This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: James Cook University researchers are calling for greater attention to financial literacy in schools after a new study found that people with a strong understanding of personal insurance were more likely to engage with insurance products. The findings highlight the risk of underinsurance, with many Australians potentially vulnerable to unforeseen financial shocks.
The research is published in the Pacific-Basin Finance Journal. Tania Driver, a lecturer in financial planning at JCU, and associate professor Monica Jurin are the authors of the study. Driver said personal insurance was crucial for protecting households against financial risks, particularly households with dependents, debt and other financial obligations.
"Despite the advantages of these policies, particularly for those with substantial debt, underinsurance in Australia remains a significant concern, with minimal progress seen in uptake over the years," Driver said. The researchers surveyed more than 450 people about four types of personal insurance: life, total and permanent disability, trauma and income protection. Driver said the findings had implications for policymakers and educators.
"Households face financial risks from unexpected illness, disability or death, particularly when savings are insufficient to absorb such shocks. We have shown a clear link between miscalibrated knowledge—the gap between perceived knowledge and actual knowledge—about personal insurance and the people carrying these types of financial risk," she said. "The solution is for greater attention to be given to financial and insurance literacy in school education.
Further along, we also need research into how consumers understand different insurance products and how behavioral biases influence insurance decisions." The researchers examined the relationship between insurance literacy, people's perceived understanding of insurance and their actual knowledge. "We developed a framework based on the gap between perceived and actual understanding. We assessed people as knowledgeable or uninformed, overconfident or underconfident.
The findings showed knowledgeable people generally held more personal insurance than those in the other three groups," Driver said. She said an important finding was that people's perception of their own understanding was more strongly associated with their insurance holdings than their formal insurance literacy. "This suggests that awareness and confidence in understanding insurance products may play a greater role in whether people hold coverage than their measured knowledge alone," Driver said.
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