Financial reform demands financial literacy
A common theme of submissions to the Financial Systems Review is a call for higher levels of financial literacy, but this needs to be coupled with a message around the value of good advice.
If the various financial services submissions filed with David Murray’s Financial Systems Review have a common theme it is that while consumer protection is generally regarded as a priority, consumers themselves must take more responsibility for ensuring they understand the decisions they are being asked to make.
In other words, a strong theme across many submissions is that consumers need to be better educated about financial products and services so that they can make better decisions assisted by trusted advisers such as accountants and financial planners.
It was a theme at the core of the submission filed by the Institute of Chartered Accountants and it was something echoed in the submissions filed by both the Commonwealth Bank and the ANZ.
Over the past two decades, successive Governments have talked the talk on financial literacy and there have been some high profile campaigns suggesting that they have also tried to walk the walk.
But, in reality, the level of expenditure directed towards financial literacy has been comparatively modest when weighted against other Government-backed campaigns.
Thus, when debacles such as the collapse of Storm Financial and the failure of some agricultural Managed Investment Schemes have occurred, the finger of blame has been pointed at financial planners and others with little thought given to whether the consumers themselves might have acted in their own best interests.
It might be asked to what degree some basic knowledge around the workings of financial products might have assisted the victims of the Storm Financial collapse to recognise the dangers of triple leverage, or the punters who invested in agricultural managed investment schemes to understand that the value of tax deductibility might be outweighed by the risk to their underlying capital.
The reality, of course, is that Australians are in 2014 vastly more economically and financially literate than they were two decades ago, with higher levels of share ownership thanks to the floating of companies such as Telstra, AMP Limited and the NRMA.
Soon, it seems, they will have an opportunity to invest in the initial public offering of Medibank Private.
But the reality of offerings such as those wrapped up in the Storm advice model and those entailing investing in agricultural schemes is that they entail complexities and risks which are often best left to more sophisticated investors with a more intimate understanding and vastly deeper pockets.
It is to be hoped that the Financial Systems Review does, indeed, recommend that the Government devote more funding and resources towards higher levels of financial literacy, but this needs to be coupled with encouragement of people to seek professional financial advice when dealing with more sophisticated investments.
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