Disadvantaged Youth Have Poor Financial Literacy - Study

Young Australians from disadvantaged backgrounds are behind the pack on financial literacy compared to other countries, according to an international study.

The report – released by the Australian Council for Educational Research (ACER) and conducted by the OECD Program for International Student Assessment (PISA) – showed young Australians are in the ‘Top Five’ for financial literacy internationally, close to 30 per cent had levels at the baseline rate or below it.

However, the report has shown a large gap in financial literacy between 15-year-old Australians from advantaged and disadvantaged backgrounds.

Welfare Not for Profit The Smith Family says the report reveals that young Australians from low income backgrounds are vulnerable to poor financial decisions and need targeted support to improve their grasp of money matters.

The Smith Family’s head of Policy and Programs, Wendy Field, said the results – while encouraging for what they said about the financial literacy of young Australians overall – revealed a vulnerability among a significant minority that needs addressing.

“Looking beyond Australia’s ‘top five’ finish, it’s clear we have a way to go to educate young people from low income backgrounds around financial literacy and to improve their grasp of day-to-day financial and money matters,” Field said.

“Close to 30 per cent of young Australians have financial literacy levels either at the baseline rate or below it – and that’s a sign to us that significant work still needs to be done.

“That the report shows a large gap in financial literacy between young people from the most advantaged and disadvantaged backgrounds – while not a surprise to us – is also cause for concern.

“Large numbers of young Australians from disadvantaged backgrounds already have inadequate reading literacy and numeracy levels. Poor financial literacy simply compounds their disadvantage.

“Previous studies around financial literacy in Australia have indicated the need for targeted approaches to improve performance and these results confirm that’s still the case.

“People with limited understanding about money matters are more likely to have lower education levels, be unemployed, receive lower incomes and have minimal savings.

“The increased complexity of financial products makes it very difficult for people from disadvantaged backgrounds, many of whom have lower reading literacy and numeracy levels.

“If you’re not able to read and monitor financial documentation you’re at risk of, not only making an ineffective financial decision, but a detrimental one.

“Similarly, if you’re a parent in significant financial difficulty, the knock-on effects can have a serious impact on the education of your children – it’s hard to concentrate on school when your parents can’t afford books, uniform, stationery.

“All of this means that we need to get in early and provide young people from low income backgrounds with access to financial literacy to break the cycle of disadvantage long-term.”

After accounting for non-significant differences between countries and economies, Australia performed equal third in the report, behind Shanghai-China, with an average score of 603 points, and the Flemish community of Belgium, with an average score of 541 points. Estonia and New Zealand performed at a similar level to Australia, with average scores of 529 and 520 points respectively.

The PISA report shows the results of the first international assessment of 15-year-old students’ financial literacy competencies assessing  29,000 students from 18 countries and economies including about 3300 Australian students from 768 schools.

“For many years The Smith Family has taken a targeted approach to addressing low levels of financial literacy among disadvantaged young people. In NSW/ACT, Victoria, Tasmania, Queensland – and soon to be in Western Australia – we run a short financial literacy program for 15-17-year-olds that has had great results,” Field said.

“While a number of banks and financial institutions are partnering with community organisations to deliver financial education programs for low income families, we see potential to extend this development into schools in low income areas, particularly with the opportunity to participate in after-school financial literacy workshops.

“We’d also argue for a greater availability of low-cost financial products and services for low income families, providing them with options other than turning to payday lending or emergency relief services for help.”

Australia’s participation in the PISA 2012 financial literacy study was managed by ACER and funded by the Australian Securities and Investment Commission. The Australian report was released to coincide with the launch of the international PISA financial literacy assessment study by the OECD in Paris and is available from the Australian PISA website.