Most Australians aren’t ‘good with money’. It’s time that changed

If I were to give you a pop quiz right now about the basics of money, what grade do you think you’d get? Are you confident that you’re financially literate enough to pass with flying colours?

Or when push comes to shove, would you more than likely flunk thanks to sticky questions about inflation versus interest rates?

Financial literacy rates in Australia are low, especially when compared to the rest of the world.Credit: Dionne Gain

The good news is that there is no pop quiz, so you can breathe easy. The bad news is that when Australians have been tested on their financial literacy, far too many have fallen way, way short – even on the most basic of questions.

At its simplest, financial literacy refers to people’s ability to understand concepts and skills like saving versus spending, interest, inflation, diversification, risk and unhealthy debt, the importance of credit scores and being able to budget your money effectively. In other words, it’s knowing enough to be someone who people would describe as “good with money”.

Now, you might be thinking, “come on Victoria. Just about everyone knows that stuff”, but I’m sorry to break it to you, they don’t.

According to the 2020 Household, Income and Labour Dynamics in Australia survey, which tracks roughly 17,000 Australians, around 45 per cent of all adult Australians are financially illiterate.

Having a solid grasp on finances isn’t just about us as individuals. Ensuring everyone knows the basics is great for the economy broadly.

That’s nearly half of our entire adult population that does not have an adequate understanding of how to effectively budget and make sound long-term decisions about how they will live.

Asked five basic questions, men scored a solid average of four out of five. For women, it was only 3.5 out of five. That’s added to the fact that among all G20 nations around the world, Australian women had the second-highest financial literacy gap.

Meanwhile, in the United Kingdom, Mexico, Japan and South Africa, women’s literacy on all things money isn’t just as good as the gents, it’s better.

But what was easily the most concerning finding was that among those aged 15 to 24, the score out of five was just 2.9. That, my friends, is a seriously mediocre C-grade.

Perhaps 50 years ago, when the choices were between a couple of basic bank products and a superannuation account, these numbers wouldn’t have been so concerning.

But in a world of countless different types of specialised bank loans, HECS debt, credit cards, buy now pay later schemes, online gambling, cryptocurrency, ETFs, salary negotiations, bonus structures, stock options, and self-managed versus industry or corporate super funds, it’s never been more important to ensure that everyone, especially young people, is literate when it comes to money.

Though the Australian curriculum does include financial literacy content, the way in which it is being taught and the detail within that vary greatly, leaving much room for improvement.

One country leading the way in this field is, believe it or not, the United States. According to the US’ Council for Economic Education, as of 2024, 35 of the country’s 50 states now require high school students to attend personal finance classes before they graduate.

That’s more than two-thirds of teenagers across America having a basic understanding of money and finance before they leave home and enter the world of adulthood and employment.

The trend is also taking off at American universities, where a growing number of public and private institutions are offering personal finance courses for students as electives. These courses teach the basics, but some go further and cover the principles of investing, taxes, how to understand job offers and salary packages, as well as the psychology of why people make certain financial decisions.

As much fun as those 101 literature or psychology electives can be, this seems like a much more useful course to be aiming for an easy A in.

Aside from the fact that we live in much more financially complicated times, there are other reasons we need to care about making sure our kids understand money.

For starters, research consistently shows that the better financially educated someone is, the more likely they are to make good decisions and better judgements about their money.

Critics say financial education is not given enough priority in schools.Credit: Virginia Star

We also know that the cost of being totally financially illiterate or having a poor understanding of money can have devastating long-term effects. People who are “bad with money” are consistently shown to have a lower standard of living, and we see the wealth gap widening between the “haves” and the “have-nots”.

So easily, one high-interest credit card or personal loan can follow someone around for decades and impact their credit scores, their ability to make career or relationship choices, create extra stress, and make it harder to meet their basic needs. And yet, we see it happen every day, often affecting people you’d least expect.

Having a solid grasp on finances isn’t just about us as individuals, either. Ensuring everyone knows the basics, especially those who are the least financially literate, is actually great for the economy broadly.

That’s because it allows people to carry less debt, improves their job opportunities and earning potential, and creates new jobs in the process. To quote former assistant RBA governor Keith Hall all the way back in 2008: “Money spent on financial education would be money very well spent.”

And while it’s not as if we’re doing nothing, we certainly need to be doing so much more. Because the more people who can hold their head high and say they’re “good with money”, the better.

Victoria Devine is an award-winning retired financial adviser, bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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