'Overly confident': 80% of Australians rate themselves as financially savvy

While the majority of Australians think they’re financially savvy, more than one in three borrowers don’t actually know the interest rate on their own mortgage, a survey has found. 

Almost 80 per cent of people considered themselves to be money smart, according to Mortgage Choice’s inaugural Australian Financial Savviness Whitepaper.

That’s despite more than half of the 1043 people surveyed for the report rating their financial knowledge as either average or poor.

“I think people are overly confident,” said Mortgage Choice chief executive officer John Flavell. “A lot of people have their head in the sand.”

While most people considered themselves to be financially savvy, Mr Flavell said many weren’t behaving that way. 

Of those surveyed that had a mortgage – 688 people – 38 per cent didn’t know what their interest rate was. 

“It doesn’t surprise me,” Mr Flavell said. “When borrowing to buy big ticket items, a subtle interest rate change can make a not so insignificant difference to your debt.

“But there are so many things people are worrying about day to day, that it doesn’t take priority.”

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Those over 60 and under 30 were most likely to rate themselves as good with money, despite being least likely to know their own interest rate. 

People under 30 also tended to believe they were savvier than their friends – with 55 per cent believing they handled their finances better than others. By comparison just 35 per cent of over 60s felt the same.

“A lot of [young people] pip themselves as being more intelligent … somebody has got to be wrong,” Mr Flavell said. 

Drafting a budget, checking bank accounts regularly and paying off credit cards in full each month were among the key steps taken by the self-appointed financially savvy. 

And many believed that to be smart with money you need to be street smart and make good financial decisions. 

Marion Mays, founder of wealth advocacy firm Thalia Stanley Group, said people set the bar low when judging their knowledge and management of finances. 

“Most people think being financially savvy is going to work, saving some money, and being able to pay their credit card bill,” she said. “But they don’t know how to do their due diligence and make the most of their money.

“Knowing your interest rate is like a minimum basic,” she added. “If you don’t know that, you haven’t really got good financial literacy or savviness.”

She noted while older borrowers gave themselves top marks – with 87 per cent of those over 60 saying they were financially savvy – they often stuck with the one product by default, regardless of how it performed. 

“Because of their life experience that can make them think they’re the best at it … but their knowledge can also be dated.”

Ms Mays said the restricted knowledge of younger people was being hampered by limited financial literacy education at school, apathy and a reliance on brokers.

“You go to school and learn algebra, but you can’t learn how to manage money,” she said. “It’s a failing on the government that it’s not a core part of a national curriculum.”

Both Mr Flavell, and Taj Singh, co-founder of First Home Buyers Australia agreed there was a strong need for more education.

“Financial literacy is lacking,” Mr Singh said. “Especially among Gen Y. Lots of first-home buyers don’t even know simple terms like fixed rate.”

They are often caught out when making financial decisions, Mr Singh added, as they’re lured in by headlining figures and have little understanding of the impacts of the fine print. 

Mr Singh said he was surprised that 40.4 per cent of borrowers under 30 didn’t know their interest rate, as he’d found most first-home buyers did research to try to lock in the lowest interest rate they could.

He imagined those who weren’t aware of it had simply been so desperate to get into the market that they didn’t know what the interest rate was, or had completely outsourced all research to a mortgage broker.