Financial illiteracy could be costing Aussies $240,000

By Lucy Dean

October 11 2017
Share

Australians “have a problem with money” but could be $240,000 richer at retirement if they sorted it out, Sunsuper has said.

Financial illiteracy, problem with money

CoreData research commissioned by Sunsuper has revealed that financial advice could provide a young family with greater lifestyle choices, and lead to an extra $240,000 at retirement.

According to Sunsuper’s head of advice, Anne Fuchs, however; “A lack of financial literacy could be blamed for what people believe they can achieve and what their actual financial situation will be in the future.”

The CoreData data showed that 80 per cent of those who received advice said it “gave them more confidence to make financial decisions” and 77 per cent said it helped them feel more prepared for retirement. This was based on a survey of more than 1,000 working Australians.

Additionally, just 7 per cent of those who received advice believe they’ll need to rely on the age pension in retirement. That’s compared to 42 per cent of those who have not received advice.

In a case study featuring a couple, ‘Adam’ and ‘Mara’ in their mid-30s with two children, financial advice helped them achieve their goals of regular family holidays, their children in private school and debts paid down and investment growth.

With a joint income of $161,160 and a savings rate of 23 per cent, Sunsuper warned that: “Staying on their current path without advice sees Adam and Mara falling short of their personal and financial goals. Acting on the advice they received sees them sustaining a higher quality of life, having greater peace of mind about their finances, and feeling better prepared for retirement.”

The financial advice received included recommendations that the couple plan for known future discretionary spending while paying down both credit card and mortgage debt immediately to reduce interest and “create surplus funds” for school fees and holidays.

The Sunsuper modelling saw the couple’s retirement balance improve by $239,185, the children attending private schooling in primary and high school, rather than just high school, at least six extra family holidays taken and 32 years of trauma cover where without advice there would be no cover.

“The extensive modelling by CoreData shows in all three case studies of couples at different life stages financial advice improved their current situation and allowed them to take additional holidays – meaning they had the financial freedom to spend money on things they enjoy,” Ms Fuchs said.

“We also looked at the affordability of trauma cover because we understand that added financial security is important for many families should they become seriously unwell – especially when by 2020 it’s estimated that there will be 150,000 new cases of cancer diagnosed in Australia,” she continued.

The survey also found that 69 per cent of those who had received advice had a formal retirement savings plan, as opposed to the 18 per cent of those who had not received advice.

Fifty-four per cent of those who had received advice anticipate a good standard of living in retirement, compared to 16 per cent of those who had not received advice and 58 per cent of advisees are making before-tax contributions to super to boost their retirement balance. That’s compared to 16 per cent of those who had not received advice.

Principal economic research at CoreData, Andrew Inwood said: “Good advice does of course make you wealthier at retirement, but it also adds value all the way through your life in the choices you can afford to make about schooling, insurance, holidays, housing and personal interests.

“The important thing to measure is how it adds value to every life stage and enables individuals' life aspirations — that's what we have modelled."

sections

sections

sections

sections

sections

sections

sections

Retirement