The financial literacy of young Australians

1. Context
2. The study
3. Key findings
4. Points to consider

Context

This academic paper reports on research into the financial literacy, knowledge, attitudes and behaviours of young Australians, aged 16-17, which was carried out in response to a perceived gap in existing literature on this topic. As well as presenting the findings and discussing the implications of the research, the paper discusses the importance of financial literacy, the role of Australia’s financial services regulator - the Australian Securities and Investments Commission (ASIC) responsible for the Australian National Financial Literacy Strategy - and the role of education programmes in promoting financial literacy. Note that the paper uses the term financial literacy throughout, to mean the financial skills, knowledge, behaviours and attitudes associated with positive outcomes, where, in the UK, we would be more likely to use the term financial capability.

The study

• The research took the form of a quantitative survey of 207 Year 11 pupils (aged 16-17) from secondary schools in the Australian state of Victoria.
• The researchers chose schools that they believed were typical of schools in Victoria, covering regional cities, rural areas and metropolitan Melbourne (the state capital): there were three schools selected in each of these geographies, making a total of nine schools.
• The pupils completed multiple choice test questions on six measures of financial literacy, including: financial decision making, financial language comprehension, formal financial literacy, financial knowledge, consumer rights awareness and financial risk awareness. They also answered questions about their attitudes towards money, their behaviours, and their demographics.
• The authors initially scored respondents on how many correct answers they achieved on the test section of the survey and then carried out regression analysis to look for relationships between these scores and key demographics, attitudes and behaviours.

Key findings

• Test scores: The test scores varied between 100 (out of a possible 100) and 24.2, with an average of 62.8 for all participants. Participants scored most highly in the area of financial decision-making (82.0 on average) and financial language comprehension (77.9). Lower average scores were recorded in the areas of financial risk awareness (67.9) and consumer rights awareness (54.1), formal evaluation of financial literacy (52.0) and financial knowledge (41.8).
• Literacy gaps: The most prominent gaps in financial literacy levels were in the areas of: formal financial literacy, consumer rights awareness and financial knowledge.
• Geographic differences: There was a significant difference between the average score for metropolitan participants (73.3) and non-metropolitan participants (58.8) (confidence level not stated). The regression tests also revealed a relationship between metropolitan location and score on all elements of financial literacy except financial decision making.
• Financial confidence: Participants on average performed poorly on questions relating to skills such as budgeting and calculating, but 77.7% overall agreed they were confident in managing their spending and saving, which suggests many may be over-confident
• Attitudes towards money: Participants who agreed with the statement “Saving money is important to me” had significantly higher scores (at the 0.01 level) in the area of formal financial literacy than those who disagreed. Participants who agreed with the statement “Leaning more about money and finances is important to me” had higher average scores than those who disagreed. (Significance not stated)
• Adult influences: Significantly higher scores were observed amongst participants whose parents worked in finance-related occupations. Participants in the highest quartile of scores were significantly more likely to talk to their parents about money than those in the lowest quartile. Participants who thought teachers were trustworthy to talk to about finances got significantly higher scores (at the 0.05 level) than those who didn’t.

Points to consider

• Methodological limitations: Whilst the sample size of 207 could be considered rather low, the authors still found many significant differences between sub-groups of interest in the analysis. The paper doesn’t mention how the survey was administered, i.e. whether it was by the authors themselves, whether it was self-completion or via an interviewer, and whether it was paper-based, computer-based or online, so it is hard to comment on any other possible limitations.
• Relevance: Financial literacy amongst young people and young adults is important if they are to grow up to be financially literate and capable adults. The paper is particularly relevant in that it identifies, and seeks to fill, a gap in available research data on this topic.
• Generalisability/ transferability: The research takes place in schools in Victoria, but the findings may be generalisable to young people throughout Australia. The findings may also be generalisable to other developed nations, although the unique nature of Australian rural areas and regional cities, i.e. the degree of geographic isolation and lower populations, may have an impact, which may make it harder to transfer all of the findings, and this should be taken into consideration. For example, the differences found between metropolitan and rural or regional respondents may not be as pronounced in other countries.
• Applicability: The findings are particularly applicable within Australia, to ASIC, the body that is charged with implementing the Australian National Financial Literacy Strategy, and to other educators and policy makers. The findings will also be of interest to those studying financial capability amongst 16-17 year olds in other countries, with the caveat above.

Full report

The financial literacy of young Australians - full report