Impacts of Financial Literacy and Confidence on the Severity of Financial Hardship in Australia

Australasian Accounting, Business and Finance Journal, Vol. 12, No. 4, pp 4-23, 2018

23 Pages Posted: 18 Apr 2019

See all articles by Evgenia Bourova

Evgenia Bourova

University of Melbourne - Law School

Malcolm Edward Anderson

University of Melbourne - Faculty of Education; Australian Institute of Archaeology

Ian Ramsay

Melbourne Law School - University of Melbourne

Paul Ali

University of Melbourne - Law School

Date Written: August 6, 2018

Abstract

Consumers in Australia and other developed countries are increasingly required to interact with providers of complex financial products and services, and to estimate, mitigate or absorb the risks that flow from their financial decisions. A range of debt-related problems in Australia have been attributed to low levels of financial literacy in the population. However, there has been limited research exploring the relationship between low financial literacy and the problem of financial hardship, where a consumer takes on payment obligations under a contract, but then becomes unable to meet them when they fall due. Drawing on a survey of Australians who recently experienced debt problems, this article examines the impact of financial literacy levels and levels of confidence in managing day-to-day spending on the severity of financial hardship. The article also examines the impacts of financial literacy and confidence levels on the strategies employed to get by financially while in debt. The article shows that while there is no straightforward relationship between low financial literacy and severity of financial hardship, lower levels of financial literacy may reduce consumers’ ability to avoid some of the more serious consequences of default, particularly if coupled with overconfidence about their ability to manage spending.

Keywords: financial literacy, financial hardship, overconfidence

Suggested Citation

Bourova, Evgenia and Anderson, Malcolm Edward and Ramsay, Ian and Ali, Paul, Impacts of Financial Literacy and Confidence on the Severity of Financial Hardship in Australia (August 6, 2018). Australasian Accounting, Business and Finance Journal, Vol. 12, No. 4, pp 4-23, 2018. Available at SSRN: https://ssrn.com/abstract=3356266

Evgenia Bourova

University of Melbourne - Law School ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia

Malcolm Edward Anderson

University of Melbourne - Faculty of Education ( email )

Alice Hoy Building
Victoria 3010
Australia

Australian Institute of Archaeology ( email )

Melbourne, Victoria 3010
Australia

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Paul Ali

University of Melbourne - Law School ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 1088 (Phone)
+61 3 8344 5285 (Fax)

HOME PAGE: http://www.law.unimelb.edu.au

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