What is financial capability?
For Ecstra, financial capability is more than just understanding money or financial literacy.
Many factors influence individual behaviours, attitudes to money and financial decision making. These can include personal health, income, employment, family background and social support structures.
For many people being “financially capable” will mean being in control and feeling financially secure through:
making informed decisions on managing debt
starting to save and growing those savings
having a financial plan
being able to cope with unexpected expenses or a fall in income
a basic understanding of financial product and service offerings, including fee or referral arrangements
actively reviewing superannuation plans
being comfortable talking about money with friends and family, and
reaching financial goals
Why does financial capability matter?
Financial capability is important to people and the economy – it impacts many areas such as housing and job choice, living standards, physical and emotional health and security in retirement. Financially secure and confident communities contribute to the overall economic wellbeing of Australian society.
However, one in three Australians find dealing with money stressful. Many people find it difficult to talk about money or ask for help. Vulnerable consumers are more likely to be financially excluded and find it harder to recover from financial setbacks.
Schools teach financial literacy in a crowded curriculum. The science, reading and maths achievements of Australian students are declining. There is a clear link between low performance in maths and reading and low financial literacy.
Superannuation options can be complicated. Potential reforms to the super system and the impact on average Australian wage earners shows the need to simplify and improve publicly accessible information.
The financial landscape is very complex. People are often not equipped to navigate these challenges. There is often an imbalance of power and information between consumers and financial institutions, as highlighted in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Making sure there are appropriate consumer protection frameworks and community knowledge of consumer rights and redress are as important as addressing financial capability.