Preface by Paul Clitheroe

The benefits of being financially literate, or to put it simply, being good with your money, are high. An understanding of how money works can allow us to save, to make good spending choices and sound investment decisions. In many cases it may improve our chances of gaining employment, to earn a higher income, or to give us the key skills to start our own business. In turn, this may give us the opportunity to own a home or invest in property or shares, as well as giving us choices about schooling for the kids, holidays or our health. Being good with money is not just a nice thought. It can improve our own lives and the lives of those we love.

But if we agree that financial literacy is important to individuals, families and the broader economy, what do we do to improve it and how do we go about it?

Consumers experience many difficulties with financial issues as they move through each stage of their lives. The journey from the first few cents of pocket money, teenage years, adult life and retirement are littered with traps. Overspending, over borrowing, personal debt, underinsuring, scams, schemes, product and legislative complexity need to be avoided, understood or overcome to achieve financial success.

In a perfect world two very simple things would happen to help consumers with money issues.

Firstly, the consumer would be armed with knowledge. This would come from the home, school, workplace and a supportive community, combining to ‘raise the bar’ of financial literacy.

Secondly, government and financial institutions would make a determined effort to ‘lower the bar’ in terms of the complexity of products, access to information and multiple regulations that make it difficult for even the most knowledgeable consumer to chart a sensible course.

However, it is not a perfect world nor will it be. But in the area of financial literacy it can become a better place.

Recommending a series of actions to empower consumers with financial knowledge is not a difficult task. As the Taskforce has discovered, there are hundreds of programs designed to do this available in the marketplace. So, a lack of information is not the issue. It is also clear that some schools, some workplaces and parts of the wider community already embrace this concept, but these programs need to be made more broadly available. So, the Taskforce will recommend a number of perfectly sensible steps to empower consumers in the school, workplace and the community. But even this does not really tackle the heart of the issue.

Much time, effort, materials and money are being poured into financial literacy, yet it seems we are not seeing effective results, as evidenced in the ANZ Survey into financial literacy, rising personal bankruptcies, or the large number of people being ‘ripped off’ by investment scams. One argument of course, is that our knowledge has improved, but we have no real measure of this, or simply, as our knowledge improves, the complexity of the financial world increases at an even faster pace.

Fortunately, financial competence does not require knowledge of complex investment concepts involving alpha and beta factors, standard deviation and how to calculate your Reasonable Benefit Limit in superannuation, which is fortunate indeed, as a complete understanding of superannuation legislation could take a lifetime in itself.

So, what is important? Well, the foundations of success with money have been the same for thousands of years and include:

• spending less than you earn
• managing cash flow
• protecting yourself from risks
• understanding how debt can be good — or bad.

Success in improving consumer financial literacy can greatly benefit individuals, families and hence our economy. But to be serious, we have to take a serious approach and this means a number of things.

Firstly, we should have a realistic understanding of what level of knowledge Australians should have. What is a ‘competent consumer’? We will supply a definition for consideration. Over time, we should, on a regular basis, measure our progress against this definition.

Secondly, there will be no miracles here. Improvements in knowledge will be seen over years and decades. Frankly, despite so much goodwill in this area, it is unlikely that much will improve unless a permanent central body is created and funded to:

• help coordinate the hundreds of existing programs towards a common goal
• work with educators to ensure a national approach to educating our children
• encourage and establish programs in the workplace and broader community
• develop and support national consumer and financial literacy concepts.

Plenty is happening in the area of consumer and financial literacy. This is not a surprise as it is an important issue. But success will come by a concerted, long-term push towards a common goal.

And wouldn’t success in improving financial literacy be wonderful for all legitimate participants in our economy. Consumers creating more wealth, lower bankruptcies, less bad debts for financial institutions, a greater take-up of superannuation and quality investment products — less ‘rip-offs’. In fact, the only losers may well be the ‘rip-off’ financial crooks. And that has to be a good thing.

We look forward to your comments.

Paul Clitheroe
Chairman
Consumer and Financial Literacy Taskforce

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