Commonwealth Bank Foundation report highlights importance of financial literacy education
24 February 2005
Improving financial literacy among the 10 per cent of Australians who are least knowledgeable would increase Australia’s GDP by $6 billion, and create 16,000 new jobs according to a major research report released today by the Commonwealth Bank Foundation.
The report, Improving financial literacy in Australia: benefits for the individual and the nation, calculated that one-in-10 Australians would benefit economically by improving their financial literacy. Young people aged 16 to 20 years make up nearly 40 per cent of this group. A modest increase in financial literacy among this core group over 10 years would deliver substantial macro and micro economic benefits such as:
- Boosting GDP by $6 billion per year and increasing productivity;
- Creating over 16,000 new jobs;
- Potentially reducing reliance on welfare and increasing national savings;
- Lowering unemployment among 16-20 year olds; and
- Increasing annual personal income by $3,204 per person on average.
The report was commissioned by the Commonwealth Bank Foundation to provide it with a comprehensive understanding of the depth of the impact on the community of being financially literate. The research results provide support to the view that enhancing financial literacy in the community is an important national priority. It will be used by the Foundation to enhance its existing programs and develop new programs aimed at educating our youth and making them more financially literate.
The research was conducted by the Bank’s Quantitative Research division in conjunction with Eureka Strategic Research and the Centre of Policy Studies at Monash University. The findings are based on a national telephone survey of 5000 Australians aged 16 to 65 years.
CEO of the Commonwealth Bank and Chairman of the Commonwealth Bank Foundation, David Murray, said the research underlined the economic and social imperatives of improving financial literacy in Australia.
"Educators have long understood the need for improving financial literacy, and the Commonwealth Bank Foundation was established to contribute to increasing the financial literacy of Australians. In 2004, the Foundation provided approximately $2,000,000 to support the youth of Australia through programs such as Financial Literacy Grants and e-learning grants. For 2005, it is developing additional financial literacy programs to support teachers and students.
"The economic benefits in terms of productivity, GDP growth and employment identified in the Monash University model are significant, and reinforce the positive outcomes that can be achieved by improving financial literacy, particularly among our young people."
Professor Peter Dixon from Monash University’s Centre of Policy Studies said "The potential increases in economic welfare resulting from improved financial literacy are very large.
The only-other Monash-style computations that we can recall generating long-run gains of a similar size are those concerned with the effects of increasing the proportion of students who complete secondary school and the effects of the adoption of eCommerce."
Minister for Revenue and Assistant Treasurer, the Honourable Mal Brough said: "I congratulate the Commonwealth Bank on this ground-breaking research which highlights the significant benefits of improving financial literacy, and helping Australians to make better investment decisions throughout their life. It also supports the Government’s long-held belief that an investment in financial literacy is an investment in our future."
Commenting on the report, Ms Christine Reid, Executive Officer of Business Educators Australasia said "The research reinforces the importance of financial education in our schools. Financial literacy is an important life skill that cannot be ignored within our school curriculum. Educators recognise the importance of financial literacy, including money management skills, and they would like this more firmly embedded in curriculum programs with appropriate time and resources."
Among the key findings of the report:
- Annual personal and household income is related to financial literacy. On average, the higher the financial literacy score, the higher the annual income.
- The higher their financial literacy score, the more confident people were of their ability to raise 10% of their income within a week, reflecting their ability to withstand sudden financial pressure.
- Lower financial literacy scores were significantly related to respondents’ having been unable to pay their mobile phone, utility and credit card bills in the last 10 years.
- The 10 per cent of Australians with the lowest financial literacy scores were more likely to be males (55.6%); aged 16 to 20 (38.6%); be unemployed or studying, and have an annual personal income under $10,000.
- Within this 10 per cent group, the 16 - 20 years olds mostly obtained financial knowledge via family and friends (86%), direct experience/trial and error (69%) and through school (68%).
About the survey
A national telephone survey was conducted with 5,000 Australians aged 16 – 65 years, between August 18 and September 9, 2004, using Computer Assisted Telephone Interviewing (CATI). With a sample of this size, we have a 95% confidence interval of + 1.4%.
The research was commissioned by the Commonwealth Bank Foundation, and conducted by the Commonwealth Bank’s Quantitative Research division, in partnership with Eureka Strategic Research and the Centre of Policy Studies, Monash University, which conducted the research and modelled the data to assist in scaling up micro-economic effects to macro-economic aggregates.
You can download the full report of Improving financial literacy in Australia: benefits for the individual and the nation from the Commonwealth Bank Foundation’s website at www.commbank.com.au/foundation
About the Commonwealth Bank Foundation
The Commonwealth Bank Foundation seeks to encourage developments in education, particularly the financial literacy skills of all young Australians, and aims to create awareness, skill and understanding of the benefits of a more financially literate community. The Foundation supports a range of financial literacy activities.
About the Centre of Policy Studies, Monash University
The Centre of Policy Studies at Monash University specialises in computable general equilibrium (CGE) modeling and developed the MONASH dynamic computable general equilibrium model of the Australian economy for judging scenarios. MONASH has been used to analyse many economic policies, including changes in taxes, tariffs, environmental regulations and competition policy. MONASH simulations also underlie detailed forecasts of labour market demand and income distribution.
About Eureka Strategic Research
Eureka was established in 1995 and has become one of Australia’s most respected market and social research companies.
(02) 9378 5965 or Bryan Fitzgerald (02) 9378 2663