The financial illiteracy of Australians aged over 55 is at “dangerous levels” with only seven per cent correctly answering three simple questions posed in a new Bond University study.
Worryingly, one-third of respondents got all three questions wrong.
The research involved more than 3400 members of National Seniors Australia.
“Financial illiteracy is reaching dangerous levels in Australia,” Bond Business School's Associate Professor of Statistics Adrian Gepp said.
“People tend to be overconfident of their financial knowledge and skills.
“Financially illiterate people are more likely to experience asset loss and outlive their savings after retirement.”
Dr Gepp urged Australians to talk to their parents and grandparents about their financial position and decisions.
“Don’t assume they know what they are doing and make sure you check to see they are managing their finances appropriately,” he said.
The study found that women were the most at risk of making bad financial decisions, while those who were unmarried, suffered poor health and the most elderly also recorded poor results.
Bond University PhD candidate Rui Xue said superannuation, insurance and other fund providers should design tailored products for elderly customers, particularly focused on those with low financial literacy levels.
“Personalised products would be much easier to understand and make users more likely to optimise their income streams,” he said.
“Free online and mobile apps that are specifically designed to engage elderly Australians and that gamify learning how to invest and choose retirement income products properly are recommended as an increasing number of elderly Australians are engaging with technology.
“Financial education is an efficient way for working Australians, particularly for pre-retirees, to improve their financial knowledge so that the next generation of elderly Australians have improved financial literacy.”
THE QUESTIONS
Q1: Which of the following investment options do you think is most likely to lead to a loss of money over a one-year period?
(A) Conservative/Cash. (B) Growth/High Growth. (C) Balanced. (D) Don't know.
Q2: Which of the following investment options do you think is least likely to lead to a loss of money over a one-year period?
(A) Conservative/Cash. (B) Growth/High Growth. (C) Balanced. (D) Don't know.
Q3: If you had a choice between receiving $10,000 now, or a greater amount of money one year from now, what is the minimum amount you would need to receive in one year in order for you to choose this option instead of $10,000 now?
ANSWERS
Q1: (B) Growth/High Growth.
Q2: (A) Conservative/Cash.
Q3: Varies depending on financial circumstance, but at least 10,250 (to cover the cost of annual inflation plus a buffer).
Definitions:
Growth/High Growth: a higher concentration of shares, and a lower concentration of fixed interest, property and cash than balanced.
Balanced: a more even mix of shares, fixed interest, property and cash.
Conservative/Cash: a greater concentration of cash and/or fixed interest, and a low to negligible concentration of shares.