The majority of the population from the thirty-six OECD countries are not considered financially literate. The weird thing is that it doesn’t get much attention and helping to improve it, gets few resources. The onus is put on parents to teach their kids what they know about responsible spending or the value of a dollar through pocket money and washing the car. Schools in Australia provide a small amount of education, and from back in the 80s, big banks were allowed to market to children via their in-house ‘savings’ programs for students.
If you had savvy parents who worked in financial services or self-taught investors and savers who also passed that knowledge along, then you were the lucky one. The rest of us muddled our way through bad advice, bad example, limited bank communication, and hard lessons.
What is financial literacy?
Financial literacy is understanding the core principals of finance including inflation, interest rates, money flows and financial markets, and being able to apply them to everyday life. It has a direct impact on our ability to make better decisions with our money, helping us avoid the dangers of bad debt and improving our financial wellbeing in the long run. The Household, Income and Labour Dynamics in Australia (HILDA) survey is run by Melbourne University and asks five questions that test financial literacy; less than half of the participants answered all five correctly. It also showed poor financial literacy led to poor financial health, revealing “those with low financial literacy are also less likely to get involved in household budget decisions, have a lower propensity to save, and are consequently more vulnerable to experiencing financial stress”.
Technology has changed the way we learn but also the way we can teach. As we wrote recently, mobile delivery and AI has the potential to change how we learn about our personal finance management but also the financial landscape in general.
What banks do now.
Traditional banking and legacy systems are not about ensuring their customers are making the best decisions for their financial wellbeing. Navigating the multitude of products and the requirements of accessing them can be a minefield for new customers, yet banks often assume that their customers are already fully informed on all the choices available. The dense PDF’s, complex emails and compliance driven product brochures are a world away from the shiny happy people in the marketing material. Financial services are often bound by compliance and process which inhibits creative messaging or digital delivery, but things are changing.
What financial services can do now.
It is an exciting time! There is so much potential in how financial education can be delivered. The HILDA survey found that women, in particular, would prefer to say they did not know the answer, rather than guess. The world of finance has traditionally been the domain of upper-middle-class white men and often the messaging reflected this. A big part of the Navag8 mission is helping provide the tools that assist with behavioural change.that leads to improved financial wellbeing. Through gamification, real-time notifications and spending insights that are relevant and personalised, we can help users learn in a practical and engaging way, and understand the different aspects of their finances that deserve their attention. Financial education can now be timely, relevant and inclusive.
Why does it matter?
Financial literacy is essential to making more informed decisions about what we do with our money. Not only can budgeting help us better understand how we spend it, but it also helps us identify financial goals and create savings to build towards them. Similarly, an understanding of credit doesn’t just help us understand debt and avoid credit card misuse and disadvantageous loans. It also helps us improve our ability to borrow when we need it, such as when we’re building or buying a home.
Knowing about our money, the decisions we make with it, and the services that help us manage it can help us improve our financial wellbeing across the board. In the past, banks have been complacent about providing the education and information customers need. Instead, it became easy for financial service providers to target the financially vulnerable with credit cards and bad loan terms that helped them sell their services, but to the detriment of the customer. That’s all changing thanks to the Royal Commission.
How financially literate are we?
According to the Australian Trade and Investment Commission, 64% of all adults in the country are deemed financially literate. This makes us number nine amongst the English-speaking economies in the world. While doing a lot better than many other countries, it still leaves us behind the most financially literate countries in the world, such as Denmark, Norway, and Sweden, each of which is at 71%.
However, if we’re not looking at it through the lens of national competition on the financial market, this means that half of all Australian adults have trouble with financial literacy. This is a lot of people who aren’t equipped with the information they need to make better choices with their money, putting them at risk of debt, bad borrowing choices, and financial service misuse.
How are fintech businesses helping?
Fintech businesses are jumping on the wave of open banking that is helping customers understand a lot more about their money. The digital banking format makes it a lot easier to both display and absorb information specific to individual customers, helping them understand in real terms what their financial situation is, the different options available to them, and the pros and cons of each of them.
Through gamification, we can encourage users to check on their financial situation more often, by creating a personal narrative that reports on progress. Through spending insights, we can begin to understand the basics of budgeting and be aware of our worse spending habits. Through notifications, we can spot risks before they erupt, offering customers a better chance of avoiding debt.
For better financial services, financial literacy is essential
We are not down on banks – we have all worked in them! We see an opportunity to do better with the new technology available. All the information we have shows us just how vital it is to both customers and financial service providers, that we are all more financially literate. Inclusive finance and financial education via intelligent mobile delivery can now make people feel empowered and show that good financial opportunities are not just for the wealthy – and give banks the chance to give back to their customers.