“Tell me and I forget. Teach me and I remember. Involve me and I learn” – Banjamin Franklin
From a school age we are able to undertake formal study that loosely relates to building our financial literacy, be it in mathematics, economics, business or science. What we are not taught at that stage (or in the case of most people at any other time) are the practical skills that grow our financial literacy to provide us with the necessary tools to make well informed decisions that will be required over the course of our life.
There are some demonstrable differences in how financial literacy can impact decision making. In the Melbourne Institutes 2018 “HILDA Survey”, those with higher financial literacy levels were much more likely to take an average or above-average to substantial amount of financial risk compared to none. In other words, people fear what they do not understand.
Higher levels of financial literacy were also consistent with a long term planned saving and spending horizon. More than half of those surveyed with lower levels of financial literacy had a horizon of no more than a month, whereas two thirds of those with higher levels of financial literacy had a saving and spending horizon of two years or more.
Financial literacy also impacted behaviour and the likelihood of having a plan in place. Those with lower levels of financial literacy had less future-oriented plans, were likely to be more impulsive and had less achievement motivation, resulting in a lower average financial management capability.
Enhancing our financial knowledge lays the foundation not only for making better financial decisions but also understanding the relationship between these decisions and what we want to personally achieve as a result of them.
So where does this knowledge growth potentially come from?
One avenue is through an ongoing relationship with a financial adviser. An important part of the value that a financial adviser provides is not only in the plans and strategies that are formulated, but in ensuring that the client understands the concepts that underpin these, how they apply to their circumstances and the goals that they are endeavouring to achieve.
This knowledge growth is a continually evolving process as it is dependent on a number of factors including the client’s base level of financial literacy, the life stage of the client and the strategies and scope of the work being advised upon.
In a financial advice relationship, the adviser and the client are equally accountable for achieving successful outcomes. With a more financially literate client comes a more effective client adviser relationship.
Over the long term a more knowledgeable client working together with a financial adviser will have a clearly laid out, comprehensive financial plan that helps manage the financial, practical and behavioural aspects that a required to successfully achieve the desired outcomes.
You can learn more about the value of financial advice and how our team can help you enhance your financial knowledge by booking a no obligation consultation today!
If you’d like to discuss your current situation or have any questions please contact us.
The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances. Before purchasing any financial product, always consider the relevant Product Disclosure Statement (if applicable) which provides full details of risks, terms and conditions.
Some details (including names) have been modified for privacy purposes and assumptions have been applied regarding future interest rates, investment returns, the client’s circumstances and other financial and economic variables for illustrative purposes – actual outcomes may vary.
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