SPONSORED CONTENT | At a time when global investment markets are increasingly accessible to retail investors, there is much evidence that many young adults lack the skills to make sound financial decisions.
Financial illiteracy is often blamed on the education system. More could and should be done to provide a basic understanding of finance in school. But what’s alarming is the absence of financial education in Australian families.
That was one conclusion from a recent study by life insurer AIA Australia regarding the role of life insurance in superannuation, conducted by the independent research agency The Lab[1]. The study found that financial issues were rarely discussed in Australian homes and this negatively impacts children’s ability to make sound financial decisions as adults.
They will confront a number of products as financial consumers, for example life insurance, credit cards, or superannuation. Without basic knowledge of how financial products work, the benefits they offer and the risks they entail, young adults fail to acknowledge financial challenges, to the extent many become almost bystanders of the financial system.
This can leave them vulnerable. Research shows that only about 30% of Australians are aware they have life insurance in superannuation. But once aware of life insurance, more than 70% see its inclusion as a real positive.[2] And although more than 90% of the working population have some type of insurance coverage (largely within their superannuation), there is still an underinsurance issue in Australia[3] and equally, people who may have cover and don’t need it.
In addition to this, insights from the most recent AIA study identified that younger members, dubbed ‘pre-responsibilities’, said they wanted to be “shocked”, by being told the facts, highlighting claims do occur amongst this group and making them want to understand why they need life insurance.
The lack of financial literacy allows financial institutions to be portrayed as complex and opaque, breeding disengagement of especially young people from these organisations.
This disconnect is compounded by a language barrier that AIA Australia openly concedes, acknowledging that the language the finance industry uses can discourage people from engaging. What is needed is a conscious effort to address issues such as the legal tone of documents, jargon, lack of visuals and a clear checklist, lack of reliable calculator tools, having too many options, and long lists of terms and conditions.
It all adds up to a perfect storm. Young people fail to get a financial education at home or at school, only to enter the workforce and find they must make financial decisions that entail dealing with institutions that seem to be almost speaking a foreign language.
Everyone must be better, and the financial services industry especially has a responsibility to improve outcomes and meet customers’ experiences. As life insurers, we need to better engage with a youth audience, using clear, simple language and meaningful communication methods.
Copyright © 2018. AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). All rights reserved. This article is current at the date of publishing and may be subject to change. It provides general information only, and is not intended as financial, health, medical or other advice.
[1] The project consisted of a series of focus groups in both Victoria and Queensland, talking to individuals contributing to superannuation but with mixed levels of awareness about the concept of insurance within superannuation.
[2] Source: The AIA Life Today Study – Group Insights, Part 3 – Understanding financial health, April 2017
[3] Source: Rice Warner’s Underinsurance in Australia 2015 report
