The efficient operation of the financial system in Australia needs to consider how confident consumers are in making suitable financial decisions appropriate to their needs. Currently only a little over half of all Australians aged 14+ (52.5%) feel confident when it comes to managing their finances and investments. This poses a major problem for the effective operation of the system. While financial confidence is affected by the extent of usage of financial services, a major reason for the lack of confidence is that nearly one in three people (30.5%) have never spent the time to understand how financial products work. These are the latest findings from the Roy Morgan Research Consumer Single Source survey of 50,000 people per annum.
Financial confidence and understanding varies with different financial products held and the value of these products. To understand this, Roy Morgan Research has divided the Australian population into five segments based on their dollar value across all their financial service products (Savings, Transactions, Loans, Card & Wealth products), and each of the segments makes up 20% of the population. Looking across the segments, confidence in managing finances increases progressively with increasing value. Confidence was lowest for people in the bottom segment (average value $2,000) with 41.3% feeling confident, while the highest confidence was among the top 20% group of Australians (average value $573,000) at 61.7%.
Attitudes towards Managing Finances & Investments
Source: Roy Morgan Consumer Single Source, 12 months to October 2013, n = 49,179. Value Quintiles based on dollars held in Any Financial Services (includes Savings, Transactions, Loans, Cards and Wealth Management products).
When it comes to taking time to learn about finance, even among those in the highest value quintile, 24.0% have never spent the time to understand how financial products work, a lower proportion than those with the lowest value of dollars held (33.6%).
Norman Morris, Industry Communications Director says:
“Financial confidence can be improved through a better understanding of how finance products work and choosing the best products to suit individual needs. There has been an ongoing focus on financial literacy and education often with a particular emphasis on certain disadvantaged groups. People with higher levels of wealth or debt however also have major gaps in their understanding of managing finances and so have a need for a different type of financial education.
“With one quarter to one third of the population across all the segments not spending time to understand how financial products work, there is an opportunity for financial institutions and government bodies to engage people in furthering their education, simplifying products and making less frequent legislative and product changes. The community would also benefit from having access to a broader range and more tailored monetary educational programs which cater for various groups in society. A wider spread use of financial advisors and planners beyond investment purchases would also be valuable.
“This whole issue of consumers and businesses needing to understand their financial choices and having confidence in their decisions should be a major focus of the ‘Financial System Inquiry’ the government has initiated.
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Roy Morgan Research
Roy Morgan Research is Australia's best known and longest established market research and public opinion survey company. Roy Morgan Single Source is thorough, accurate, and provides comprehensive, directly applicable information about current and future customers. It is unique in that it directs all the questions to each individual from a base survey sample of around 55,000 interviews in Australia and 15,000 interviews in New Zealand annually - the largest Single Source databases in the world. The questions asked relate to lifestyle and attitudes, media consumption habits (including TV, radio, newspapers, magazines, cinema, catalogues, pay TV and the Internet), brand and product usage, purchase intentions, retail visitations, service provider preferences, financial information and recreation and leisure activities. This lead product is supported by a nationally networked, consultancy-orientated market research capability.
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