Most people - 80 per cent, in fact - feel they are well informed when they make financial decisions. It is a reassuring statistic.
Or is it? If 80 per cent of people are well informed, that means the remainder, or one in every five, are not.
Those figures were among many extracted from an ANZ Bank-commissioned survey of 3500 adults, which was followed up with qualitative analysis that produced some heartening results for both the banking sector and financial counsellors.
But it also highlighted some fundamental problems with people's understanding of money - their own, borrowed funds or money they are legally required to tuck away in a superannuation nest egg.
Using a definition of financial literacy already adopted in international studies - "the ability to make informed judgements and to take effective decisions regarding the use and management of money" - ANZ's research analysed people's financial understanding against their individual needs, rather than against set criteria.
Among other things, the study fund that 7 per cent of people believe their use of credit
is out of control, a result that contradicts the findings of a recent Consumer Affairs Victoria survey that found 40 per cent of people believed they would never be debt-free.
It also identified a widespread lack of understanding of super and found that almost half of us would invest in a so-called "no-risk" scheme if it promised high returns - even though there is no such thing as a risk-free investment.
The study found that a quarter of people have trouble saving for substantial purchases and 16 per cent of people spend their pay as soon as they receive it.
The study links low general literacy with poor financial literacy.
On the positive side, 98 per cent of people understand the need to balance income and expenditure and about nine out of 10 can confidently read a credit card, ATM or bank account statement.
The basic tenet of investment, diversification, is understood by 90 per cent of us, and most people, 85 per cent, know that high-return investments are generally also high risk.
According to manager of the Consumer Credit Legal Service Carolyn Bond, this shows there are quite a lot of people, or 15 per cent, who do not understand the "real basics about keeping their money safe".
Unlike others in the field, she believes the biggest problem is not financial literacy, but rather some people's inability to recognise the limits of their knowledge. That is how they get caught and lose their cash.
However, Doug Webber, an associate director at Macquarie Bank, believes financial literacy is a "demographic thing".
"Some folks have an interest in it, some folks don't, some people have an aptitude for it and others don't," he says.
When people pick up a financial statement their concerns usually centre on the difference between the start balance and the end balance, or how much the investment has gone up or down, "without really sort of thinking about what happens in between".
Mr Webber says people now know more about finance because information is available through so many sources. "So there's a heap more information out there but it's a question of whether people are interpreting that information correctly," he says.
"They're certainly asking more questions than they ever did before, and that's probably an indication that people are, in inverted commas, smarter, but whether it's the right kind of smarter, I'm not absolutely convinced."
Some do not understand the questions they are asking, he believes - and therefore cannot comprehend the answers - but query simply because they are told they should.
Director of the Consumer Law Centre Chris Field believes one's school years could be the most effective way to address problems associated with financial literacy.
Mr Field believes another way is to educate financial institutions to present products in a more accessible way. This would be cheaper than educating people, such as using a specifically targeted program for school children.
"You're not actually improving financial literacy, you're just making things easier to understand, so you could understand them at a lower level of literacy, if you like," he says.
Further, he says, you can be an astute consumer and as financially literate as a top accountant, but if you are poor and the banks will not lend to you, you can still be taken advantage of and may be forced to accept an "exploitative" credit option because mainstream products are out of reach.
Nonetheless, Mr Field says, having 20 per cent of people lacking confidence when dealing with financial matters is cause for concern.
"It's a pretty frightening figure because if you think of 20 per cent of Australia, that's, what, 4 million people. So if you extrapolate it out, it's a pretty disturbingly high number of people ... and if you're talking about a bank account, that's effectively an essential service for most Australians, at least one basic bank account, and probably access to some form of credit."
Dean of the Melbourne Business School Professor Ian Harper is also worried by the fact a fifth of the respondents in the ANZ survey are not well informed customers of financial institutions.
He says this should prompt financial institutions to take a closer look at the way they market their products, the type and amount of information they provide to customers and the way it is explained.
This is especially important when the all-important factor is choice - not just in financial products but across the gamut of goods and services.
Professor Harper says people today want, and have, extraordinary choice in banking products. He points to the deregulation of the banking sector in 1985 as the catalyst, after which credit was no long rationed and banks relinquished responsibility for ensuring cash was managed with prudence. They thrust that responsibility on to their customers.
"You go back prior to financial deregulation and you've got a monochrome world where there was essentially one type of bank mortgage, you have a world in which people were assumed not to be able to manage their own finances and were therefore not allowed to," he says.
"Credit was rationed and you got told by the bank manager whether you could do this or that. Deregulation has handed the power back to a substantial extent to consumers, which has induced the supply side of the market to provide a much greater variety. It's also made life more complex."
Many people do not have the knowledge or the skills to acquire the knowledge, to cope with that.
Professor Harper says the situation in Australia is different to that in the United States, where even pre-school children are taught about free enterprise and other economic concepts.
Here, he says, "there's a sort of deep suspicion of commerce and the market, some sort of religious overhang which suggests that money is beneath contempt and therefore that tends to - I find, anyway - be a bit of an undertone in the education system".
ASIC, the nation's companies watchdog, has acknowledged the need for more extensive finance education of Australians and in late 2001 released a three-year education strategy.
It contains a mission statement that promises to encourage the development of "a financially literate community in Australia, where consumers can make informed decisions about financial products and services, and identify - and avoid - scams and swindlers".
Its priority areas are retirement planning, including superannuation, general investing, e-commerce, insurance, dispute resolution, financial literacy (and related financial exclusion), consumer rights and credit.
The problem, the strategy document says, is that there is no one-size-fits-all approach to consumer education and instruments are on the agenda or underway, including the internet, community and government education courses, consumer alerts, fact sheets in numerous languages and brochures.
Professor Harper says what really happens in Australia is that people pick up pieces of financial knowledge as they travel through life. Hopefully.
"Most folk end up learning these things either from their families or from friends or just from trial and error," he says. "And in some small minority of cases, I suspect, never."
Ignorance isn't bliss
The good news
Everybody can use cash and nine out of 10 people can use ATMs, cheques, Eftpos and credit cards.
98 per cent of the population understand they must balance income and expenditure.
At least four out of five people can add, subtract and divide a sum.
85 per cent of people understand that promised high returns are accompanied by higher risk.
90 per cent of people understand the importance of investment diversification - or ensuring all your eggs are not in one basket.
88 per cent of people with a credit card claim to have a good understanding of fees - 84 per cent for home loans and 78 per cent for bank accounts.
89 per cent of people understand their bank account statements, 86 per cent are confident reading about their ATM transactions and 91 per cent understand their credit card statement.
About nine out of 10 people believe their card spending is not out of control; 67 per cent of people try to save regularly.
Most people, 56 per cent, shop around a lot or a fair bit for a mortgage or insurance.
80 per cent have vehicle insurance and 75 per cent have house and contents insurance.
and the bad
Poor financial literacy is generally accompanied by low levels of education, household income and savings.
16 per cent of people spend money as soon as they receive it and 26 per cent have problems setting money aside for big purchases.
41 per cent of people cannot answer a multiplication question correctly.
Almost two-thirds of people would shop around only a little, if at all, for the services
of a financial specialist, including investment advisers, financial planners and accountants.
Almost half of the respondents, 47 per cent, would invest in a so-called "no risk" scheme if it promised returns well above the market average, highlighting susceptibility to scams.
Just over a third of people have worked out how much they need to save for retirement, yet 50 per cent believe their super savings will enable them to live at least as comfortably in retirement as they do now.
55 per cent of people do not understand the fee structures on their super accounts, yet 60 per cent say they can read and understand their annual super statement; 21 per cent says they cannot understand their super statement.
35 per cent of respondents say they cannot be bothered checking their super statement - and 10 per cent assume their retirement nest-egg is OK.
19 per cent of people do not bother to read their insurance policy renewal statements and a further 20 per cent do not read them because they assume the policy is OK.
There is no clarity among self-employed people about legal obligations to pay super; 44 per cent say they have to, the same number say they did not, and 12 per cent admit they do not know.
Source: ANZ Survey of Financial Literacy.
Bank seeks local data
The question of whether Australians' financial literacy has improved or declined is impossible to answer, most experts say.
This is because there are no comparable local studies against which the latest results can be compared, unlike in the United States and Britain, where there has been long-running interest in the issue.
ANZ's head of government and regulatory affairs Jane Nash says that is the reason the bank decided to engage Roy Morgan Research to survey people about their understanding of financial services and products.
It also sought input from ASIC's deputy executive director of consumer protection Delia Rickard and Chris Connolly, the director of the Financial Services Consumer Policy Centre, to ensure that regulatory and consumer experts were involved in framing the parameters of the study.
The bank, which has 14 per cent of the Australian market, wanted to better understand the needs and concerns of customers, to use that information in product development and to encourage greater public debate about the levels of financial literacy, including ways to improve it.
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