Only a quarter of respondents to a financial literacy survey were able to correctly answer all five questions, which covered interest rates, inflation, diversification, risk and the time value of money.

Greater Bank commissioned the University of Newcastle to conduct a survey of financial literacy and financial wellbeing and has released the results in a report, Financial Wellbeing and General Life Satisfaction in Australia.

While only 26.3 per cent answered all questions correctly, the average score for correct answers was 61.7 per cent.

This compares with a 68 per cent average in the Australian Government’s Financial Capability Survey last year.

Women scored lower than men – 53.8 per cent compared with 70.2 per cent. 

Those aged 45 to 54 scored higher than the 18 to 24 year-olds and the 25 to 34 year-olds. But financial literacy declines in old age.

The survey identified a gap between respondents’ self-perception of financial literacy and their performance in the survey questionnaire.

“People are less likely to be fully aware of their financial literacy skills,” the report said.

The report argues that financial literacy is one of three determinants of financial wellbeing, along with financial planning and financial behaviour. In this context, financial planning means having a household budget and financial goals.

The survey found that the higher a person’s financial literacy, the less likely that person is to experience financial hardship.

However, people with high levels of financial literacy reported lower levels of financial satisfaction.

“The ‘ignorance is bliss’ effect could provide an explanation in this regard,” the report said. 

The report offers a couple of definitions of financial wellbeing, including “the perception of being able to sustain current and anticipated desired living standards and financial freedom” and “when a person is able to meet expenses and has some money left over, s in control of their finances and feels financially secure”.

The report concluded that there is room to improve financial literacy.