Study Finds 50% of Australian's financially Illiterate

Study Finds 50% of Australian's financially Illiterate

With Aussie Home Owners being warned of four more interest rate hikes by August the financial literacy of one of the worlds most wealthiest nations is coming under scrutiny.

A recent report presented by HILDA identifies that 50% of Australian's are financially illiterate and data sets get worse when we separate the genders with women being worse off when it comes to finances than men.

Things have been going down south fast for Australian's with the report further identifying that financial literacy in the land down under has dropped by 10% with 53% of women being financially literate with men leading at 70%.

Be weary of the test

Before you think oh well married couples will be safe it is actually a lot more dire than that as depending on your educational level it correlates in how smart you are with money and how much you know.

Also the way in which financial literacy is tested isn't the best indicator in my opinion with a basic 5 question test that, no doubt many of us will be able to answer. But how many more actually know beyond the 5 questions?

The Test

The following five questions were asked to measure the financial literacy of Australian households. (Answers at the bottom of the article.)

1. Suppose you put A$100 into a no-fee savings account, with a guaranteed interest rate of 2 per cent per year. You don’t make any further payments into this account and you don’t withdraw any money. How much would be in the account at the end of the first year, once the interest payment is made?

2. Imagine now that the interest rate on your savings account was 1 per cent per year and inflation was 2 per cent per year. After one year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?

3. Do you think that the following statement is true or false? “Buying shares in a single company usually provides a safer return than buying shares in a number of different companies.”

4. Please tell me whether you think the following statement is true or false: “An investment with a high return is likely to be high risk.”

5. Suppose that by the year 2020 your income has doubled, but the prices of all of the things you buy have also doubled. In 2020, will you be able to buy more than today, exactly the same as today, or less than today with your income?

Not Much Savings happening

Overall the average amount people could access without taking on more debt is $3000 and when you think about the incoming interest rate rises this amount will not be sufficient to support people through personal financial hardship or economic downturn.

Only 35% of Australian's actually knew how much money they had in superannuation (Australia's version of 401) despite the overall majority having access to their financial information online via mygov.

This paints a dire picture for the land down under come August when $AUD418 Billion in debt comes off historically low interest rates and the official cash rate hits 4.1% causing wide spread havoc for many low to middle income earners locked in mortgages they might not be able to afford.

Quiz answers

1. $102
2. Less
3. False
4. True.
5. Exactly the same.

How did you go? let me know in the comments section below.

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