How well do the Youth of Australia understand their superannuation accounts?

Superannuation, also known as Super, is the financial commitment made by the employer for the
investment benefit of their employees. Super is managed by fund managers based on the
preference of the employee and employer, and it is being invested to multi-faceted stock options.
‘Superannuation (also known as "super") is money that employers are legally required to put
aside on behalf of their employees. When you reach retirement age, you're allowed to access the
money paid into any superannuation account in your name.’ (Young Central)
A study conducted by Ali et al in 2014 that ventured out on the knowledge of young people from
25 to 34 years of age about super. According to the survey, there is a serious deficiencies in
terms of the knowledge about this topic among young people. Though a good amount of the
salary is being invested to super, majority of young people has a poor information in super.
Another study conducted by Anderson et al (2017) study how the young people engage in super.
One of the conclusions is ‘Most respondents do not check their accounts regularly or change
investment options.’ (Anderson et al, 2017). This occurrence suggest that there is an area of
improvement in terms of financial literacy for the young adult.
Looking further, this topic invites discussion on a number of key areas, one of them is how
people who do casual jobs may set up superannuation accounts and then forget about their super,
so the account runs to $0 because of regular account maintenance fees. ‘Young people are highly
disengaged. They are aware that superannuation is there and what it is for.’ (Colmar Brunton
Social Research, 2010). Hence, Holman (2013) stated in her article that young people careless
about social issues hence even super.
On a related note, because the amount in these accounts are so small, there’s not much incentive
to fully understand the system and invest all the time into understanding it. Hence, when the
youth go into full time employment, they have a better incentive to understand the system. There
are lots of options to change the investment mix of a person’s account but it doesn’t matter much
if there is so little money in it. This argument is being backed by the article written by the
Australian Taxation Office in 2018. There are $17 billion of funds from super that is unclaimed.
This can be associated to the poor education among the beneficiaries how to utilize their
investment. Corroborating this finding, many young people are prone to this mishaps.
The good thing is there are many website that offers information about super that young people
can access. One of the good example is the moneysmart.gov.au. It is a government funded
website that offers up to date information about financial literacy and super. The website is extra
helpful for those who wish a deeper insight on harnessing the power of invest fund and super. It
is a welcome effort of the Australian government in alleviating the problem of lack of education
among the young people about their retirement fund investment.

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 Are credit cards unfairly harmful to those who are poor?
The general idea of credit card is to advance someone money for a present day purchase. It is a
financial system that allows a person to buy a good or services even the cash for it is not yet on
the hands of the person. But the catch is, there is an interest for this money transaction. ‘Interest,
typically expressed as an annual percentage rate (APR), is the fee paid for the privilege of
borrowing money. This fee is the price a person pays for the ability to spend money today that
would otherwise take time to accumulate‘. (Investopedia, 2018)
The promise of fast money and instant cash is what entice people to subscribe to this financial
modality. Many people are engaged in this financial transaction, but also, many are trapped to
the ballooning interest whenever it is being utilized. Credit cards offer easy money and makes it
easy to purchase something but at the same time if you default, the interest rate are very high and
punish the person greatly. An article of Schneider and Auten (2019) tackled the bad effect of
credit card to the poor. There is a through computation of family for a specific income bracket
and the result is alarming. A fraction of the income is allotted to the payment of credit cards after
all other expenses are removed from the monthly salary of the family, like lodging, food
expenses, education fees etc. In this, interest fee will rise and another credit card purchase is
necessary thus trapping the family or a person into the cycle of using the credit card.

Furthermore, in giving muck burden to the poor and to the people, banks also have really good
resources and the ability to go after someone to claim the money that is owed to them. An article
written by Weidner (2014) outlined 5 methods a bank can harm the poor. These are credit card
fees, foreclosures, payday lending, overdraft fees, and bankruptcy. These ways put
unsurmountable pressure to the poor that robs them with a decent living. Hence, bankruptcy due
to credit card are on the rise. An argument that banks are inappropriately lending money and
giving generous credit card limits to people who should be restricted in the limits they are given
are some of the causes of this occurrence. Janda (2016) mentioned that ‘many people were stuck
on a credit card "merry-go-round’. This is a reality that poor who has credit card suffers.

The other side of the argument is that people are aware of the choices they make and if they take
on credit card debt, they should face the consequences for that. Banks are right to charge higher
interest rates as they take on a lot more risk lending money without collateral (for example in a
housing loan you put the house up as collateral). ‘There are things that you can do to help lessen
the chances of accumulating large amounts of credit card debt.’ (Caldwell, 2018) They could
take steps to protect themselves and just not use credit cards if they don’t want to.

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 Is paying for financial advice a good choice?

In this times where fund investment is a norm, a good, wise, and reasonable decision making is
essential for every investors. To acquire skill in the field of investment takes years of practice
and dedication. Thus, financial advisers are on the rise to give sound investment advice. This
goes into the discussion of how financial advisors can be beneficial but then paying them for
their services is an additional cost to bear for someone with already tight finances.
It may be good to pay for financial advisors as they are experts and can help someone find way
to save money. It is also good to note that the monthly average salary of financial adviser is
$70,936 (PayScale, 2019). They would know more information than regular people and have
expertise on how to save money. Contrary to this, DeYoe (2016) in his article pointed out some
critics in the financial service. There is ‘very little investment performance benefit to working
with an adviser’. This is an eye opening statement most especially to those who rely heavily to
advise of this professionals.
One big issue in this area is that there aren’t too much regulatory controls on who can be a
financial advisor, like there is on being a lawyer, dentist or doctor. Financial advisors may act in
their own interests to maximize their earnings from their services and may not give the best
advice to the client (you can’t do this as a doctor – like recommending a surgery that’s not good
for the patient). Thus, a policy can be implemented by the government as there is vacuum in
terms of regulating this business practice. This can help the consumer of such service be
protected to the ill advises of underperforming financial adviser. ‘Financial planning doesn't have
professional standards, a code of conduct, defined educational standards and the commitment to
a fiduciary type duty to customers that real professions have’ (Robertson, 2018)
Big banks and AMP are accused of charging people for financial advice they didn’t receive,
highlights the unregulated nature of financial advice. This are some areas that the government
can check on how to regulate the industry. Many anomalies are rising because of the checking
mechanism of the government is lacking. ‘A report from the Australian Securities and
Investments Commission into the charging of advice fees without providing advice by banks and
major financial institutions has found more than 200,000 customers have so far been identified as
affected by the scandal.’ (Letts, 2016)
In the end of the day, it is still the investors’ decision to hire advisor or not. The issue of under
regulation can be considered by the government as a stepping stone to enter into the picture. It is
the responsibility of the government to protect the consumer of this services. But, it is still on the
hands of the investors to be extra vigilant in trusting their adviser. The power lies on the investor
that can affect their financial transactions hence maximizing investment returns.

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Reference:
Ali, Paul et al. (23 September 2014). Supperannuation Knowledge, Behaviour and Attitudes in
Young Adults in Australia. CIFR Paper No. RP002/2014.
Anderson, Malcom et al. (2017). Super Behaviour: A Note on Young Australian Adults’
Engagement with Their Superannuation Accounts. Vol 10 Issue 4. Retrieved from
https://ro.uow.edu.au/cgi/viewcontent.cgi?referer=https://www.google.com/
&httpsredir=1&article=1743&context=aabfj
Australian Taxation Office. (11 October 2018). Check now for your share of $17b in lost super.
Retrieved from https://www.ato.gov.au/Media-centre/Media-releases/Check-now-for-your-share-
of-$17-5b-in-lost-super/
Beveridge, John. (6 July 2018). Credit Cards are a Financial Trap for Many Australians. Small
Caps. Retrieved from https://smallcaps.com.au/credit-cards-financial-trap-australians/
Caldwell, Miriam. (9 December 2018). How to Avoid the Credit Card Trap. The Balance.
Retrieved from https://www.thebalance.com/how-to-avoid-the-credit-card-trap-2386313
Colamar Brunton Social Researh. (25 March 2010). Understanding Superannuation. Retrieved
from http://archive.treasury.gov.au/documents/1885/DOC/Report_ATO_Super_Qualitative.doc
DeYoe, Jonathan K. (27 October 2016). A Financial Adviser explains what Everyone Gets
Wrong About paying for money advice – and why it’s worth it in the long run. Business Insider.
Retrieved from https://www.businessinsider.com/paying-for-a-financial-adviser-worth-it-2016-
10?IR=T
Letts, Stephen. (27 October 2016). Banks facing $180 million compensation payments for
gouging fees without advice. ABC News. Retrieved from https://www.abc.net.au/news/2016-10-
27/banks-facing-180-million-compensation-payments/7971006
Holman, Julia. (17 June 2013). The youth don’t care but they should. ABC Homes. Retrieved
from https://www.abc.net.au/news/2013-06-17/holman-the-youth-dont-care-but-they-should/
4760288
Investopedia. (26 October 2018). Understanding Credit Card Interest. Dotdash Publishing.
Retrieved from https://www.investopedia.com/articles/01/061301.asp
Janda, Michael. (29 September 2016) Credit Card bankruptcies could be the next banking
scandal. ABC News. Retrieved from https://www.abc.net.au/news/2016-09-29/credit-cards-
could-be-next-banking-scandal/7886276
MoneySmart. (2 April 2019). How Super Works. Australian Securities & Investments
Commission. Retrieved from
https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works
PayScale. (2019). Average Financial Advisor Salary. Retrieved from
https://www.payscale.com/research/AU/Job=Financial_Advisor/Salary

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Robertson, Andrew. (17 April 2018). Financial planning 'doesn't have professional standards',
resisting reform. ABC News. Retrieved from https://www.abc.net.au/news/2018-04-16/financial-
planning-lacks-professional-standards/9664134
Robertson, Andrew. (24 Jan 2018). ASIC survey finds banks' 'in-house' product referrals still
failing best interest test. ABC News. Retrieved from
https://www.abc.net.au/news/2018-01-24/banks-continuing-to-put-own-interest-ahead-of-
customers-survey/9358724
Schneider, John and Auten, David. Why Reward Credit Cards can be bad for the Poor. Forbes.
Retrieved from https://www.forbes.com/sites/debtfreeguys/2019/03/16/why-reward-credit-cards-
can-be-bad-for-the-poor/#70a51f0777f9
Weidner, David. (15 April 2014). 5 Ways banks hurt the poor. MarketWatch. Retrieved from
https://www.marketwatch.com/story/5-ways-banks-hurt-the-poor-2014-04-15
Young Central. (nd). Superannuation. Victoria State Government Website. Retrieved from
https://www.youthcentral.vic.gov.au/advice-for-life/finances/superannuation