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Younger Australians have particularly poor financial literacy, a new report has found, leaving them vulnerable to overpaying for things and not getting the best value for money at a time of rapidly rising prices.
The results of a 21-question online financial literacy test designed by comparison site Canstar and taken by more than 1000 people so far show 30 per cent of Gen Z and 47 per cent of Millennials are unable to answer the majority of financial literacy questions correctly.
Younger Australians have particularly poor financial literacy, leaving them vulnerable to overpaying for things and not getting the best value for money.Credit:
On the other hand, 60 per cent of Gen X and 72 per cent of Baby Boomers passed the quiz, meaning they answered at least 11 of the 21 questions correctly. Almost half of all those taking the test, failed it, with 66 per cent of males passing, compared to 42 per cent of females.
“Money is a tricky topic to master, especially in the midst of a cost of living crisis when the stakes are much higher,” says Effie Zahos, Canstar’s editor-at-large.
“Unfortunately, financial literacy isn’t something that’s widely taught, which leaves many Aussies without a core life skill to make appropriate financial decisions.”
Almost three-quarters of those taking the test believe if a credit card offers an interest-free period of 55 days, it generally means that you do not pay interest on any purchase until 55 days after you buy the item.
The correct answer is that it is up to 55 days interest-free. To receive the full 55 days, you have to make the purchase on the first day of the statement period, and you must have paid the previous statement’s closing balance in full.
Rising interest rates pushing up home loan repayments should have mortgage holders on notice to make the most of their repayments, yet 56 per cent of those taking the quiz could not identify the most cost-effective strategy for making regular repayments.
Other questions many participants failed include:
- Paige has her money in a savings account paying 3 per cent, per annum interest and inflation is 6 per cent a year. After one year, would the money in the account allow her to buy: a) More than today, b) The same as today, c) Less than today (correct answer is c)
- Chloe has an outstanding credit card debt of $3,000 charging 18 per cent, per annum interest. Her minimum monthly repayments are set at 2 per cent of the closing balance. If she only made the minimum repayments, would she: a) Pay off in one year, b) Pay it off in five years, c) Pay it off in 25 years (correct answer is c)
- When working out the sum insured for your house, you should base it on: a) The amount you paid for the property, b) The amount it would cost to rebuild your home, c) The amount you would get if you sold your home (correct answer is b)
“Financial literacy isn’t something that’s widely taught, which leaves many Aussies without a core life skill to make appropriate financial decisions,” Zahos says.
She says financial literacy education should start in school. “It’s concerning that students can leave school and not have basic financial life skills, such as how to get a tax file number or even how to complete an online tax return.”
She says poor financial literacy means ending up paying too much for goods and services that may not be suited to you – all at a time when we are trying to reduce our expenses.
The results match academic studies of financial literacy. The Household, Income and Labour Dynamics in Australia (HILDA) survey of about 17,000 people in 2020 showed a sharp fall in the financial literacy of younger Australians – particularly those under 24 – since the 2016 HILDA survey.
“When you find a product, whether it is a mortgage, a super fund or an energy provider, before you sign anything, make sure you understand the ins and outs of it,” Zahos says.
To find out how financially literate you are, you can take Canstar’s TestMyMoneyIQ quiz here.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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