their peers in New Zealand and Estonia?

Well, according to the Programme for International Student Assessment (PISA) report, Australian, Kiwi and Estonian teens rank third-equal in the world for their financial literacy skills.

The PISA study, an initiative of the Organisation for Economic Co-operation and Development (OECD), found only 15-year olds from the Flemish-speaking regions of Belgium and their counterparts in Shanghai understood finance better than Australian youngsters.

While this is an encouraging result it’s important not to read too much into it. In the first place, PISA surveyed only 18 countries for financial literacy.

And secondly we had to share third-place honours with the Kiwis (Estonia we can live with), which shows that Australia has considerable room for improvement in financial literacy.

This has been recognised by a broad range of stakeholders, including the Australian Securities and Investments Commission (ASIC), which is coordinating a nationwide push to improve financial literacy across the board.

In its just-published ‘National Financial Literacy Strategy’, ASIC lays out a detailed plan of action encompassing school curriculum, free information services, guidance programs, industry partnerships and ongoing research.

ASIC defines financial literacy as “a combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve financial wellbeing”.

“In today's fast-paced consumer society, financial literacy is an essential everyday life skill. It means being able to understand and negotiate the financial landscape, manage money and financial risks effectively and avoid financial pitfalls,” ASIC says. “Improving financial literacy can benefit anyone, regardless of age, income or background.”

I fully support the effort to raise the level of Australians’ financial literacy. As a financial adviser I get to see first-hand the, sometimes large, holes in financial knowledge in the Australian community.

Cynics may argue that the financial literacy gap actually suits the advisory industry. But from my perspective, the better the grounding our clients have in financial concepts, the more efficient and productive the advisory relationship.

With a financially-literate population, advisers can cut straight to the real issues instead of coaching finance 101.

Our money-smart 15-year olds augur well for the future. (Incidentally, while PISA deemed it as “not significantly different”, Australia had a mean score of 526 in the finance test compared to 520 for NZ, which we can take as a win.)