It’s hard to beat personal responsibility as a reason for taking an interest.
There has been much talk about the need to improve the levels of financial literacy across Australia. So what is financial literacy? As noted in a 2011 Australian Securities and Investments Commission report, financial literacy means different things to different people. But one consistent element revolves around having enough knowledge to make an educated or informed financial decision.
There are certainly a number of sub-elements that could be drawn from any attempt to define financial literacy and perhaps that is why it’s so hard to measure whether there has been any increase in the level of financial literacy over time.
However, it wouldn’t be a stretch to expect that anyone who opens and runs an SMSF has a higher level of financial literacy. There a number of reasons for this.
Firstly, all new trustees of an SMSF are required to sign off on an ATO declaration. This declaration sets out a number of the requirements trustees need to be aware of that are particular to the SMSF environment. While you can never be certain every trustee understands every one of these requirements, at the very least we should hope they have read and are aware that a number of obligations exist.
Secondly, and related to the first reason, trustees are ultimately responsible for the actions of the fund. Even though it is very relevant for trustees to consider using the expertise of professionals for determining how the SMSF invests and for meeting regulatory and reporting obligations, the trustee is still ultimately responsible.
Thirdly, in the unlikely event a trustee breaches their obligations, one of the options available to the ATO is to require the trustee to undertake some mandatory learning. This approach helps to ensure the trustee has access to appropriate education to boost their knowledge in particular areas.
In addition to the above reasons, there are many indications from the 2016 federal budget measures, which largely commence on 1 July 2017, that point to higher (or increasing) levels of financial literacy among SMSF members. This shouldn’t be surprising.
With SMSF members on average having larger balances than members in public or industry funds, the largest impact will undoubtedly be felt by SMSF members. There is a greater chance SMSF members may be limited in the level of contributions they can make in the future or will need to make adjustments to their existing pension arrangements to satisfy new transfer balance cap requirements.
In many discussions with advisers over recent months, it is SMSF members who have been raising questions about whether they are affected by these superannuation reforms. The fact they are asking, whether actually affected or not, is an indicator of a higher level of financial literacy. And SMSF trustees are also very interested in what steps they need to personally take to achieve the best outcome.
Perhaps one of the biggest questions we need to deal with from the SMSF environment is how do we take the experiences of SMSF members and spread that across superannuation members more generally. However, there is a great opportunity to address this right now.
As the financial planning industry continues to take steps to address issues in relation to the level of trust Australians have in financial advice and to move towards professionalism, it’s important to remember one of the signs of a profession and being a professional is a willingness to give back to the community.
The level of super changes we are facing currently is a once in a decade change – particularly given the last time we experienced change of such significance was the introduction of the Simpler Super reforms back in 2007. Accordingly, there is a significant level of education and communication we should be providing to all Australians so they understand how the landscape has changed.
This shouldn’t be left just to the government and regulators such as the ATO. While those bodies have an important role to play, the only way standards of financial literacy can generally improve is by starting to personalise some of the issues and concerns. And doing so would then prompt more people to seek personal advice that is specific to their circumstances.
In the past, some have been concerned that providing too much general information could result in people doing it all themselves and seeing no need to seek personal advice. Here is what we do know.
If Australians have higher levels of financial literacy, they are more likely to start making the right decisions. In the long run, this can only be positive.
And if financial literacy is about having enough knowledge to make an informed decision, for many that informed decision will actually be to speak with a financial adviser.
