Basic literacy critical for financial health, FSI questions aside

One of the slightly concerning elements in the interim report of the Murray Financial System Inquiry was an apparently ambivalent attitude to financial literacy. Throughout the report, particularly in regard to superannuation and investment, financial literacy is recognised as a necessary if not sufficient condition for better outcomes.

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The report notes “consumers, like other participants, must take responsibility for both the risk and reward of financial decisions. However, adverse consumer outcomes in the financial system may result from a variety of factors, including fraud, mis-selling, product unsuitability, lack of information and lack of financial literacy”.

That supports the insights of behavioural economics and a body of cases around financial loss. Literacy in itself is not enough. But it is essential. The oft-used analogy is with health: financial literacy is a hygiene issue without which enduring health is not possible – health in this case being wealth creation.

It is a worry then that the FSI report goes on: “many stakeholders have expressed the importance of supporting and implementing financial literacy strategies that may assist consumers to make more informed financial decisions using the information available to them. However, studies are inconclusive about the extent to which financial literacy strategies have been able to improve consumer decision making in relation to financial services. Although the Inquiry considers that financial literacy strategies are important, alone they are not sufficient to ensure adequate consumer outcomes.”

This is true. Alone they are not. But having served as a judge on Australian Securities and Investments Commissions MoneySmart Week awards before moving to ANZ, I was able to look at a large number of literacy programs and a considerable body of research.

What is evident is these programs – including ANZ’s fundamental Survey of Adult Financial Literacy in Australia which has now been going over a decade and was an inaugural MoneySmart Week award winner – have made a major difference and, from single people in communities to major organisations, improved financial outcomes.

The Australian Financial Review’s always rigorous economics commentator Alan Mitchell stressed the importance of literacy in his commentary last week on the Commonwealth Bank financial advice saga noting “it is hard to shake the feeling the damage would have been a lot less if customers had had a better understanding of the advice they were getting”.

“Australian governments have pushed responsibility for managing retirement income on to ordinary househoulders and then progressively increased the level of risk they are allowed to take,” he warned.

True, financial literacy doesn’t protect from greed nor is it a panacea against shonks and scams, but it is the basis upon which improved financial outcomes must be based. Fortunately the National Financial Literacy Strategy 2014-17 , led by ASIC, recognises this.

However, given the seemingly unsubstantiated recommendation in the latest Commission of Audit that ASIC be stripped of financial literacy roles and the FSI’s less than embracing endorsement, clearly there is no room for complacency on this front.

Doubleheader column this week also see B20 recommendations sound but bigger challenge at the G not B level.

Photograph: luchschen /

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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