Blissfully ignorant or dangerously uninformed – tackling Australia’s financial literacy problem

Blissfully ignorant or dangerously uninformed – tackling Australia’s financial literacy problem

Stephen Corby

Stephen Corby

Guest Author

January 2020  

Human beings have an incredible ability, which, as far as we know, no other creatures on this Earth are capable. We can, and very often do, ignore things that we don’t want to think about and can go for many years without even consciously worrying about them, no matter how important they might be.

It’s a kind of distorted reality field that we build around things like visiting the dentist, or getting an eye test, or various other medical things we know we should probably get checked. It is easier, after all, just not to think about them.

But we do it in many other ways as well, in relationships, at work, with our children. One potentially disastrous and costly thing that many Australians seem to be very good at is ignoring their superannuation, at least until it’s almost too late to actually do anything about it.

As Phillip Kingston, CEO of Sargon, points out, people seem happy to ignore the fact that their super is one of their most important assets, rather than a huge debt like a mortgage.

"The fact is, the vast majority of people have not read their superannuation documents, and they will move amounts around without reading the fine print about the fees and so on, because they have absolutely no engagement – they don’t know about it, and they don’t care about it – and this is a situation that’s actually been getting worse over the past five years,” Kingston says.

"If you’re at a dinner party and you talk about people’s mortgages, they’ll be able to tell you in extraordinary detail about the interest rates, their offset account, which bank they’re with, but if you had the same conversation about their super, most people can’t hold a robust conversation about it. They just don’t know, and that’s a sad state of affairs.

"Because the fact is that your mortgage is actually a liability, while your super is actually your money, unencumbered, without any debts; it’s the largest net asset position most people have.”

Smarter Australians

“Super is the largest net asset position most people have.”

As far as what Kingston and Sargon would like to see in our future, his suggestions sound both radical and completely sensible. He believes it’s time to start teaching financial literacy in schools, so that, unlike now, people who have to make major money decisions know what they’re doing.

As he says, you need to get training and a certificate to pour a beer in this country, but you can enter into a million-dollar liability without any granular understanding of what you’re doing.

You need to get training and a certificate to pour a beer in this country, but you can enter into a million-dollar liability without any granular understanding of what you’re doing.

"These are hugely important choices and we’re never trained how to do it because Australia is woefully behind on financial literacy, but it wouldn’t cost much to fix,” Kingston says.

While we should be teaching it in schools, he believes everyone who wants to sign a mortgage or invest in superannuation should have to sit through a two-hour workshop on how to evaluate their choices.

Avoiding bias

The reason that people need to be empowered to make their own decisions, is of course, because it’s very difficult to get unbiased advice.

"Quite often, the person sitting across the table from you makes their livelihood from you making certain decisions, and that never changes,” is how Kingston succinctly puts it.

The other mistake he says Australians make is putting far too much trust in large financial institutions, and he would very much like to see that change in the future as well.

“Everyone knows when you go to the used-car dealer you’re getting fleeced, but most people don’t realise that banks can be the same, so when they go in they’re puzzled that the bank is trying to fleece them on fees and charges and cross selling,” he says.

"People can be their own worst enemy and we need to grow this awareness that most financial institutions are not community organisations, so don’t assume that they’re there to help you.

"That’s why at Sargon we sit as an independent, we don’t take sides in this, all we’re trying to rally for is independence, and full disclosure by funds, so that people know what they’re dealing with.”

“All we’re trying to rally for is independence, and full disclosure by funds, so that people know what they’re dealing with.”

Even if Kingston’s wish for financial literacy to be taught in schools was suddenly granted, it would of course come too late for the 16 million Australians currently holding superannuation accounts. This, he believes however, is where technology can help.

"Most Australians list cost and convenience as the two biggest obstacles to them seeking financial advice. Digital tools, such as automated advice, can drastically change the financial advice equation."

Digital advice platforms, like Sargon’s Decimal, can provide individuals with the information and tools that enable them to understand their financial position and goals, their insurance needs, likely retirement outcomes, and how their position is tracking relative to their peers or personal goals.

Kingston explains that “all of this can be delivered within your superannuation fund, meaning it can be freely accessed by all customers or fund members anywhere, anytime.”

“And digital literacy and advice tools are not just more accessible. They also have robust, built-in audit trails, meaning they deliver consistent, conflict-free advice that helps members better engage with their finances.”   

A future in which superannuation funds are transparent and customers don’t have to worry about a Royal Commission coming along to tell them just how badly they’ve been getting stiffed for years? It sounds almost too good to be true.

To learn more about Sargon, visit www.sargon.com or email contact@sargon.com

Decimal Digital Insights

Decimal’s 2019 Digital Insights report takes a closer look at how digital advice is being used and the impact it is having for Australians.