Financial literacy and financial legacy go hand in hand. Without one, it is more difficult to maximise the other.
This conundrum was laid bare recently by a new report from Generation Life, a leader in tax-effective investment bonds and lifetime annuity solutions.
In June 2023, Generation Life commissioned global research company Censuswide to conduct a study of 2,000 adult Australian consumers to gain both quantitative and qualitative insights into what legacy means to them, their financial goals, the financial vehicles and assets they believe will help them achieve those goals and their perceptions of financial advisers.
To reflect the key audiences visiting financial advisers for support to achieve their legacy goals, the respondent base had quotas of at least 15% retirees, 15% over-50 (aged 50-84), 15% High-Net-Worth-Individuals (HNWI) and 15% Ultra-High-Net-Worth Individuals (UHNWI). HNWI were defined as those with $1 million - $2.99 million in assets. UHNWI were defined as those with over $3 million in assets.
The findings show that many Australians aren’t equipped to make the most of their wealth and that transfer of wealth could be problematic without the right tools or knowledge.
The report states: “In this decade, around five million Australians will transition into well-deserved retirement, joining the 4.1 million people who are already there. This historically large group of retirees are focused on funding the dignified retirement they’ve always dreamt about, but they are also thinking about the footprint they’ll leave on the world when they pass away - their legacy."
There is only one problem.
More confidence than actionable planning
The report shows that although 67% of Australians are confident in their ability to leave a financial legacy, a mere 14% have an actionable plan in place.
The study uncovers that the primary financial goal for Australians is a secure retirement, cited by 38% of respondents.
In contrast, the quintessential 'Australian dream' of settling a mortgage or securing a property deposit ranks lower, at fourth and fifth respectively. Among Australians over the age of 50, 34% prioritise leaving a legacy, yet only 23% have devised a plan to achieve this.
The key points of the report show:
- One in three (33%) Australians believe super is the best way to optimise wealth and leave a legacy even though this is not its purpose. Note that superannuation tax implications have recently become trickier. The proposed superannuation changes by the Federal government mean from 2025-6, earnings (both realised and unrealised) on superannuation account balances over $3 million will be taxed an additional 15%.
- Despite the power of the new generation of investment bonds to leave a legacy as a tax-effective investment solution that offers flexibility, control and access at any time, 90% of Australians aren’t using, or aren’t aware of, this innovative solution. This is a significant knowledge gap for financial advisers to help solve so all Australians can leave a legacy based on their wishes.
Generation Life CEO Grant Hackett reflected on what the findings mean for Australian families: “We know that building wealth is half the battle but preserving it for loved ones to ensure they’re looked after once you are gone is an emotional challenge for many Australians.
“Baby boomers are holding around $4.9 trillion in assets, so there’s an urgent need to help them optimise this wealth. By doing so, they can enjoy the rewards of their hard work with a happy, dignified retirement and leave money and assets as a legacy for their loved ones.”
Generation Life CEO Grant Hackett.
Liability exposure
By 2050, an estimated A$224 billion in inheritance is anticipated to pass between generations annually. However, 20% of Australians over 50 express concerns about additional costs and legal fees eroding this wealth transfer.
The study also indicates a significant reliance on wills (59%) and superannuation (21%) as mechanisms for legacy planning among this age group, potentially exposing estates to tax liabilities, needless fees, and mismanagement.
Compounding the issue, only 18% of individuals over 50 consult financial advisers for legacy planning, when it could bridge the knowledge gap and safeguard legacies effectively.
Hackett says, “Our research shows that people are overwhelmed by investment options so choose to take no action. With the support of a financial adviser, you can build, protect, leave and preserve the legacy that’s right for you, whether you want to give your child a financial head-start, bypass a generation, solve complex family structures and alleviate the funeral burden on your family when you pass away.”
It is also worth educating yourself. We all know financial literacy should be taught ins schools, but until that becomes an education system priority, it is up to the Boomers down to the Zoomers to do their due diligence, find the right knowledge and pass that down to generations to come.
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