Research reveals startling financial knowledge gap

Just because people are wealthy does not mean they appropriately understand financial products, according to the latest research from Roy Morgan.

The research, which surveyed 50,000 people, found that only a little over half of all Australians aged over 14 felt confident when it came to managing their finances and investments, something which the research analysis suggested posed a major problem for the effective operation of the system.

It found that while financial confidence is affected by how often people use financial services, a major reason for the lack of confidence was that nearly one in three people (30.5 per cent) have never spent the time to understand how financial products work.

The Roy Morgan research exercise divided the Australian population into five segments based on dollar value and the types of financial products they utilised, and concluded that confidence in managing finances increased progressively with increasing value.

However it noted that when it came to taking time to learn about finance, even those in the highest quintile had never spent the time to understand how financial products work.

Commenting on the research, Roy Morgan Industry Communications director Norman Morris said financial confidence could be improved through a better understanding of how finance products work and choosing the best products to suit individual needs.

He said that while there had been an ongoing focus on financial literacy and education — often with a particular emphasis on certain disadvantaged groups — people with higher levels of wealth or debt also had major gaps in their understanding.

"With one quarter to one third of the population across all the segments not spending time to understand how financial products work, there is an opportunity for financial institutions and government bodies to engage people in furthering their education, simplifying products and making less frequent legislative and product changes," Morris said.