Over the last two decades the need for a financially literate population has grown in importance. In Australia the introduction of a compulsory superannuation scheme in 1992 signalled to Australians that retirement needs would now need to be self-funded rather than relying on government funded social security. Hence in Australia it is imperative that individuals possess both the financial knowledge and capability to make sound financial decisions. The whole issue of financial literacy has been compounded by the fact that consumers are now required to make decisions in relation to an ever-increasing range of complex products and services.
Is there a relationship between hardship applications for early release of superannuation monies and the financial knowledge and socio-economic background of applicants?
A research question is essentially a hypothesis asked in the form of a question to determine if there a relationship from the population sampled from and the research question states what we want to find out and the hypothesis provides a prediction to that question
Reading the existing literature, I am mindful of how I might be able to measure the constructs of a client risk profile and socio-economic background and the relationship of these variables to an investor application for early release of superannuation monies
The ATO records represent an ideal standard for comparison because when the criterion exists at the same time as the measure we talk about concurrent validity, however,
should we sample those that haven’t applied for early release in support of Internal validity? Concurrent ability refers to the ability of a test to predict an event in the present (ie client response vs ATO records)
APRA has received early release data submissions for the period ended 7 June 2020 from 177 funds. Funds have submitted on a best endeavour’s basis.
Over the period from the inception of the scheme on 20 April to 7 June, payments made to eligible members have taken an average of 3.3 business days after receipt of the application from the Australian Tax Office (ATO) and 95 per cent have been made within five business days.
Over the week to 7 June, superannuation funds made payments to 167,000 members, bringing the total number of payments to approximately 2.0 million since inception. The total value of payments during the week was $1.3 billion, with $14.8 billion paid since inception. The average payment made over the period since inception is $7,475.
To be eligible, a citizen or permanent resident of Australia and New Zealand must require the COVID-19 early release of super to assist them to deal with the adverse economic effects of COVID-19.
As this is predominantly an exercise in research of a social phenomenon it is essentially a before and after study that is non experimental in nature. This type of research design takes advantage of a change in the economic environment to compare outcomes between two periods the first being pre covid epidemic and the existing restrictions on early release super monies and the response to the covid period and the eligibility criteria to apply for early release of super
Most non experimental designs are retrospective in nature and a before and after design takes advantage of a change being implemented in the environment and need to look for changes in the before and after setting
E.G. changes in the application to access to super before and after the introduction of compassionate early release laws
A non-experimental research design is most appropriate with the research question posed and the availability of data that can be sourced, however, this type of research approach has the lowest level of scientific rigour and therefore is mostly purely observational and the results intended are mostly descriptive
A hypothesis is necessary for having a theory (belief) or a theoretical framework that assists in establishing prediction (direction) for the hypotheses. Ultimately, hypotheses are a reflection of a theoretical prediction and they are established to provide support for that prediction to be falsified.
Interestingly there is just no method that enables scientific theories to be proven true or even probably true. Moreover, there is no method that enables scientific theories to be conclusively disproved either.
In a social setting its difficult to claim cause and effect and can only claim a correlation and can’t say anything is a proven fact
The reasoning and rationale for the hypothesis is based on reading and analysing existing research literature and there is a correlational link between the application for early release of super and the backgrounds of investors which includes levels of financial knowledge as well as age, gender, ethnicity, work experience and level of income
From analysing the existing research literature, it can be appropriate to simply base the hypothesis on what the literature is saying and at its most basic level the hypothesis is an educated guess as to a prediction and why any correlation may exist
When formulating my hypothesis, it was imperative for me to determine if the correlations to be tested are in fact reasonable in terms of the reality of the situation and ask if they actually make sense
My proposed Hypothesis:
1. Candidate demographics other than education such as gender, work experience, ethnicity and age correlate positively to applications for early release of super
2. Low education attainment correlates positively with applications for early release of super
The way I think about examining the different classifications of variables is the dependant variable is the outcome variable and importantly the dependant variable cannot be responsible for variation in the independent variable understanding that the independent variable is the variable of interest.
The dependant variable has occurred before the study
Identified dependant variable (DV)
- Application for early release of superannuation monies
-
Identified independent variables (IV)
- Gender
- Pre-existing educational qualifications
- Age
- Applicant location
- Work experience
- Level of income
The control variable is similar to the independent variable but differs due to constructs in the hypothesis (ie the concepts or constructs within the hypothesis that we are interested in explaining) and maintaining focus on controlling the variable for benchmarking for comparative purposes
Suggested control variables (CV)
- Applicants with a university education
- Applicants with a lengthy work experience
The papers I chose to use as the basis for my research have some links to the relationship between investor preferences and the variables of interest described in my hypothesis
Each paper has its own strengths and weaknesses in relation to the sampling method chosen, demographic homogeneity but there are gaps in the research as a study on early access to super as a result of the impact hardship conditions caused by covid pandemic means there are gaps in the literature and it requires participants to qualify for access
Driver, Brimble, Freudenberg, Hunt 2018) Suggested in the qualitative research design that financial literacy and decision making could be influenced by cultural backgrounds. For example, immigrants from western countries with developed superannuation and financial systems were more likely to engage with financial products due to familiarity with these products in their country of origin.
Another interesting insight from the research was that personality types and intellectual traits such as those who are more intelligent, conservative and responsible are more likely to be personally engaged with their finances and risk mitigation strategies.
In another study Ali, Anderson, Clark, Ramsay, and Shekhar (2014) presented the findings of a research report on the results of a study examining superannuation knowledge, behaviour and attitudes in 994 young adult superannuation fund members. An online survey instrument which included questions on demographics and superannuation knowledge, behaviour and attitudes was the first large-scale study to focus exclusively on superannuation and the young adult population in Australia.
The report concludes there are serious deficiencies in knowledge, behaviour and attitudes among young adults. Knowledge of basic facts about superannuation is poor and young adults are disengaged and uninterested in superannuation or retirement planning.
I believe this study is fairly typical of the young adult population in Australia as a whole and interestingly the study showed stronger knowledge scores in male, degree holding, urban and high-income respondents. This as well as findings that those studying commerce or finance related subjects at secondary school or university had the greatest impact in improving knowledge is supportive of my hypothesis.
This provides evidence of the external validity that there a an interaction between an early access to super and the socio-background of the applicant, still, to be able to investigate the strengths and weaknesses in the research literature much more detailed analysis would need to be undertaken to identify area of interest, collect the data, find repeating themes by reviewing data, coding the emergent themes with keywords and phrases, group concepts into hierarchy and categorize concepts through the relationship with the variables of interest
Reading the literature does allow me to integrate the findings with my theory that unless an investor is engaged with their superannuation and have some basic level of education around its long term benefits it will be seen as a pool of money to be accessed for everyday spending when the opportunity arises.
The qualitative approach to the research design focuses mainly on the human elements and the social aspects of the sampled population (ie behaviours) and presenting the results of the literature demonstrates consistency with my hypothesis in each of the major themes and main findings of the studies.
The literature I selected for research aligned strongly to my beliefs of the direction of the hypothesis and is supported by similarities between respondents as well as the differences between respondents.
My research question asked if there is a relationship between hardship applications for early release of superannuation monies and the financial knowledge and socio-economic background of applicants?
(Gerrans, Clark-Murphy and Truscott, 2009) suggested not all groups in society have the necessary literacy to understand information about different financial products, which may be vital for their financial wellbeing.
Financial literacy has attracted the attention of government, regulators and the financial services industry as it is increasingly seen as crucial within the context of consumers and investors financial decision making in relation to retirement savings, investment, borrowing and the management of debt and insurance (ASIC 2011).
Worthington (2008), argues that financial literacy means different things for different people and McDaniel, Martin and Maines (2002) comment that any definition of financial literacy differs from the “professional financial literacy levels”.
An earlier study by Worthington (2005) noted that ‘overall levels of knowledge obscure significant deficiencies in particular demographic and socioeconomic groups. Females, those from a non-English speaking background, those aged under thirty years, the currently unemployed and those with a Year 10 education or lower are particularly overrepresented in being unable to correctly respond to basic questions concerning superannuation.
In an early study, Beal and Delpachtira (2004) tested ‘basic knowledge’ of
superannuation via a reply-paid envelope questionnaire of 18 technical questions
and 6 standard demographic questions, distributed in two upper-middle class
Brisbane suburbs, and yielding 393 useable replies. The results found that 78.3% of respondents were classed as ‘not very well informed’ or ‘not at all informed’.
I believe my research question has been answered in the research papers and literature and based on the results a clear linkage back to the research question exists.
There are, however, some remaining gaps in support of my hypothesis particularly concerning the variable of age and risk profile as an influence on investor interest in superannuation Parrish and Delpachtira (2009) found that the level of fees affected which fund was selected and why; and they found that the risk labels (“medium” or “high” risk) were more commonly relied upon and that employers were highly influential in fund selection. They also found that age did not appear to influence fund or investment option selection and that client risk profile was secondary to the performance of the fund, fees, time invested and security.
On the flip side age does seem to have some influence on investor engagement with super and the overall results in Agnew et al (2013) suggested that interest in retirement planning ‘gradually increase[ed] … starting in midlife’.
At the risk of overgeneralising respondent behaviour, young adults appear to
be unengaged by and uninterested in their superannuation accounts or retirement.
The literature suggests that most respondents to survey’s do not check their accounts regularly or change investment options and It’s not surprising that most extra material
provided by superannuation funds is not read.
Furthermore, the common theme is that a very small number of young investors have planned for retirement, and most have not considered the question at all so far. Those
who have planned for retirement tend to be older, asset-holding, commerce
educated, high income degree holders. Young Australians are more likely to relate to mortgages or other loans rather than retirement or superannuation.
In light of the studies and data mentioned above, I could develop my hypotheses to include a broader range of testable outcomes.
Knowledge and interest in superannuation will be generally low, particularly in the
Population who are;
- Non university educated
- Females
- Non-English-speaking backgrounds
- Those who have who are new to the workforce
- In younger people short term financial goals like buying a home or rental accommodation will take priority over retirement planning.
- Financial literacy ability will improve with longer work experience and higher income.
- Investors who have studied or work in areas related to finance will be more engaged with superannuation.
The research themes from the literature also suggests that people identifying themselves as investors were more likely to belong to socio-demographics which have experience in
finance. These include homeowners, people who are employed, people who are married or in a defacto relationship and people aged over 50
In addition, the research found that those in the lower socio-economic demographics for example those people experiencing unemployment, single mothers and young people were less likely to plan for the long term.
In relation to socio-demographic characteristics, there was a link between unemployment,
sex, wealth, and education, and financial literacy scores. Students, women categorised as
housewives, people experiencing unemployment and people who are retired were more
likely to score poorly in financial literacy.
The research themes also identified elements relating to financial decisions and include socioeconomic background, personal characteristics, skills levels and choices of information which explain in greater detail why people who belong to certain socio-demographics engage in suboptimal behaviour. These variables include employment status (2) employment level (3) earning capacity; and (4) household and personal wealth. These four variables are significant because they lead to particular experiences and exposures, which can influence financial behaviour negatively or positively. Socio-demographics such as wealth and income determine the social networks to which a person belongs, and
therefore, all these social factors are relevant in financial behaviour.
One evident commonality among these groups is higher social position. This higher
social position corresponds with greater wealth and stronger social capital or social
networks, assisting with career progression and performance in formal education. This
likely leads to more exposure to the experiences and information which strengthens the
skills and knowledge defined as financial literacy. Therefore, social position is a key
determinant of financial literacy, and also financial behaviour.
The literature suggests that demographic and socioeconomic groups which tend to score higher on financial literacy tests are:
• Men;
• Middle aged people;
• Professionals;
• Business owners;
• Small business and farm owners;
• Skilled and semiskilled tradespeople;
• University educated people;
• Higher income earners
• People with higher levels of savings; and
The issue of gender as a variable is interesting because the literature suggests different outcomes and conclusions for example Taylor, Wagland (2009) suggest that women, in comparison to men, are more risk-averse and less confident when making financial decisions and are consequently less financially literate.
Specifically, gender has been claimed to be a significant variable affecting the level of individual financial literacy.
Taylor, Wagland (2009) go on to say that the ambiguity of the term financial literacy and a lack of measurement benchmarks indicated that gender was not a significant factor among Australian students tested for levels of financial literacy.
Andrew C. Worthington (2008 suggests that knowledge of superannuation is unevenly spread across respondents. Such knowledge is generally lowest for females, those from a non-English speaking background, those with low levels of education and persons aged less than thirty. Knowledge is generally better for professionals, those aged over forty or nearing retirement and the university educated. The models best predict the compulsory nature of employer contributions, the voluntary nature of employee contributions and knowledge that the government will not make up any gap arising from a failure to undertake retirement planning.
Conclusion
Researching the financial literacy surveys and studies indicate a link between lack of financial literacy and particular socio demographics or socio-economic background.
For example, research has linked low levels of financial literacy with low socio-economic factors and the research findings could be used to further the knowledge of how best to incorporate financial literacy education into the classrooms of students at an early age.
Client risk profile was not a major determinant of investor engagement with superannuation and variables such as education are far more important variables to ensuring all investors maximise the potential for retirement savings well into the future
References
Agnew et al (2013)
Andrew C. Worthington Knowledge and Perceptions of Superannuation in Australia 2008 Journal of Consumer Policy
Australian Securities and Investment Commission (ASIC). 2003. ASIC calls for financial literacy education in schools ASIC 2003 Media and Information releases. June (quoted as ASIC 2003)
Diana J Beal and Saratha B Delpachitra, ‘Financial Literacy among Australian University
Students’ (2003) 22 Economic Papers
Driver, Brimble, Freudenberg, Hunt 2018) Insurance Literacy in Australia: Not Knowing the Value Of personal Insurance
Gerrans, Paul, Marilyn Clark-Murphy and Keith Truscott, ‘Financial Literacy and
Superannuation Awareness of Indigenous Australians: Pilot Study Results’ (2009) 44 Australian Journal of Social Issues 417
Grace, Weaven and Anderson, Beal and Delpachitra, ‘Community
Understanding of Superannuation’,
McDaniel, Martin and Maines (2002)
Leura NSW, 21-22 September 2006). Also see: Consumer and Financial Literacy Taskforce,
S Marcolin and An Abraham, ‘Financial Literacy Research: Current Literature and Future Opportunities’,
Sharon Taylor And Suzanne Wagland Australasian Accounting, Business and Finance Journal, 3(1), 2009. The Solution to the Financial Literacy Problem Is to Educate the Young- Where are we now?
Superannuation Knowledge, Behaviour and Attitudes in Young Adults in Australia
Paul Ali, Malcolm Anderson, Martin Clark, Ian Ramsay, and
Chander Shekhar, September 2014
The Social Research Centre, ‘ANZ Survey of Adult Financial Literacy in Australia’ (ANZ,
October 2008)
The Social Research Centre, ‘ANZ Survey of Adult Financial Literacy in Australia’ (ANZ,
December 2011)
What Causes Suboptimal Financial Behaviour? An Exploration of Financial Literacy, Social
Influences and Behavioural Economics Angelo Capuano and Ian Ramsay March 2011
Worthington, ‘Predicting financial literacy in Australia’ (2006) 15 Financial Services Review
Worthington, Andrew C, ‘Knowledge and Perceptions of Superannuation in Australia’ (2008) 31 Journal of Consumer Policy 349
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