Financial Literacy, Financial Well-being and Financial Decision-making amongst Elderly Australians.

  • Rui Xue

Student thesis: Doctoral Thesis


Population ageing is accelerating, posing threats to global sustainable development. With longer life expectancy comes the need for sufficient financial resources to maintain living standards; this is achievable via an informed retirement plan. However, people with low financial literacy levels are less likely to plan sufficiently for their retirement and may suffer adverse financial outcomes as they age.Therefore, it is necessary to improve the financial literacy of elderly people and ultimately mitigate negative societal and economic consequences generated by population ageing. The primary goal of this thesis is to provide effective and practicable policy recommendations for elderly Australians to improve their retirement living standards.This thesis firstly constructs a reliable and robust index for measuring the financial literacy of elderly Australians, using an Item Response Theory (IRT)model to calculate a Financial Literacy Index (FLI). Compared to extant measures of financial literacy, IRT model makes use of information more sufficiently and takes into account characteristics of survey questions such as survey difficulty. Using Lasso regressions, we find that elderly Australians with higher levels of financial literacy are more likely to demonstrate the following characteristics: relatively younger age, married, predominantly male, exhibit greater net wealth and higher income, white or pink collar workers, outright residence owners, in good health and highly educated.Secondly, this thesis applies this newly developed FLI to investigate how financial literacy, by itself and via an interaction with consumption patterns, affects elderly Australians’ financial well-being. The descriptive statistics show that overall, elderly Australians hold an optimistic attitude towards their financial status and that the “Retirement Consumption Puzzle” is not observed in Australia. The ordinal logistic regression results indicate that financial literacy by itself significantly improves financial well-being and helps strengthen the positive effects of meeting more of non-essential consumption needs. These findings provide empirical evidence that improving elderly Australians’ financial literacy is key to enhancing their well-being.Thirdly, this thesis further utilises the newly developed FLI to examine how financial literacy affects elderly Australians’ decisions regarding adoption of a variety of financial strategies and the mediation mechanisms of financial concerns that transmit the effects of financial literacy on these financial strategies. Using multiple mediator models with bootstrap techniques, this study finds that financial concerns do indeed mediate the majority of financial literacy strategy nexuses. Specifically, financially illiterate people are more likely to express financial concerns, and due to their concerns they are more likely to cut back on spending, seek more job opportunities, increase debts, and downsize or sell their residence. In addition, financially literate people are more likely to seek professional financial advice, purchase a life annuity, contribute more to superannuation and invest in more conservative assets regardless of their financial concerns. Importantly, this study provides evidence that causal inference is likely to lead to spurious and incomplete implications if mediation effects are ignored.This thesis focuses specifically on the elderly who are the most financially vulnerable population segment. Informed and practicable policy recommendations are provided for elderly Australians to improve their financial literacy, and hence financial well-being and financial decision-making.
Date of Award12 Oct 2019
Original languageEnglish
SupervisorTerence O'Neill (Supervisor), Steven Stern (Supervisor), Bruce J Vanstone (Supervisor) & Adrian Gepp (Supervisor)

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