Young Australians need to be prepared now for the next major financial shock as the coronavirus pandemic reveals some families do not understand the long-lasting impact of the decisions they are making, experts say.

Key points:

• Young people are running into trouble with their finances as soon as they leave home
• Research shows a quarter don’t have a basic understanding of personal finances
• Instagram and social media fuelling a ‘buy now, worry later’ attitude

Financial Basics Foundation Chair Brigid Leishman said hundreds of thousands of Australians have been plunged into financial distress since the COVID-19 outbreak and a lack of personal finance knowledge made them vulnerable to more hardship.

Ms Leishman said personal finance should be a standalone subject in high schools to give young people a formal financial education.

“Financial literacy is a critical life skill,” she said.

“We know from last year’s research that less than one in four young Australians under the age of 25 have a basic level of financial understanding and literacy.Coronavirus update: Follow all the latest news in our daily wrap.

“It’s about knowing how to manage your money, spending, saving, investing, making good decisions.

“We know that some schools currently have it built into the economics or business subjects, but it isn’t standalone and it’s not compulsory.”

The latest Household, Income and Labour Dynamics in Australia (HILDA) survey found young people under the age of 25 are the least financially literate.

The Australian Securities and Investments Commission’s (ASIC) 2017 Financial Capability Survey revealed 35 per cent of all Australians know the exact value of their superannuation.

Ms Leishman said many Australians have not been prepared for a major financial shock, and they could be making decisions that have long-term impacts on their finances.

She said hundreds of thousands of people are accessing their superannuation, with research showing that many do not really understand whether that is a good decision for them.

“Making that decision to take $10,000 out of their super this year and next, may have far-reaching consequences in terms of the value of that money,” she said.

“We know that young people are most at risk because they typically have more unstable income and lower levels of income.”

Smart spending habits start in school

Year nine student Callum Ferguson was saving up for his first car but those plans hit a snag after he lost his part-time job at a bakery in Brisbane due to coronavirus.

The 14-year-old worked for about a year at the baker and said personal finance was not really touched on at school.

He said he learnt most of his money management skills from his father — who happens to be a maths teacher.

“I remember a little bit in grade six, in primary school, but not really much since,” he said.

“When I get paid it just goes straight into my bank account and then I have a key card if I want to get stuff, but I have to get permission first to get it,” he said.

Financial literacy is incorporated into the Australian Curriculum from foundation to Year 10 and is delivered through mathematics, humanities, social science, economics and business.

ASIC said school principals develop their own way to apply and deliver the curriculum within their school.

The Australian Government has developed two programs for educators — MoneySmart and Tax, Super and You — as financial education resources for teachers in the delivery of financial education.

There is also several other programs delivered in Australian schools like the Commonwealth Bank’s Start Smart, Westpac’s Financial First Steps Workshops and an ANZ Bank and government funded Saver Plus program.

The Financial Basics Foundation and Suncorp have also launched free online resource kits for parents to help talk to their children about money.

‘I want, I want, I want’

Callum’s dad, Mitch Ferguson, is a mathematics and business teacher at Balmoral State High School and said technology had exposed young adults to more complex financial decision making earlier in life.

He recently taught his students about AfterPay, which was worryingly popular.

“That was a way to go, ‘let’s see how this works and the dangers behind it’, and that morphed into talking about credit cards and managing your money,” he said.

“It’s just teaching good habits.

“We want to get a situation where students understand the concept of living within your means and this idea of a champagne lifestyle on a beer budget.

“With what’s happening on Instagram there’s a mentality of ‘I want that and I’ll pay for it later’ — we want to nip that in the bud.”

In a statement, ASIC said consumer and financial literacy was a capability rather than a discrete subject.

It said it continued to work with the Australian Curriculum, Assessment and Reporting Authority to explore ways to elevate financial literacy in the national curriculum.

A new report from the Organisation for Economic Co-operation and Development (OECD) found in 2018, Australian students performed above the OECD average and Australia ranked fifth out of the 20 participating countries.

ASIC said while the results were positive, it was more important than ever that young Australians had the skills to manage money and plan for the future.

It said COVID-19 had exposed some areas it would explore further with schools and universities including young people being inexperienced with making financial decisions under crisis and the link between mental health and financial wellbeing.

Reality hits home at university

Queensland University of Technology Business School accountancy lecturer Dr Chrisann Lee said young people without basic personal finance knowledge start to feel under pressure when they enter university.

“A lot of students don’t have sufficient financial education in schools, and that translates to university years, when they suddenly have all this new financial freedom without the knowledge or skill to navigate it,” she said.

“Research I’ve previously done with first year university students is they’re really struggling with money skills, with budgeting, with daily expenses, no savings and they rack up debts from credit cards or school and university loans without really understanding how they will be able to pay it off.”

Ms Lee said money should not be a taboo subject and encouraged parents, schools and universities to take a more active role in educating young Australians.

“It’s really important to have that conversation at home and then extend it with financial education in schools,” she said.

“Right now home schooling is an opportunity to have that conversation.

“At the university, we are looking at an orientation program for money knowledge … rather than just signing up for a social club at orientation, that may go some way to help students navigate the first six months of university.”