Less than half of Australians know what their superannuation balances are despite having almost a tenth of each paycheck directed into their account, and that’s a big problem regardless of how default funds are chosen.

The Productivity Commission’s report into super correctly identified the need to boost the nation’s retirement savings – especially considering Australia’s aging population and rise in living costs – but its proposal to replace a proven low-cost default system in favour of a choice-first architecture only risks the placing a majority of people’s savings with a small cartel of funds.

Addressing financial illiteracy on the other hand would help overcome most fund members’ lax attitudes to managing their money.

Lack of financial literacy is often blamed on the system being ‘difficult to understand’ not only brews a fatalistic view of superannuation, but it also directly hampers investment growth, which in turn leads to inadequate retirement savings. 

For example, when it comes to investing, time plays an important role. Those just starting up are generally recommended to invest their balances in high-risk investment options like shares, as any losses over the years will be offset by gains. Those approaching retirement, however,  are less likely to recover from investment volatility and are therefore recommended to invest in defensive assets, like cash and bonds. 

Ask someone which investment option they’ve placed their super savings into, however, and a quarter will tell you they don’t even know what their current risk profile is, let alone which one they should be using to suit their own personal circumstances. That is why addressing this issue of financial illiteracy is the starting point.

Literacy doesn’t mean a degree

Making effective financial decisions about superannuation options (as well as saving rates and negative returns) is manageable with even a basic level of financial training, especially from an early age. 

As more people become financially literate, their involvement with the superannuation system will transcend from a lax attitude to keen participation. People will begin to actively invest and grow their superannuation balances, which will inevitably result in increased retirement savings. 

Indeed, financial training from an early age will not only afford basic skills for managing investments and savings but will also promote a culture of financial awareness. 

For those not of school age but still under 40, financial literacy can be improved through the information provided in annual member statements, brochures, seminars, website content or marketing content. 

Basic financial literacy can also be extended to those who are in transition to retirement and those already retired, especially on how to use post-retirement investment products and their associated risks.

Those looking for a place to start strengthening their own literacy have a wealth of options too, with plenty to be gleaned from ASIC’s MoneySmart website – an excellent starting point. 

MoneySmart contains useful tips on investment options and how superannuation works generally, ranging from first steps in superannuation to understanding tax benefits. 

Additionally, most superannuation funds these days provide extensive learning resources, not just to their members, but to anyone interested in learning about the superannuation system in detail – all available at the click of a button.

* Arthur Marusevich is a superannuation lawyer and writer based in Canberra.

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