By SYLVIA PENNINGTON
Sylvia Pennington has some tips on how to get on top of your financial life and plan for your retirement.
Back in the day, managing one’s finances required no special skills – people worked, chose a bank for life, saved for the things they wanted and went on the pension when they downed tools at 65.
Fast-forward to 2014 and it’s a very different story. The young have double-digit HECS debts and soaring house prices to contend with, mature folk must grapple with the complexities of self-funded retirement, and ubiquitous access to consumer credit lays traps for the unwary of all ages.
The recent budget from the Abbott government has yet again hammered home the message that looking out for ourselves, rather than relying on the state, will continue to be the order of the day. But does the average Aussie have the financial literacy to do so? Or are we ill-equipped to make informed judgments and effective decisions on all the complex financial matters modern life demands we deal with?
Unfortunately it’s the latter, says Peter Mordaunt, a financial literacy lecturer in Macquarie University’s faculty of business and economics.
Lots of people battle with the basics – understanding how things such as compound interest, interest-free periods and mortgage offset accounts work. And many struggle to stick to a personal budget.
ANZ’s 2011 survey on adult financial literacy in Australia found that a third of people had trouble understanding superannuation statements, and just one in four reviewed their insurance cover levels. Three-quarters did not know how much they needed to live on in retirement.
“People’s levels of financial literacy range from ignorant to overconfident,” Mordaunt says. “Most people don’t know how to control money, and allow it to control them.”
Typically we’ll coast along until a crisis or life event – loss of a job, marriage or the birth of a child – spurs us to take action or seek help to get on top of our affairs. Doing so can seem a daunting process at the outset, and resolving to come to grips with one thing at a time is the best approach, Mordaunt says.
“Finances these days are dreadfully complex. People need to prioritise what they should focus on – don’t get overwhelmed by it.” The good news is that there are plenty of courses and resources available for those who want to improve their financial nous. Money takes a look at a few of them.
Launched in 2011, the Australian Securities and Investments Commission’s MoneySmart site aims to be a one-stop shop for personal finance. It offers free information and guidance on decisions, from choosing a home loan to paying for a funeral in advance. Tools include a budget planner, mortgage calculator and retirement planner.
The site receives 400,000 visits a month. Central to its popularity is the way information is offered in a “life stage” approach, rather than in overwhelming, generic dumps, senior executive leader of the MoneySmart program, Miles Larbey, says. For the under-25s, there are tips for buying a car and moving out of home, while the over-55s section offers advice on retirement planning, powers of attorney and the cost of aged care.
“People tend to learn best as they need the information,” Larbey says. “Life events typically prompt financial decisions.”
A longstanding education and information unit within Centrelink, the Financial Information Service (FIS) hosts more than 2500 free, public seminars around the country each year on a plethora of money-related matters. Themes range from the generic – “creating wealth – getting started” and “understanding shares” – to specific subjects, such as “running your own super fund” and “salary sacrifice”.
Information can also be provided personally and the service is open to all. Most of FIS’ custom comes from mature folk who are approaching or planning for retirement, according to a Department of Human Services spokesperson. About 78,000 people attended seminars last year, while a further 150,000 received calls and consultations.
Financial illiteracy is often intergenerational in low-income households, but direct intervention to teach people the basics can break the pattern, The Smith Family’s head of policy and programs, Wendy Field, says.
The charity is one of several that delivers Saver Plus, an education and matched savings program developed by ANZ and the Brotherhood of St Laurence, which has been accessed by 20,000 people since 2003.
Participants, who must have a Centrelink concession card and some regular income from work, are encouraged to share money ideas and adopt planning and budgeting strategies via a series of informal workshops.
Those who make regular deposits towards a savings goal over 10 months have their contributions matched, up to $500.
MoneyMinded, another education program developed by ANZ in 2002 and delivered by charities throughout Australia, consists of a series of workshops, customised from 20 available modules.
The workshops include “Understanding paperwork” and “Dealing with debt”.
More than 240,000 people have participated since its inception.
In addition to helping people use their resources more effectively, equipping them with basic skills provides a sense of agency and control, Field says.
Want to learn about estate planning or find out what the equities market is up to?
Ask your super fund, says Energy Super’s chief executive, Robyn Petrou. Industry funds have been encouraging their members to become more finance-savvy for the past 20 years and offer a plethora of free seminars, webinars and online videos on all matters financial.
Most have the goal of educating members through all stages of their relationship with the fund, Petrou says.
While free information sessions are plentiful enough in the financial services space, many are there to spruik specific investment options, she points out.
“[Industry] funds have the advantage of not being conflicted by trying to sell products.”
Educating retail investors – from rookie dabblers to those who know the difference between fundamental and technical analysis – has been part of the ASX’s remit for 30 years.
In recent times its focus has shifted from free courses and lunchtime seminars to webinars, online courses and interactive tutorials on all matters market-related, ASX head of investor education Tony Hunter says.
Introductory modules explaining the trading process and how the market works are most popular, while the cognoscenti are catered for with sessions on topics including options, exchange-traded bonds and interest-rate securities.
Participants are typically men in retirement planning mode, but Hunter predicts an upswing in interest from the younger generation, as financial responsibility continues to sit earlier and heavier on their collective shoulders.
Want to up your financial literacy and become someone who really understands the machinations of the market? Treat it like a job, not a hobby, says retired contract embroiderer, Hal Palmer, 72 (pictured right).
After spending his working life keeping his head down and restricting his investments to property and blue-chip shares, Palmer set about increasing his knowledge a decade ago, as retirement loomed.
In 2004, he joined the Queensland Investors Club, a 90-strong group that meets monthly over dinner at the Brisbane Club. The members – mostly over-50s with self-managed super funds – trade strategies and hear from guest speakers, who’ve included Domino’s chief executive Don Meij, Data 3 founder John Grant and former QIC chief executive Doug McTaggart.
The club’s president since 2011, Palmer credits it with turning him into a savvy investor, with insight into his own investment philosophy, who can articulate why and when he will buy a stock and what his exit strategy will be. He devotes around an hour a day to reading and learning. “If you want to make a profit, you have got to put the effort in – there is no other way.”
Can being shown how to sort out your finances really change your life? Gold Coast university student Maryanne Grubb-Fitzpatrick, 31, thinks so.
A single-parent of three, she says completing the Saver Plus money management program in 2012 gave her the impetus to pursue her long-time ambition to become a teacher.
“I had always thought uni would be out of reach, that I had to keep working to make ends meet,” Grubb-Fitzpatrick says.
Learning to track spending, do a budget and put money aside for bills put an end to the “perpetuating cycle of being in the red all the time” and made swapping her administration job for full-time study appear feasible for the first time.
The course also put paid to her misconception that money management skills were innate and that one was born either a saver or a spendthrift. “I’d categorised myself as I would never be good with money,” she says.
Now on a Centrelink Parenting Payment, she is in a better position than two years ago, despite the income drop.
“Having the knowledge allows you to take control of your finances and how empowering that is,” Grubb-Fitzpatrick says. “It has transformed my life.”
There are plenty of pitfalls for individuals who don’t have the skills to manage their finances effectively.
Common behaviours of those with poor financial literacy include:
Overspending on credit cards; using buy now, pay later consumer credit agreements; taking out unsuitable insurance policies; getting payday loans at ruinous rates and being derailed by bills and expenses they haven’t budgeted for.