By now almost all households are feeling squeezed by the steep price hikes in food, petrol, and housing. As the Reserve Bank lifts interest rates, households already under financial pressure can expect things to get worse before they get better.
With forecasters predicting rates could climb as high as 2.5% or more by 2023, there’s never been a better time to master the basics of financial literacy. Currently, one in four homeowners across swathes of Sydney’s west and south-west pay more than 30% of household income to service their mortgage, and in high-stress areas like Greenfield Park-Prairiewood tenants are forking out a shocking 52.3% of household income to pay rent.
Low financial literacy is associated with a higher rate of poverty, and those with no financial skills are less likely to budget or save, resulting in a vicious cycle of financial stress and vulnerability. Global data revealed that as many as two out of three adults worldwide are financially illiterate, and they’re more likely to be women than men. This is the reality for too many people in the world, and the consequences have a tangible impact on day-to-day living.
No one should have to suffer from crippling debt or be unable to afford basic living expenses like food and rent because they lack financial comprehension. Everyone should have a basic understanding of risk diversification, inflation, numeracy, and compound interest.
Closer to home survey results show that half of Aussies could not confidently answer five simple questions about basic financial concepts. Again, the gender gap persists: while 50% of men managed to score a perfect five, only 35% of women did the same.
The good news is that more women are taking charge of their finances, with recent figures showing 94% of women are actively involved in household money management, management of investments and retirement planning.
Is your financial know-how up to scratch?
~Novel Serialisation: Heavens Fire~
Many of us would benefit from a knowledge refresh of the financial aspects that govern our lives, particularly in areas such as debt management, saving, investments, cash flow, mortgages, and wills and estate planning. Though one in three Aussies find dealing with money stressful and overwhelming, coming to terms with our fears and being proactive about our financial futures is the first step to navigating life whether the economic cycle is in boom or bust.
There’s an undeniable stigma when it comes to talking about, thinking about, and handling money which scares people away. But money is not a dirty word, and there is no one-size-fits-all when it comes to making the ‘right’ financial choices.
Whether you’re saving for a rainy day or want to buy your dream home, the core concepts of how to spend, save and borrow, and how to invest and accumulate wealth will help you get there. More importantly, these core concepts will help you avoid the financial pitfalls of unserviceable debt and other unsustainable money commitments (important in this economy) in what is an increasingly complex financial market.
So what do Aussies need to know to successfully weather the economic storm coming their way? Budgeting skills come first – as households cut back on expenses, knowing the ins and outs of cash flow, the best way to save money and earn extra cash is crucial to staying afloat.
Mortgage holders dealing with increasing interest rates should properly understand their mortgage position. It’s never a bad idea to explore refinancing deals, but borrowers need to know how to compare the merits of fixed vs variable rates to secure the best deal.
Hammering down on debt is another big-ticket item on the agenda of Aussies looking to decrease their household debt in a bad economy but again some basic knowledge is needed to successfully consolidate and restructure finances.
The lowdown is that there are a wealth of resources and expert advice to get Aussies up to speed with their financial skills, and it’s always better to start now than to put it off. As more financial setbacks appear on the horizon, those armed with a good grasp of finances need not fear the future but can feel confident about their ability to provide for themselves and their families. When there’s a high level of financial literacy, everyone benefits.
By Louisa Sanghera – creator of the Mum CFOs Money Masterclass and founder of Zippy Financial
Mum CFOs Money Masterclass Course | Landing Page – MUM CFOS
