What About Super? Financial Literacy as a Barrier to Market Entry

Abstract

A majority of households do not invest their savings and fewer make voluntary contributions to superannuation. This may increase their risk of financial hardship in later life and has raised questions about the role of governments and educators in addressing barriers to market entry. Our probit model framework measures the effect of financial literacy on market participation and contributes new evidence by analysing superannuation and demographical heterogeneity in market barriers. Results indicate that poor financial literacy deters voluntary superannuation contributions and traditional investment, particularly for low-income households. Evidence also suggests that financial advice facilitates market entry while improving financial literacy could shift investor's financial market exposure towards superannuation in later life. These findings enrich our understanding of market barriers and help to guide superannuation policy.