Combined effort needed to lift financial literacy
Financial advisers, asset managers, and educators need to work together to close the financial literacy gap, Principal Global Investors believe.
According to the investment manager's latest CREATE report, financial literacy globally was poor across all education and income levels.
Principal's chief executive, Grant Forster, said millennials would spend as many years in retirement as they did in employment and this meant they ran a high risk of running out of money.
"If they do take ownership of their retirement savings in the same way they take responsibility for their careers, and make better asset allocation choices, their financial futures in our mandated system will look a lot brighter," Forster said.
"Investment managers have an important role to play in communicating the investment basics to their clients — understanding what investing is all about, why things can go wrong and how to minimise downside can really help investors make more rational decisions in their financial planning."
He noted that finding ways of producing better retirement outcomes for Australians was a societal issue, not an individual one, and requires concerted action.
"It stands to reason that without financial literacy, investors can't be expected to make the best choices. And the implications of inaction are too serious to ignore," he said.
Forster said in the US and increasingly in Australia, there was a rise in the number of life-cycle or target date funds which were more focused on an investment outcome.
"They have been gaining traction in a number of overseas markets because they minimise the risk of poor asset choices at exactly the wrong time due to their set asset allocation frameworks," he said.
While the report said the personalisation of risk was an excellent concept, without sufficient financial literacy, it would carry a risk of its own.
The report said this was because markets evolved and investors' circumstances changed and investment decisions must take these into account.
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
