Financial wellness is driven by people’s propensity to spend, borrow, and save for the future. It describes the health of a person’s finances and is related to his or her financial capability and literacy. Individuals’ attitudes, motivations, and personal biases, together with their social and economic environment, also play a role in financial wellness.
SS&C Technologies commissioned global data company Dynata to survey Australians about their attitudes towards money, financial advice and retirement. The survey of 1,000 adults over the age of 18 across all Australian States was conducted in September 2021 and revealed:
- around two-thirds of Australians don’t have a budget or an emergency fund to tap into during times of stress
- almost one in five people said the pandemic had led to dramatic financial changes or extreme hardship
- shares now rival term deposits and cash accounts in popularity while speculative cryptocurrencies are attracting younger investors
- more than two-thirds of people don’t know their superannuation balance, yet one in five people think they will need $1 million to retire comfortably
- almost one-quarter of Australians worry more about money than any other concern
- almost half of people surveyed said they preferred online, self-paced financial education
- people want to turn to institutions they trust – their banks and super funds
- the most popular place to access digital financial planning tools are super fund websites or apps, followed by bank sites or apps.
While the survey results might show that more work is needed to achieve financial wellness, importantly, the results also highlight the growing interest in financial education, and the opportunities ahead for this area.
Financial situation and knowledge
More than half of survey respondents (54 per cent) rated their knowledge of money and finance as average, while around one-third (32 per cent) rated it above average. The average male was more confident than the average female.
While many Australians rate their financial knowledge highly, it’s debatable how long these perceptions may last given the eventual long-term repercussions of poor financial decisions. For example, the prudential regulator announced a mortgage lending crackdown in October 2021 to curb Australia’s booming residential property market. A 21.6 per cent rise in home values over the year to October 2021 has far exceeded wages growth, suggesting Australians may be over-confident about taking on risk, such as extra debt.
Many Australians lack specific knowledge about their superannuation and are fearful they will run out of money in retirement. Two-thirds of people (39 per cent) surveyed didn’t know their super balance, with women and younger Australians less aware. This supports previous Productivity Commission research that found Australians are less financially literate when it comes to superannuation and retirement planning than general financial issues.
Another major issue revealed in the survey is the number of people still holding multiple super accounts (14 per cent) with younger people holding more accounts (17 per cent).
Almost two-thirds of people (65 per cent) say they let their employer choose their super fund (or don’t know they can choose). This suggests stapling provisions in Your Future, Your Super will have a major impact on fund flows, and that higher education levels could help investors make more informed decisions.
Insurance in super
Life insurance is often attached to super funds by default. While the survey revealed that only 39 per cent of people know their super balance, only 19 per cent know how much life insurance they held. This suggests they may not understand the value of life insurance or that the product itself may be too complex. Many super insurance products reduce coverage automatically based on the age of the investor. This again suggests a need for better financial education.
Almost half (42 per cent) of people think they will need to save between $1-$10 million to retire comfortably. One in five people think they will need $1 million to retire comfortably. This is materially higher than the ASFA Comfortable Standard, which suggests a couple would need to retire with $640,000 and a single person $545,000.
The survey also suggests a disconnect between expectations and reality given more than half of people (52 per cent) still think they will retire comfortably, despite super balances significantly lower than they believe they will need.
Most Australians expect to fund their retirement with their super (67 per cent) compared to the Government’s Age Pension (41 per cent). In reality, around 2.6 million people received the Age Pension, equating to over 3 in 5 (62 per cent) of the population aged 65 and over, in March 2021.
However, only 18 per cent of Australians aged 18-24 expect to rely on the Age Pension – this then steadily rises over the years peaking at 71 per cent by retirement age.
This demonstrates again that many people may be over-confident about their financial future and would benefit from earlier financial education.
Property is also a popular choice (25 per cent) to fund retirement. The home is an important retirement pillar given it is not means tested for Age Pension eligibility, although few retirees use their homes to produce cashflow through mechanisms such as reverse mortgages or the Government’s Pensions Loans scheme. Few also downsize despite regulations that allow extra downsizing contributions to be made into super.
How people attempt to improve their financial wellness
The survey shows gaps in knowledge and decision-making that could be addressed with advice and education. Many people seek advice too late, when their prime saving years are over and they are nearing retirement. Improving financial literacy by educating people earlier can help them make better financial decisions that align with their goals across all stages of their lives.
Many people are aware they need help and either attempt to research independently or seek the help of a financial adviser. Personal financial advice is valuable, but many people are put off by their perception that it costs too much. The survey found that fewer than one-third had seen a financial planner.
It also showed that almost one-quarter (23 per cent) of people don’t have access to a financial education or planning resource but would like to use one.
The online education opportunity
There is huge untapped demand for financial education and planning resources with almost one in four people looking for these services. People want to turn to institutions they trust – their banks and super funds.
While few people access high-cost, face-to-face advice, almost half of people surveyed said they preferred online, self-paced financial education. COVID-19 has also accelerated companies’ share of digital or digitally enabled products by seven years, according to McKinsey.
Online education can power financial literacy and, in turn, financial wellness. It provides a path for Australians to practise better habits and make well informed decisions.
Now is the time for organisations to embrace the rising demand for online education, particularly in the wake of the pandemic.
If you would like to read about SS&C’s Personalised Financial Wellness Centre click HERE.