Financial Literacy in Australia: What are the Benefits of Improving My Financial Knowledge? 

Written by Stephen Logan

April 23, 2024

We’ve all wondered at some point; what does it take to be financially secure and wealthy? Do I need a high-income job and multiple assets? Do I need to hire a financial education professional? The answer to these questions is yes and no. 

Increasing your knowledge of all things finance and increasing your overall wealth are intrinsic. In this article, we are going to list the key benefits of improving your financial knowledge and how this can lead to increased wealth, at all levels of income. 

Financial Knowledge Gets You Ahead. 

Your financial knowledge (or financial literacy) refers to your grasp on financial skills, including budgeting, investing, debt management and retirement planning. Having a high level of financial knowledge can empower you to make better financial decisions and decrease overall stress through measured spending and a higher quality of life. 

The overall financial literacy of young Australians has decreased over the last decade, according to a recent HILDA survey, with the main cause being that financial literacy is not being taught across school subjects. This gap in financial knowledge can be filled by other means, either through research or hiring a financial education professional.   

The Big Financial Literacy Four 

When it comes to financial literacy in Australia, there are four key pillars that need to be mastered by most Aussies; Saving, Debt, Investing & Budgeting.  

  1. Saving:  

Most experts believe that saving money is crucial to maintaining financial wellness since it’s the first simple step towards building wealth over time. Spending a lower amount of your money allows you to do the following, which in turn enhances your personal wealth: 

  1. Achieve important goals: A deposit for a house, financing a car or other high-cost purchases. 
  1. Save for emergency funding: Do you have funds set aside for a rainy day? Having an emergency fund is useful should you find yourself in need of money and quickly. 
  1. Enjoy leisure spending: Saving up for treats, such as a holiday or an expensive leisure item is also a great example of financial literacy in action. 

Putting your savings into an interest-yielding bank account not only optimises your money by allowing it to grow over time and be kept out of reach when you are tempted to spend. 

  1. Debt Management 

Debt is money you spend that isn’t yours. According to the ABS, in 2022, the average household debt in Australia was $261,492. If you borrow money from the bank, use a credit card, or take out an advance payment, you are accumulating debt. 

Even though debt can be perceived negatively, most people consider it necessary because only the very rich can afford to pay cash for a house, a car, or an education. The first thing to learn from this is to distinguish between good and bad debt and to steer clear of the latter as much as you can. 

Good debt: Involves money that is borrowed for things that are necessary or save you money in the long term. Some examples of good debt can include taking out a mortgage for a house or using a loan for tertiary education. 

Bad debt: Is when you use a credit card or a high interest loan for leisure purposes or investing in expenses that do not provide long term financial benefits. These purchases could include a holiday, retail goods or other expensive items that are considered wants and not necessities. 

  1. Budgeting 

Mastering the art of budgeting is a crucial element of financial knowledge and involves strategising and overseeing your finances. Gaining clarity on your monthly expenditures empowers you to devise a practical budget that minimises unnecessary spending while maximising savings for your essentials and desires. A fundamental principle of budgeting is ensuring that your income surpasses your outgoings. The surplus—your income minus expenses—should be allocated towards savings.  

Budgeting is instrumental in planning for immediate, short-term, and future financial needs, allowing you to accumulate savings to meet various goals. It is vital for achieving financial stability and independence. 

  1. Investing 

Investing is the process of accumulating wealth necessary for a financially secure and fulfilling future. It involves allocating resources to avenues with the potential for profit over time, such as real estate, retirement accounts, and superannuation funds. For instance, investing in Australian shares like those of Commonwealth Bank or Woolworths, or managing funds through stocks and bonds, can significantly contribute to your financial growth. You could also consider ETFs (Exchange Traded Funds) and managed funds that diversify your investments across various assets, reducing risk and enhancing potential returns. The appreciation in the value of your investments, whether through capital gains in shares or interest from bonds, can provide an additional source of income or result in a profit upon sale, surpassing the initial investment amount. The returns from your investments can support your current financial requirements and contribute to a comfortable retirement. 

Benefits of mastering financial knowledge 

In the modern market, individuals are often bombarded with marketing campaigns, instant gratification purchases and “buy now & pay later” schemes. These elements often encourage and fuel poor spending habits that can reduce the quality of life for individuals and families that don’t manage their budget, add excess income to savings or invest in long-term assets. Ultimately, the greater your knowledge regarding what is available and where to spend your money holistically, the more safeguarded you are against the short-term pitfalls that can leave you with long-term debt. 

The Bottomline 

Having a thorough understanding of the core elements of financial literacy, and how to implement them according to your budget, can be a boon to your finances.  

However, figuring out when and where to spend your money, when to accumulate good debt, or what to invest in, can be overwhelming and it’s okay to seek expert support. That’s where a financial education professional, like the team at Help My Wealth, comes in. Help My Wealth offers personalised guidance and support to individuals and organisations seeking to achieve their financial goals.  

Help My Wealth’s team of knowledgeable experts is available to assist you with any of your financial difficulties, retirement planning, or difficult investment decisions. Contact Help My Wealth today to take the first step towards a financially literate future. 

Want to know more about this topic or how to get started? Then contact us here

Phone

0240141949

Email

info@helpmywealth.com.au

Address

Suites 1 & 2 Lake Macquarie Fair, 46 Wilsons Rd, Mount Hutton NSW 2290, Australia

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Phone

0240141949

Email

info@helpmywealth.com.au

Address

Suites 1 & 2 Lake Macquarie Fair, 46 Wilsons Rd, Mount Hutton NSW 2290, Australia

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