1 00:00:03,900 --> 00:00:07,200 Jennifer Duke: Welcome to the Fear and Greed Business Interview. I'm Jennifer Duke. 2 00:00:07,620 --> 00:00:10,769 Jennifer Duke: Recently I read a statistic that frankly should make us 3 00:00:10,770 --> 00:00:13,829 Jennifer Duke: all a little nervous. A third of adults in Australia 4 00:00:13,830 --> 00:00:16,949 Jennifer Duke: are financially illiterate. That's according to a new piece of 5 00:00:16,949 --> 00:00:20,820 Jennifer Duke: research published in The Economic Record. Those with lower financial 6 00:00:20,820 --> 00:00:23,729 Jennifer Duke: literacy are likely to end up worse off later in life. 7 00:00:24,360 --> 00:00:27,510 Jennifer Duke: It's a pretty startling number, and here to discuss what 8 00:00:27,510 --> 00:00:30,300 Jennifer Duke: it means and what needs to be done is Diana Mousina, 9 00:00:30,509 --> 00:00:33,839 Jennifer Duke: Deputy Chief Economist at AMP Capital. Diana, welcome to Fear 10 00:00:33,839 --> 00:00:34,289 Jennifer Duke: and Greed. 11 00:00:34,949 --> 00:00:35,970 Diana Mousina: Thank you for having me, Jen. 12 00:00:36,600 --> 00:00:38,520 Jennifer Duke: Can you break down that number a little bit for 13 00:00:38,520 --> 00:00:40,949 Jennifer Duke: us? What does it mean to be financially illiterate? 14 00:00:41,519 --> 00:00:45,120 Diana Mousina: Sure. Well, first, let's talk about what is financial literacy. 15 00:00:45,300 --> 00:00:50,490 Diana Mousina: Ultimately, it's the understanding of financial and economic concepts, but 16 00:00:50,490 --> 00:00:54,330 Diana Mousina: then applying those to your personal finances. So this ranges 17 00:00:54,330 --> 00:00:58,530 Diana Mousina: from topics around things like savings accounts, credit cards, mortgages, 18 00:00:58,710 --> 00:01:02,010 Diana Mousina: shares, and superannuation. Usually what you tend to see is 19 00:01:02,010 --> 00:01:06,119 Diana Mousina: that as you get older, your financial literacy increases, as 20 00:01:06,120 --> 00:01:08,910 Diana Mousina: you would expect, it peaks around middle age and then 21 00:01:08,910 --> 00:01:12,149 Diana Mousina: it declines into the older years. So there have been 22 00:01:12,150 --> 00:01:14,730 Diana Mousina: a number of studies to try and measure literacy in 23 00:01:14,730 --> 00:01:17,400 Diana Mousina: adults. And the way that they do that is by asking 24 00:01:17,400 --> 00:01:23,549 Diana Mousina: questions around numeracy, compound interest, inflation, and risk diversification. And they 25 00:01:23,639 --> 00:01:27,030 Diana Mousina: think that those are the best ways to measure financial 26 00:01:27,089 --> 00:01:30,990 Diana Mousina: literacy. And what they found was that in most developed 27 00:01:30,990 --> 00:01:34,380 Diana Mousina: countries, as we know in Australia, a large share of 28 00:01:34,380 --> 00:01:37,770 Diana Mousina: adults are financially literate, which means that they can answer 29 00:01:37,770 --> 00:01:42,389 Diana Mousina: all those questions correctly. But the more important issue that 30 00:01:42,389 --> 00:01:46,139 Diana Mousina: I noticed in this research was that there is quite a 31 00:01:46,139 --> 00:01:51,270 Diana Mousina: significant gap between the literacy in males versus females. And 32 00:01:51,270 --> 00:01:56,610 Diana Mousina: in Australia, females actually are more financially illiterate compared to 33 00:01:56,610 --> 00:02:00,420 Diana Mousina: some of our global peers. So we have worse outcomes 34 00:02:00,420 --> 00:02:05,189 Diana Mousina: for female financial literacy here compared to countries like Italy, 35 00:02:05,190 --> 00:02:11,520 Diana Mousina: Germany, the US, Denmark, Switzerland, the UK. Which took me 36 00:02:11,520 --> 00:02:14,099 Diana Mousina: by surprise a little bit, I guess, because it doesn't 37 00:02:14,099 --> 00:02:15,870 Diana Mousina: really make much sense to me as to why that 38 00:02:15,870 --> 00:02:16,619 Diana Mousina: should be the case. 39 00:02:17,400 --> 00:02:20,008 Jennifer Duke: Do you have any pet theories as to what's going 40 00:02:20,008 --> 00:02:20,340 Jennifer Duke: on there? 41 00:02:21,089 --> 00:02:24,840 Diana Mousina: Well, when I think about the elements that drive financial 42 00:02:24,840 --> 00:02:30,630 Diana Mousina: literacy, it's really to me about education. And that starts 43 00:02:30,840 --> 00:02:33,929 Diana Mousina: from a young age, that would start in primary school 44 00:02:33,929 --> 00:02:36,630 Diana Mousina: and then into the high school years. Now, I haven't 45 00:02:36,630 --> 00:02:38,400 Diana Mousina: lived in all those other countries, so I don't know 46 00:02:38,400 --> 00:02:42,450 Diana Mousina: what kind of curriculums they teach their students, but I 47 00:02:42,450 --> 00:02:46,500 Diana Mousina: assume that there is some education gap here in Australia 48 00:02:46,500 --> 00:02:50,040 Diana Mousina: that is causing this issue. And the problem is that 49 00:02:50,099 --> 00:02:54,330 Diana Mousina: when you have this financial literacy gender gap, it does 50 00:02:54,330 --> 00:02:58,260 Diana Mousina: lead to worse outcomes for women in terms of wealth 51 00:02:58,260 --> 00:03:02,459 Diana Mousina: accumulation and investment decisions. Because if you don't have that 52 00:03:02,460 --> 00:03:05,669 Diana Mousina: sense of what to do with your finances, then you're 53 00:03:05,669 --> 00:03:09,150 Diana Mousina: going to make worse investment decisions. And we already know 54 00:03:09,150 --> 00:03:12,988 Diana Mousina: the issues around the gender pay gap and also around 55 00:03:13,049 --> 00:03:17,399 Diana Mousina: that females retire on lower superannuation compared to males. So 56 00:03:17,520 --> 00:03:21,000 Diana Mousina: the financial literacy gap makes these issues even worse. 57 00:03:21,419 --> 00:03:24,240 Jennifer Duke: It's a pretty worrying thing to think about, particularly through 58 00:03:24,240 --> 00:03:26,789 Jennifer Duke: that gender lens. Are there things that you think the 59 00:03:26,790 --> 00:03:29,280 Jennifer Duke: government and businesses need to be doing to sort of 60 00:03:29,280 --> 00:03:32,069 Jennifer Duke: close that gap and to fix things on the childhood 61 00:03:32,070 --> 00:03:32,640 Jennifer Duke: end as well? 62 00:03:33,570 --> 00:03:35,399 Diana Mousina: I think that there's plenty of things that can be done, 63 00:03:35,400 --> 00:03:38,340 Diana Mousina: and it can come from a number of sources. The 64 00:03:38,340 --> 00:03:43,350 Diana Mousina: government is definitely the centerpiece, I suppose, of this. So 65 00:03:43,410 --> 00:03:45,360 Diana Mousina: I think that there really does need to be some 66 00:03:45,360 --> 00:03:50,549 Diana Mousina: sort of personal finance, financial literacy topic that's started to 67 00:03:50,549 --> 00:03:54,630 Diana Mousina: be taught to primary school kids, and then go into 68 00:03:54,630 --> 00:03:57,780 Diana Mousina: the high school years as well. Because from what I understand, 69 00:03:58,230 --> 00:04:03,210 Diana Mousina: there's no sort of basic finance type of course that 70 00:04:03,210 --> 00:04:06,270 Diana Mousina: is taught to students. Some students go on to study 71 00:04:06,270 --> 00:04:09,689 Diana Mousina: commerce and economics, which I think is quite positive in 72 00:04:09,690 --> 00:04:13,860 Diana Mousina: this and trying to get kids exposed to these types 73 00:04:13,860 --> 00:04:16,469 Diana Mousina: of concepts. But it can start even earlier than that, 74 00:04:16,890 --> 00:04:19,620 Diana Mousina: and you shouldn't just be reliant on being a commerce 75 00:04:19,620 --> 00:04:23,428 Diana Mousina: or economics student to learn some of these issues. The 76 00:04:23,428 --> 00:04:26,309 Diana Mousina: other interesting thing is that in Australia, the share of 77 00:04:26,309 --> 00:04:31,379 Diana Mousina: males who study economics in HSC has consistently been much 78 00:04:31,380 --> 00:04:36,690 Diana Mousina: higher than females. So males account for about 60% of HSC enrollments 79 00:04:36,690 --> 00:04:39,809 Diana Mousina: in Australia, and that's been the case for a number 80 00:04:39,809 --> 00:04:42,599 Diana Mousina: of decades now. As an economist, I think I have 81 00:04:42,599 --> 00:04:45,510 Diana Mousina: to say that the study of economics is extremely important, 82 00:04:45,960 --> 00:04:48,630 Diana Mousina: but I do think that the government can do more 83 00:04:48,660 --> 00:04:52,830 Diana Mousina: to encourage further females into the study of economics and 84 00:04:52,830 --> 00:04:55,200 Diana Mousina: then into those roles. And then of course, there is 85 00:04:55,200 --> 00:05:00,089 Diana Mousina: also some onus on organisations. So for financial service organisations, 86 00:05:00,360 --> 00:05:04,080 Diana Mousina: banks and superannuation providers, they could be making educational resources 87 00:05:04,080 --> 00:05:08,040 Diana Mousina: available to customers or some kind of financial wellbeing checks 88 00:05:08,430 --> 00:05:14,070 Diana Mousina: for businesses, staff incentives like salary packaging, childcare fees. I mean, 89 00:05:14,070 --> 00:05:17,070 Diana Mousina: that also helps working parents. I mean, if we're talking 90 00:05:17,070 --> 00:05:22,769 Diana Mousina: about generally trying to assist wealth positions for females versus males, 91 00:05:22,859 --> 00:05:25,500 Diana Mousina: these types of things need to be thought about as 92 00:05:25,500 --> 00:05:26,460 Diana Mousina: well for the future. 93 00:05:27,270 --> 00:05:29,220 Jennifer Duke: Stay with me, Diana, we'll be back in a minute. 94 00:05:35,460 --> 00:05:39,510 Jennifer Duke: I'm speaking to Diana Mousina, Deputy Chief Economist at AMP Capital. 95 00:05:40,410 --> 00:05:43,080 Jennifer Duke: I imagine there's a lot of people who are, as 96 00:05:43,080 --> 00:05:46,620 Jennifer Duke: you've raised, quite concerned about their children's financial literacy, who 97 00:05:46,620 --> 00:05:49,320 Jennifer Duke: won't be willing to wait for the government to step 98 00:05:49,320 --> 00:05:51,719 Jennifer Duke: in here and do something. You've obviously got young kids 99 00:05:51,719 --> 00:05:54,928 Jennifer Duke: at home yourself. How do you go about teaching some 100 00:05:54,928 --> 00:05:57,210 Jennifer Duke: of those things to your children? Do you have any 101 00:05:57,210 --> 00:05:59,130 Jennifer Duke: tips for other families who might be listening? 102 00:06:00,449 --> 00:06:03,180 Diana Mousina: It can definitely start from a young age. My kids 103 00:06:03,270 --> 00:06:05,940 Diana Mousina: are five and two, and they both have piggy banks, 104 00:06:05,940 --> 00:06:09,390 Diana Mousina: which they put money from. Well, my daughter just started losing 105 00:06:09,480 --> 00:06:12,899 Diana Mousina: her child teeth, so been putting that money into the 106 00:06:13,020 --> 00:06:15,659 Diana Mousina: money box, and the more teeth that she loses, I 107 00:06:15,660 --> 00:06:17,520 Diana Mousina: feel like the more money that I end up giving 108 00:06:17,520 --> 00:06:20,400 Diana Mousina: her. So I'm trying to teach her about that through 109 00:06:20,460 --> 00:06:23,190 Diana Mousina: that sort of way. And as they get older, I 110 00:06:23,190 --> 00:06:25,860 Diana Mousina: hope that I can teach them about basic things like 111 00:06:25,860 --> 00:06:29,670 Diana Mousina: credit cards and credit card interest, the way that interest 112 00:06:29,670 --> 00:06:32,700 Diana Mousina: rates work, why it's really important to know what the 113 00:06:32,700 --> 00:06:36,269 Diana Mousina: Reserve Bank is doing, what happens with prices and inflation. 114 00:06:36,510 --> 00:06:39,630 Diana Mousina: Concepts that can seem kind of tricky and hard, but 115 00:06:39,630 --> 00:06:42,690 Diana Mousina: if you break it down, actually economics affects you in 116 00:06:42,690 --> 00:06:45,750 Diana Mousina: your everyday life. You might just not even realize it, 117 00:06:45,750 --> 00:06:49,950 Diana Mousina: but the economic forces are driving your everyday decisions and 118 00:06:49,950 --> 00:06:52,979 Diana Mousina: the balances that you have in your bank accounts. And 119 00:06:52,980 --> 00:06:56,220 Diana Mousina: personally, I'm really interested in this topic and I think 120 00:06:56,220 --> 00:07:01,380 Diana Mousina: it's extremely important. And AMP has a simplifying investing podcast, 121 00:07:01,680 --> 00:07:04,200 Diana Mousina: which I'm now going to be joining as well, to 122 00:07:04,200 --> 00:07:07,589 Diana Mousina: try and educate listeners on some of these more basic 123 00:07:07,589 --> 00:07:11,580 Diana Mousina: economic type of questions and problems around things like inflation, 124 00:07:11,609 --> 00:07:14,760 Diana Mousina: interest rates, employment, and why you should be focusing on 125 00:07:14,760 --> 00:07:16,560 Diana Mousina: these things to try and break it down and what 126 00:07:16,560 --> 00:07:20,040 Diana Mousina: it actually means for you and your personal finances. Because 127 00:07:20,040 --> 00:07:22,380 Diana Mousina: that's ultimately what people care about is to grow their 128 00:07:22,380 --> 00:07:22,800 Diana Mousina: own wealth. 129 00:07:23,070 --> 00:07:25,440 Jennifer Duke: Definitely. I think that's a great thing for businesses to 130 00:07:25,440 --> 00:07:29,219 Jennifer Duke: be doing. Is there a view, I mean, obviously in 131 00:07:29,219 --> 00:07:32,370 Jennifer Duke: the longer term for people that aren't able to close 132 00:07:32,370 --> 00:07:35,340 Jennifer Duke: that gap and improve their financial literacy, there are significant 133 00:07:35,340 --> 00:07:38,190 Jennifer Duke: outcomes. Could you run us through what those risks are 134 00:07:38,190 --> 00:07:39,510 Jennifer Duke: if we don't tackle this problem? 135 00:07:40,679 --> 00:07:43,710 Diana Mousina: Sure. Well, when the studies looked at what happens when 136 00:07:43,710 --> 00:07:48,149 Diana Mousina: you have lower levels of financial literacy, they found that 137 00:07:48,840 --> 00:07:52,530 Diana Mousina: the impact is quite broad. So it ultimately results in 138 00:07:52,530 --> 00:07:56,130 Diana Mousina: worse investment decisions, which makes sense, because if you don't 139 00:07:56,130 --> 00:07:58,980 Diana Mousina: know the types of products that are available to you 140 00:07:59,010 --> 00:08:02,280 Diana Mousina: when you have additional savings, or you don't know that 141 00:08:02,880 --> 00:08:05,579 Diana Mousina: the savings rates go up when interest rates go up. 142 00:08:05,760 --> 00:08:08,250 Diana Mousina: Or that you should shop around for term deposits, then 143 00:08:08,280 --> 00:08:12,240 Diana Mousina: you would be making poor investment decisions. They also found 144 00:08:12,300 --> 00:08:16,950 Diana Mousina: that lower financial literacy results in lower wealth accumulation throughout 145 00:08:16,950 --> 00:08:20,549 Diana Mousina: time. And obviously this impact gets worse as you get 146 00:08:20,549 --> 00:08:23,939 Diana Mousina: older because when you have a superannuation balance, don't forget 147 00:08:23,940 --> 00:08:26,820 Diana Mousina: that there is a huge power of compound interest that 148 00:08:26,820 --> 00:08:30,000 Diana Mousina: works. So even if you grow your savings by say, $ 149 00:08:30,030 --> 00:08:33,570 Diana Mousina: 50 a month, that actually has quite a significant impact 150 00:08:33,570 --> 00:08:36,360 Diana Mousina: in your retirement years because the impact of compound interest, 151 00:08:36,360 --> 00:08:39,960 Diana Mousina: even if you have a large fall in shares. So 152 00:08:40,020 --> 00:08:44,040 Diana Mousina: lower financial literacy means ultimately poor investment decisions, low wealth 153 00:08:44,040 --> 00:08:47,940 Diana Mousina: accumulation, and smaller savings in retirement, which could mean that 154 00:08:47,970 --> 00:08:50,280 Diana Mousina: you might be relying on the government pension, which is 155 00:08:50,280 --> 00:08:54,389 Diana Mousina: difficult. I think it will be harder and harder for 156 00:08:54,389 --> 00:08:58,410 Diana Mousina: the government to keep on providing those generous pensions at 157 00:08:58,410 --> 00:09:01,319 Diana Mousina: the moment because that is an extremely large and growing 158 00:09:01,320 --> 00:09:05,160 Diana Mousina: share of their spending, and they're trying to put the onus 159 00:09:05,160 --> 00:09:08,280 Diana Mousina: back on individuals to grow their own retirement savings. So 160 00:09:08,280 --> 00:09:11,728 Diana Mousina: we should not be reliant on the government to provide large 161 00:09:11,730 --> 00:09:13,470 Diana Mousina: pensions. I think that that's a risk for the future. 162 00:09:14,309 --> 00:09:16,259 Jennifer Duke: Sounds to me like this is definitely an issue we 163 00:09:16,260 --> 00:09:19,590 Jennifer Duke: should all be quite worried about. Diana, thank you very 164 00:09:19,590 --> 00:09:21,059 Jennifer Duke: much for talking to Fear and Greed. 165 00:09:21,600 --> 00:09:22,710 Diana Mousina: Thank you. It was a pleasure, Jen. 166 00:09:23,400 --> 00:09:27,000 Jennifer Duke: That was Diana Mousina, Deputy Chief Economist at AMP Capital. 167 00:09:27,599 --> 00:09:29,939 Jennifer Duke: This is the Fear and Greed Business Interview. Join us 168 00:09:29,940 --> 00:09:32,429 Jennifer Duke: every morning for the full episode of Fear and Greed, 169 00:09:32,490 --> 00:09:36,870 Jennifer Duke: Australia's best business podcast. I'm Jennifer Duke, Economics Correspondent for 170 00:09:36,900 --> 00:09:40,200 Jennifer Duke: Capital Brief in the chair for Sean Aylmer. Enjoy your day.