Are the stereotypes true? Do women really understand less about money than men? And do young people need to lift their money game?
That’s certainly what the results of a new survey seem to be saying.
The Housing, Income and Labour Dynamics in Australia (HILDA) report, released this week, asked five questions on financial literacy, with women faring worse than men on all five.
Half of men and 35% of women scored a perfect 5/5. It should be noted that women were more likely to answer “don’t know”.
Financial literacy is also lowest in the 15-24 year old age bracket and highest in the 55-64 year-old age brackets.
See where you fit – here’s the questions (correct answers below):
|1. Suppose you put $100 into a no-fee savings account with a guaranteed interest
rate of 2% per year. You don’t make any further payments into this account and you don’t withdraw any money. How much would be in the account at the end of the first year, once the interest payment is made?
2. Imagine now that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?
3. Do you think that the following statement is true or false? “Buying shares in
4. Again, please tell me whether you think the following statement is true or false: “An investment with a high return is likely to be high risk.” (True or false?)
5. [Money illusion] Suppose that by the year 2020 your income has doubled, but the prices of all of the things you buy have also doubled. In 2020, will you be able to buy more than today, exactly the same as today, or less than today with your income
So what is financial literacy and why should we care?
HILDA defines it as: A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve financial wellbeing.
Wealth in Australia is growing, but financial literacy remains an issue. We need more education in schools, and there are parts of the population that need more help than others.
It is not surprising that the HILDA survey also showed that overall happiness with one’s financial situation was higher for those with greater financial literacy, and lower for those without.
Financial stress was higher for the least literate, while of this group 43.6% were unlikely to be able to raise $3000 for an emergency, compared to 12.4% of the highest group.
Likewise, people with higher financial literacy are able to better take advantage of products like credit cards to their advantage.
While only 25% of low financial literacy respondents had a credit card, more than one in five almost never paid more than the minimum amount from their monthly bill.
The benefits of financial literacy go beyond a bank balance. Financial wellness is shown to have broader effects on physical and mental health, as well as relationships.
Want to get money savvy? Here’s a few resources we like:
MoneySmart: this is the Australian Government’s independent resource on all personal finance from budget to retirement and investing.
CreditSmart: If you want to understand credit, this should be your go-to.
Financial Counselling Australia: Need more help than a website can give you? We get it. Financial Counsellors offer free advice.
Quiz Answers: 1.$102 2. Less than 3. False 4. True 5. Exactly the same