Financial Literacy and Retirement Spending: A University Student Perspective

Financial provision for retirement consists of two phases, accumulation and decumulation. Young people as an age group have generally been ignored in previous research and there has been little research investigating financial literacy levels of young people and attitudinal aspects of their decision making. As such, this paper examines university students’ views on decumulation. We find that student predictions of their costs in retirement are inaccurate, and this is driven by overconfidence and somewhat mitigated by better financial literacy. Furthermore, when planning for retirement income, the Age Pension is expected to be used the least while interestingly personal savings are expected to be used more than superannuation. The biggest drivers of the different levels of usage for the different funding sources are opinions on the effectiveness and understanding of superannuation. These results demonstrate that there is a lack of understanding of the costs of living and the characteristics of the different pillars of the Australian retirement system. Increasing skills and knowledge in financial literacy and of the Australian retirement system is paramount. The implications of our findings are of interest to government, finance professionals and academics from an education and research perspective.