Financial illiteracy: The hidden threat to Australia’s economic future

Financial literacy rates in Australia are falling sharply, with declining economics enrolments and a widening gender gap affecting future outcomes

Financial literacy in Australia has plummeted in recent decades, with far fewer students studying economics and a worrying decline in diversity among those who do. And it’s happening at a time when financial competence is of renewed importance, as changing economic conditions bring substantial new risks.

While Australia ranked in the top 10 countries for financial literacy, financial illiteracy remains widespread here, with statistics suggesting around 8.5 million adults, or about 45%, are financially illiterate. There’s also a significant gender gap, with 63% of Australian men demonstrating basic financial literacy, compared with just 48% of women. These patterns are even more pronounced in young people, with 28% of teenage boys showing financial literacy, compared with just 15% of teenage girls – both very worrisome numbers.

This disengagement threatens lasting consequences for younger Australians, leaving them unprepared to navigate a more challenging economic landscape and build healthy financial futures – contributing, in turn, to existing wealth gaps. That also makes it a societal problem – recently acknowledged by the Reserve Bank of Australia (RBA) – capable of undermining a strong economy.

The RBA commissioned a recent survey to better understand these trends should serve as a wake-up call for policymakers. It showed that since the early 1990s, enrolment numbers for Year 12 economics courses in Australia have fallen by about 70%. The decline is more pronounced for girls, regional students, and other underrepresented groups.

These trends reflect students’ declining interest in economics, as well as systemic issues with engagement, accessibility and (mis)perceptions, according to Professor Isabella Dobrescu from the School of Economics at UNSW Business School, who pointed to a lack of structured, standardised financial education in Australia. “Fewer students, especially from underrepresented groups, are choosing economics, perceiving it as abstract or disconnected from their everyday lives, when the exact opposite is the case,” she said. 

“They are also convinced they could not possibly do well in economics, which again cannot be further from the truth, and are confused about what a career in economics could look like,” added Professor Alberto Motta from the School of Economics at UNSW Business School.

Without the critical skills to manage savings, investments or debt, Prof. Dobrescu pointed out that individuals are more likely to make decisions that lead to poorer economic outcomes and, ultimately, long-term financial instability. “These mistakes can be catastrophic and deeply affect people’s lives," she said.

Systemic financial literacy problems

Financial literacy is the ability to apply economic skills and frameworks to make sense of the world, including the key personal financial decisions people make in everyday life. “And it also involves understanding how these decisions are influenced by market forces or government policies, from income taxes and public subsidies to housing prices and mortgage conditions,” Prof. Motta said.

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In commissioning their comprehensive student survey, the RBA highlighted the societal importance of economists and economics and sought quantitative evidence of the factors contributing to the decline in enrolment. In addition to the stark drop in overall enrolment, the survey found that while male and female students studied economics at roughly the same rate in the early 1990s, male economics students outnumbered female students two-to-one in recent years. Enrolment of students from low socioeconomic backgrounds and regional locations has also seen more pronounced declines.

“As studying economics is often the start of a pathway to a career in economics, the diversity of the student body ultimately shapes the discipline,” the RBA explained. “And with economists playing an integral role in determining economic policies, there are wider social benefits when the pipeline of future economists is broadly representative of society.”

In liaising with educators, the RBA had previously identified several factors contributing to the decline in economics enrolments, including a lack of educators equipped to teach it and a failure to understand economics or its relevance. “Indeed, until the COVID-19 pandemic, there had been a lengthy period in which Australian households were not exposed to a major economic contraction or the extensive economic reforms that were a feature of national debate in the 1980s and early 1990s, drawing less attention to the relevance of economics to everyday life,” the central bank said.

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According to Prof. Dobrescu, a key part of the problem is curriculum gaps, particularly affecting the perceptions of girls and other underrepresented student populations: “Traditional economics teaching may not appeal to our current student population, and if we are to move the needle, we must meet young people in their world and convince them economics is both worth doing and doable,” she added. This observation also reflects a confidence gap the RBA survey found in girls and students from low socioeconomic backgrounds and regional locations, who are less likely to report they feel they could do well in economics.

Australia also has room for improvement compared with many of its peer countries. Prof. Motta noted that financial literacy is gaining traction in the US, for instance, with 35 states now requiring personal finance courses for high school graduation, up from 12 just two years ago. Finland has set a goal of being the global financial literacy leader by 2030, which he said showcases a national-level strategy to improve financial education.

“By contrast, Australia has seen a dramatic decline in financial literacy, with students from underrepresented backgrounds most affected,” Prof. Dobrescu said. “The country lags behind its peers, lacking a unified, strategic approach to financial literacy in schools.”

Avoiding life-altering financial mistakes

Many students may not realise the significant long-term effects a lack of financial literacy is likely to have on their lives, including increased likelihood of making poor financial decisions and greater vulnerability to financial risks. Low financial literacy also makes it more challenging for people to progress economically, exacerbating existing wealth gaps. And people with limited financial knowledge are more susceptible to scams, predatory lending and poor investment choices.

“To make things worse, as we grow older, financial literacy drops while confidence in making economic decisions (misguidedly) rises, leading to potentially life-altering financial mistakes,” Prof. Dobrescu noted.

Financial literacy is also declining at a time when it’s becoming increasingly essential, as widespread technological changes, including the rapid rise of fintech tools and services, make complex financial instruments more accessible and transactions instant and easy, but also largely irreversible.

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“Individuals lacking financial literacy may struggle to use fintech tools correctly or effectively, such as mobile banking, budgeting apps or online investing platforms, which could hinder their ability to manage finances efficiently,” Prof. Motta said. “The complexity of fintech services can lead to mismanagement of personal finances, especially for those who do not understand the associated risks or how to use these tools to their advantage."

Interest and curricula: closing the gap

The findings of the RBA survey align with the views of Prof. Dobrescu and Motta on what prevents students from choosing economics, with levels of interest, perceived competence, and relevance for future study or work rating as the most important factors students consider in choosing a field of study. Relative to other students, however, it also found that those who decided to study economics placed higher importance on subjects perceived as scaling well for the Australian Tertiary Admission Rank (ATAR).

“Economics students in our sample were significantly more likely to be male, from a higher socioeconomic background, attend school in a major city, attend an all-boys school or choose subject based on ATAR scaling,” the survey stated.

Recognising both the curriculum- and interest-based causes of declining economics enrolment, Prof. Dobrescu and Prof. Motta launched in 2022 the “High School Outreach” program of their UNSW STEP UP Initiative, which aims to make economics more accessible and engaging, especially for those who might disengage from traditional teaching methods. More than 3000 high school students from across Australia have enrolled in the program so far.

“The program provides high school students across Australia free access to Playconomics, a UNSW award-winning principles of economics course based on a video game that provides engaging hand-on situations where kids can experiment with various economic decisions and see their consequences in real-time,” Prof. Dobrescu explained.

“This has translated into improved literacy, planning, decision-making, analytics, governance, and peer learning,” Prof. Motta said. “And what’s more exciting is that the literacy gains have been larger the harder the topics,” he added.

To top it all up, preliminary data show that the growth in UNSW enrolments coming from STEP UP high schools has been double that from neighbouring schools, with these students performing very well in their first year at university. “This helps to level the playing field by also reducing financial and geographic barriers,” Prof. Dobrescu said.

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Scaling up financial literacy

While programs like STEP UP are seeing great success in engaging young Australians with their financial wellbeing, making the required difference will mean scaling up these efforts. Prof. Dobrescu identified several steps that would benefit these programs, including policies at the national level.

“Just as the US introduced mandatory personal finance courses in 35 states, Australia could adopt similar nationwide policies to promote financial education,” she said. “Expanding partnerships with schools, local communities and financial institutions would help deliver financial literacy programs more broadly.”

Integrating financial literacy courses into school curricula would be another crucial step. “Embedding financial literacy into the standard school curriculum in a systematic and uniform manner, starting in primary school and extending through high school, would ensure students build a strong foundation of financial knowledge before entering adulthood,” Prof. Motta concluded.