Are efforts to boost financial literacy missing their mark?

The Government has made a big push to improve financial literacy among consumers, but was it the right approach? Tim Stewart reports.

Sitting alongside the Australian Securities and Investments Commission’s (ASIC’s) efforts to improve the education standards of financial planners is its push to ensure that consumers are better educated about their finances. 

The regulator’s MoneySmart website provides consumers with information about managing their money, organising their borrowing and credit arrangements, as well as tips when it comes to superannuation. 

The website also includes a list of unlicensed companies that consumers should avoid, a move that is linked to ASIC’s efforts to monitor the financial services industry and draw attention to the ‘shonky’ operators. 

ASIC also played a key role in the Government’s updated National Consumer and Financial Literacy Framework, which was unveiled in September 2011. The purpose of the framework is to “provide a rationale for consumer and financial education in Australian schools”, according to the document. 

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According to the document: “This revision takes account of national and international research on financial literacy, international best practice in financial education, the advent of the Australian Curriculum, and the rapid advances in technology that influence the everyday lives of Australians.” 

While Griffith University associate professor Mark Brimble supports the effort to improve the financial capability of Australians, he objects to the term ‘financial literacy’. 

“‘Literacy’ suggest some sort of deficit, and that turns people off – particularly when you’re dealing with an issue like money,” says Brimble. 

Money is a very sensitive issue because it attaches to peoples’ self esteem and social standing – or at least their perception of it, he says. 

“In the UK and parts of Europe they use the term ‘financial capability’, which refers to the ability to use the information one has to make sound financial decisions,” says Brimble. 

By simply focusing on ‘literacy’, education campaigns risk missing the bigger part of the picture, he adds. 

“I’ve seen programs where hundreds of thousands of dollars have been spent producing a two-inch thick folder of material,” says Brimble. 

That folder will go out to community groups under the assumption that people will actually read it, he says – but the reality may be quite different. 

“We know that the research tells us that that’s really not going to help a lot,” he says. 

An engaging topic 

The most readily apparent area that consumers are disengaged from is their superannuation. 

A recent Mercer survey on superannuation members’ ‘Knowledge and Understanding of Super’ found that only 15 per cent of respondents rated their knowledge about super as ‘strong or sophisticated’. 

Mercer marketing and communications executive Anthony Schiavo says the drop in understanding is down to “the more you know, the more you realise you don’t know”. 

The big ‘engagement’ push by big superannuation funds like AustralianSuper have drawn people out of a state of “blissful ignorance” into a realisation that they really don’t know enough about superannuation to make important decisions. 

The advertising by the superannuation industry is rarely positive either, which doesn’t help, says Schiavo. 

“There are two aspects to the advertising: either you’re not going to have enough saved up, or it’s about the fact that the Government keeps tinkering with it,” he says. 

There is more data and information in the public sphere about superannuation, says Schiavo, but it is only serving to make people more confused. 

On a more encouraging note, the Mercer research found that only 29 per cent rated their knowledge of the link between sharemarket movements and superannuation as ‘nothing or minimal’ (down from 37 per cent in 2008). 

But there is also a gender gap when it comes to superannuation. Thirty-seven per cent of women reported having ‘nothing/minimal’ knowledge of super, while for men the figure was 22 per cent. 

Schiavo said the gulf in knowledge about super between the genders was likely connected to the similar ‘gender gap’ in account balances, which exists because women often take a break from their career to start a family. 

Educated clients mean happy financial planners 

Part of the push to raise the level of consumer education involves helping people realise they need to seek financial advice. 

Brimble points out that clients of financial planners need to be able to understand the advice they are given. 

“If your client has no idea what you’re talking about in terms of the fundamentals of risk and return and basic principles of finance and investment, it’s going to be far more difficult for a planner to give them appropriate advice under the regulations,” he says. 

Part of the solution should involve financial planners better educating their clients, according to business mentor Dean Lombardo. 

Lombardo, who founded the consulting firm Effortless Engagement last year, says his research has found there are three ‘pillars’ to clients’ peace of mind: a strong relationship with the advice provider; measurable progress; and knowledge and empowerment. 

It is through the third pillar that planners can help raise consumers’ financial understanding, he says. 

“It’s not merely about trusting the individual providing the advice – but having enough knowledge at a higher level to understand what’s happening, and why,” says Lombardo. 

Planners should utilise adult learning principles to help their clients gain a nuanced understanding of the advice they are receiving, he adds. 

“Adult education learning theory has been around for a long time from an academic perspective. But it’s largely about the engagement model and the financial planner having a relationship with the client,” says Lombardo. 

Association of Financial Advisers chief executive Brad Fox pointed to his organisation’s program ‘Your Best Interests’ as an example of the work the industry is doing around client education. 

“If you look at most advertising and education attempts to the general market, it’s been based around ‘transact with me please’,” says Fox. 

But consumers don’t want that kind of marketing: they would rather build a relationship first, he says. 

“A major focus for the AFA over the coming two years is to try and lead the industry to take a different approach to educating consumers about what advice is, when you might need it, and then how to go about choosing how to receive it,” says Fox.