Improving financial literacy in youth could deliver not only long-term economic returns, but significant social benefits
The long-term benefits of financial literacy - especially from early education - have not been well quantified to date, limiting evidence-based decision-making for policymakers.
Despite rising levels of income and wealth in Australia, around 37% of adult men and 52% of adult women still do not understand key financial concepts like interest rates, inflation, and risk diversification (HILDA report).
It's why youth financial literacy educator Kids Get Money, engaged us to evaluate the benefits of improved financial literacy from early education. Their Founder and CEO, Annette Rose, shares:
Investing in childhood financial literacy is not just a moral imperative — it’s one of the smartest, most scalable investments we can make in Australia’s future. Every dollar spent on improving financial capability has the potential to save billions in future healthcare, welfare, and social costs.
The benefits of improved childhood financial literacy
Specifically, this analysis focuses on identifying the wide array of benefits associated with enhancing financial literacy, and where feasible, illustratively evaluating select benefits of improved financial literacy.
Our economist Alexandra Humphrey Cifuentes, shares:
Financial capability has far-reaching implications beyond personal finance — it can influence everything from public health costs to the long-term sustainability of government support programs – such as the hardship assistance scheme expenditure. This analysis provides a clearer picture of the potential public and personal value from investment in financial education.
Making Cents of It: The Benefits of Improving the Financial Literacy of Australian Children (report found below) identifies several key economic and social benefits linked to stronger financial literacy, such as higher productivity, improved retirement planning, and better mental health outcomes.
For each benefit we identified, we established a clear causal link from improved financial literacy to changes in community outcomes. As an example, the figure below details the the link between financial literacy and mental health outcomes on the public healthcare system:
Valuing improved financial literacy - Indicative case studies
The report also provides illustrative estimates across two indicative case studies related to potential reductions in public spending on hardship assistance programs and reduced health service usage related to improving financial literacy:
Reduced Health Service Usage
- Better money skills reduce financial stress, improve decision-making, and encourage proactive health measures — like investing in private insurance and preventive care. The analysis indicatively estimates that if financial literacy nationwide were instantaneously lifted to a perfect score on the ‘Big Five’ financial literacy questions, hospitalisations of Australians aged 65 and over could fall by 900,000 per year. This translates to annual health savings of $9 to $11.6 billion, or $76.27 billion over a decade (present value, discounted at 7%).
Reduced Hardship Assistance Costs
- If financial literacy across the population were instantaneously lifted to a perfect score on the ‘Big Five’ financial literacy questions, the Commonwealth Government could potentially benefit to the tune of around $1.04 million per year, or $7.80 million in present value terms over 10 years (discounted at 7%) via reduced spending on its Financial Wellbeing and Capability program.
In practice, there is an inherent delay between the timing of improvements in financial literacy (especially for programs targeting childhood financial literacy), and improvements in broader economic, social and environmental outcomes, such as reduced hospitalisation of older demographics. As such, these results should be interpreted as the potential benefit to the Australian community of improvements in financial literacy. As a result, they should not be taken as the results of a CBA, used in lieu of a separate CBA or as part of an input into another CBA.
