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Financial literacy - what young people need to know

Paul Marshall avatar
Paul Marshall
- 7 min read
Financial literacy - what young people need to know

The term ‘financial literacy’ describes the combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve financial wellbeing. A key to being financially stable, building assets and achieving personal goals, financial literacy is something everybody should have and want.

That’s why new data from a recent Household, Income and Labour Dynamics in Australia (HILDA) survey has come as a concern. The survey, conducted by the Melbourne Institute and undertaken by over 17,000 Australians, revealed that financial literacy is on a decline in our country. Alarmingly, there has been a drop in financial literacy levels across all age groups, with the largest decline among 15–24-year-olds.

These significant knowledge gaps mean Australians are lacking the competence and confidence to make sound financial decisions, and may be hurting their financial health as a result. This can have catastrophic effects, especially when inflation, interest rates and the cost of living are high and many people need to rethink their money management to survive.

But is there anything we can do about the fall of financial literacy in our nation? Thankfully, there is.

What we can do about low financial literacy

While low financial literacy is alarming, there are steps we can take to improve our nation’s relationship with money.  By teaching our young people about personal finance early, we can set kids up with the knowledge and skills they’ll need to manage their finances later in life, and help ensure our nation’s level of financial literacy improves.

These financial literacy gaps need to be addressed and acknowledged on a national level and integrated into school curriculums to make the most impact. Similarly, it’s important for kids to also learn about money at home too.

Lessons young people should know about money

Some of the vital life skills we can teach Australia’s young people include: 


For young kids, managing money might not be at the top of the list of priorities. But once they get a bit older and start building up their savings, whether from pocket money, a part-time job, or gifts they’ve received from family and friends, it’s important that they know how to track what they spend.

Teaching kids the basics of budgeting - how to allocate a certain amount of money for expenses, entertainment, and savings - will ensure they know how to manage the money that’s coming in and out, and have enough to live the lifestyle they want.

Budgets teach young people to be responsible with their money and make sure they meet their needs before their wants. This lesson is particularly important as they get older and start taking on more financial responsibilities, like buying a car and living out of home, and must potentially make sacrifices to keep their financial health strong.

When teaching young people about budgets, the key is to give them practical experience. Learning how to live on a budget will be far more beneficial than just learning about budgeting as an abstract concept. When they experience what it means to have a budget, it will help them develop smart spending and saving habits.


Spending less than you earn is an age-old lesson that everyone should know, especially young people before they start acquiring their own money.

When you spend less than you earn, you can pay for the things you need and avoid debt, while simultaneously saving for the things you want. Getting young people to understand this will encourage them to live within their means and always keep some money stashed away.

On top of simply setting money aside, teaching young people how to grow that money is just as valuable. Compound interest is one of the simplest strategies for multiplying savings, so teaching them how it works and how to access it - such as via a high-interest saving account - will equip them with the know-how to save more effectively. When it comes to building wealth through compounding, time is the critical factor. The earlier someone starts investing money, the more they could earn in the long run, so this is a lesson best taught early.

Setting savings goals is another great lesson for young people. Teaching kids techniques for saving, such as putting a percentage of their earnings away when they get paid, will provide them with the skills they need to make saving achievable and sustainable.

Borrowing money

No matter how much we save, borrowing money is something a lot of us rely on for big-ticket items, such as a car or a home. Educating young people on what’s involved when taking out a loan or using a credit card can help ensure they know what to expect if they borrow money down the track.

The key points to explain should be:

  • When you borrow money, you’ll be paying back extra money as interest, costing you more over the longer term than buying outright.
  • If you don’t make your repayments on time, you’ll have to fork out late fees, and your credit score will suffer as a result.
  • Not all loans and credit cards have the same terms, features, rates and charges, so it’s important to compare options until you find one that suits your personal circumstances.
  • To borrow money, you usually need to show proof that you’re in a stable financial situation and will be able to pay back what you borrow.

Ensuring young people understand the pros and cons of borrowing, and the commitment they’re taking on if they lend money, will ensure they give this financial decision the weight and thought it deserves.

Credit scores

Credit scores (or credit ratings) can affect young people’s future finances, so the earlier they can be made aware of them, the better.

A good place to start is by explaining that a credit score indicates someone’s financial shape, and lenders use them to decide whether to loan money to a customer. A low credit score can make it difficult to access the financial products you want, while a high credit score can make it easier - potentially allowing you to secure a better deal and save money.

It’s also important to explain how to access their credit score and how to improve their credit score if it’s low, so they know how to keep it in check. For example, walking young people through the fees, features and benefits of different credit cards, and the best practices for using credit cards, could help them work towards a credit score that will support their financial future.


Investing can help young people increase their income, and growing assets can help secure their future. Teaching young people about investment avenues such as stocks, gold, cryptocurrency or property, and the risks associated with each, will give them the financial freedom to do more with their money, in a way that makes sense for them.

The key to investing is starting early, so it’s important to be aware that the longer money is invested, the more wealth can be built over time - even if it’s just small amounts being deposited.

Our beginners guide to financial investments is a great resource for starting a conversation on investing.

Why teaching young people about money matters

Financial literacy is key to making sound financial decisions and achieving financial wellbeing. Teaching young people about money - and building their financial literacy - is a crucial step in giving them the best launchpad for a positive financial future.

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Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.