Last week I wrote on the proposed super tax, expressing reservations on the current and future impact on the retirement outcomes of Australians. Policy objectives aside we deserve a more thoughtfully designed super tax plan.

This week, I’m writing for the majority of Australians. This is my open letter to the recently re-elected Labor Government about the woeful state of financial literacy and preparedness for all Australians.

My work revolves around financial literacy and understanding how to make financial knowledge more accessible to everyday Australians. It is clear people need help.

An OECD study shows that less than half of Australian adults can answer questions regarding basic financial concepts such as inflation, compounding and diversification. Amongst Indigenous Australians, less than 1 in 5 feel confident in making financial decisions.

In 2022, the University of Newcastle found that only 30% of young Australians aged 18-34 could correctly answer 5 basic financial questions. This cohort is making financial decisions that will impact the rest of their lives – taking on large amounts of consumer debt, signing up for a mortgage, trying to invest or starting a family. Any change that they make to their superannuation can drastically impact their retirement outcomes.

On the other side of the spectrum, research from the University of New South Wales shows that as we grow older, financial literacy drops even as our confidence increases. This can lead to what the researchers called ‘potentially life-altering mistakes’.

Financial literacy is not just about having a budget and sticking to it. It is about confidence and reducing uncertainty about your future outcomes. It is about being able to plan for future financial goals, understanding opportunity costs and having the baseline knowledge needed to make decisions.

The onus is put on individuals to make complex financial decisions

As Australians, we have always prided ourselves on taking care of one another and having a fair go. ‘A fair shake of the sauce bottle’, as my husband likes to say. In my opinion, superannuation is one of our greatest achievements as a country, lowering barriers to economic agency in our later years. So much so that when I explained the system to American colleagues, they did not believe that a system like that could exist.

Yet super also puts a good deal of our financial outcomes in our hands with 12% of our salary dedicated to retirement. For many Australians, super is the second largest financial asset. Super is a system that works best when it is optimised to each individual. Have you ever tried switching out of a superfund? Have you tried reading and comparing Product Disclosure Statements (PDS) to decide what’s right for you?

Have you tried to interpret the myriad of fees and charges that a superannuation provider provides? Waded through the acronyms? MERs and ICRs charged by funds with an RSE license issued by APRA, receiving your concessional SG contributions. No wonder Australians are reluctant to engage or move from their default superannuation fund.

A lack of financial literacy impacts the most vulnerable parts of society

The lack of financial literacy particularly impacts women. The demographic with the fastest growing rate of homelessness in Australia are single, elderly women. Many find themselves single after decades of being in a relationship where they were not involved in making financial decisions. Unsurprisingly, it is challenging to take on these responsibilities late in life with no experience.

The challenges these women face are difficult to overcome. They have little to no retirement savings. They may be on the back foot because they did not have the information needed to make sound financial decisions in marriage or relationship separations.

Women aren’t the only ones on the backfoot. I have had the privilege of running financial literacy courses for asylum seekers – new Australians who have come here to create a better life. My experience is that they are often the ones that fall victim to the predatory behaviour of payday loan companies, Buy Now, Pay Later, and easy access to credit.

The average Australian holds almost $25,000 in consumer debt – this is excluding student loans and home loans. This type of debt anchors down quality of life significantly, with little or no base of knowledge to structure this debt to get out of it faster.

Although these issues require wider and deeper reform, a good base of financial literacy will help vulnerable members in society navigate our system better. The resources to do this will make a difference.

Higher stakes decisions and less support

This ask is not to make people financial experts. It is to give them the tools to make informed decisions about their future. This is particularly important in a country where professional advice has become mostly out of reach for the general public.

Reforms to the financial advice industry have drastically decreased the number of financial advisers. This has forced many of those that remain to consider options such as scalable advice models that do not offer customisation or deep consideration of personal circumstances given the money that individuals are paying. Since 2019, the number of financial advisers have dropped from 28,000 to less than 16,000.

The state of the housing market means that many Australians who borrow to buy a house are in mortgage stress upon receipt of the keys. It is not just about the lack of financial literacy but also about the conditions in which Australians are making these decisions. The gravity of the decisions that Australians are making, especially early on, change the trajectory of their lives. We need reform and implementation of a structured approach to financial literacy to give people the tools to make informed decisions.

The cost of inaction on outcomes

A global study from the International Federation of Accountants shows that low levels of financial literacy lead to lower savings, higher debt and increased wealth inequality. It leads to poor retirement outcomes while disproportionately impacting marginalised groups such as women.

It is not just about the half of the population unable to answer basic financial literacy questions. Worries about money is the number one issue that causes us anxiety (Australian Psychological Society). This is about improving people’s lives and their well being.

What is the solution?

For solutions, we can look to highly financial literate countries and the models they’ve used to create a financially literate population. No system is perfect, but places such as Singapore and Sweden have prioritised financial literacy and have high retirement preparedness rates.

A cursory review of the success stories makes the solutions obvious.

Make it mandatory: Financial literacy is mandatory in Singapore and Norway’s school curriculum. It starts in primary school, focusing on budgeting, saving, investments and debt management. Meanwhile, we have seen optional enrolment in Year 12 economics courses in Australia fall by 70% since the 1990s. The decline is higher for girls and minority groups. The ATO has already developed a framework for financial literacy education, but adoption is optional.

Extend the Moneysmart program: I think one of the greatest leaps that the government has made in making financial literacy accessible for Australians. I encourage many of Morningstar’s readers to visit the website to access the helpful tools, calculators and explanations.

Measure progress: As it stands, Australia has a National Financial Capability Strategy, but it remains inactive. It was developed as part of a global initiative to increase financial literacy in OECD countries. It is currently on the backburner for us. Reinstating it would provide the benchmarks and transparent report we need for progress.

Involve private and public enterprise: As we saw from the decline in financial literacy as we age, it is important that financial literacy is viewed as an ever evolving and developing skill. Partnering with organisations like superannuation funds, banks and the ATO to provide literacy at each touchpoint will ensure that the skill is kept relevant to a changing world.

Final thoughts

To reiterate, I don’t expect every Australian to become a financial expert. But I would like to see more people equipped to make decisions that reflect their goals, values, and future aspirations—free from jargon, confusion, or predatory influence.

The Australian Labor Party always champions itself on the value of fairness and opportunity. It values itself on being a representative for the ordinary Australian. The longer financial literacy is delayed the more challenging it is to catch-up. Never developing it means falling short of the causes that many of us care about, and that are central to the Labor party:

  1. Dignity of retirement
  2. Housing security
  3. Helping the most vulnerable parts of society

Financial literacy is at the foundation of financial freedom and peace of mind, as well as economic agency. Financial literacy needs to be a priority.

Get Shani’s insights in your inbox

Read previous Future Focus columns