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Australia: Financial illiteracy threat to retirement
Jacquie Hayes ,
July 12, 2003
Australia - One of the many
reasons why the choice and portability of superannuation funds legislation
is unlikely to get the green light in time for its scheduled kick-off in
July next year is that Australian investors are ill-prepared for it.
Unless they get cracking, almost 80 per cent of Australians are
heading for annual income in retirement of just $12,000. Less than 2 per
cent are likely to have more than $40,000 a year.
This won't change unless Australians get up to speed with financial
market dynamics, the "science" of asset allocation, and are then
able to find their way through the investment option maze.
If they don't, there's a risk that when the inevitable "hard
sell" of investment options begins in the lead-up to super choice
many fund members' balances will end up in investments inappropriate for
their circumstances. Ultimately, that means the retirement savings of
countless Australians will be further endangered.
The numbers outlined above indicate that many Australians are
ill-equipped to deal with this pending issue.
It's no wonder, then, that a recent survey of upper income-earning
Australians found that matters financial were the No.1 cause of stress in
The survey from financial strategist firm Halogen Private Wealth
Services found that 97 per cent of respondents had some form of financial
Many had no idea how to deal with their financial resources, or
what steps would help them improve their chances of a well-funded
The financially stressed often froze instead of making financial
decisions, so did very little towards wealth creation, Halogen found. The
only form of wealth creation many of them had was paying more off the
Halogen conducted its survey of 500 employees, earning between
$40,000 and $150,000, between November last year and April this year. One
of the most disturbing findings was that 50 per cent of chief financial
officers didn't understand their corporate super plan.
Only 30 per cent of regular employees understood their
superannuation arrangements, while 35 per cent were found to be in an
inappropriate fund based on age and risk profiles.
Stress about finances was also believed to be a key factor in
increased absenteeism and turnover among employees who were so distracted
they were unproductive, demotivated and lacking focus.
Halogen reckons larger salaries won't help these people. Gym
memberships, box seats to the football or even childcare would be equally
ineffective, it says.
Rather, they'd be better off with sound impartial financial advice,
because no matter how much they earned it would never be enough if poorly
US research suggests productivity could pick up by as much as 30
per cent if employees were more financially savvy.
At a time when company bottom lines are under all sorts of
pressure, some progressive Australian firms are already bringing in groups
like Halogen to give their broad employee base – not just their
executives – instruction on identifying personal financial goals and
developing strategies to achieve them.
They're learning that a sound financial plan must start from where
they are now and look at where they want to end up, and then be designed
to get them there as well as achieving everything else they want in
Their strategy will depend on their available financial resources
today and what they're likely to have through their lives, with some
regard to the level of risk they can tolerate.
This last point, however, may be something on which many
Australians will have to adjust their thinking, given the harsh realities
of single-digit returns from all asset classes in future.
They will either have to accept lower overall investment returns,
or take on a higher degree of portfolio volatility if they want to avoid a
serious financial shortfall.
If there's one clear message flowing from all this, it's that many
of those reaping the benefit of financial education today would be in a
much better position if they had had that knowledge from a much younger
The need to improve financial literacy among our young is growing
increasingly important as financial markets become more complex and the
need to self-fund retirement grows.
And now the corporate regulator, the Australian Securities and Investments Commission, has added its voice to the calls for action.