We decide whether to save or spend, how much of the mortgage to pay down, where to invest and, eventually, how to turn decades of savings into an income that can support us through retirement.

But how well do Australians understand the financial concepts and systems behind those decisions?

Vanguard's How Australia Retires 2026 report surveyed more than 1,800 Australians and found that while older Australians showed higher financial knowledge than younger Australians, significant gaps remain across everything from basic investment concepts to superannuation and the retirement system.

And that's important because financial literacy isn't about becoming an investment expert. It's about having enough knowledge to make informed decisions about your money throughout your life.

How would you fare on the 'Big Three' questions?

To measure financial literacy, we asked Australians three internationally recognised questions developed by researchers Annamaria Lusardi (Stanford University) and Olivia Mitchell (University of Pennsylvania), which have been used to assess financial knowledge around the world.

They're designed to test three foundational financial concepts: interest, inflation and diversification.

Have a go at the following and see how you do:

1. Suppose you put $100 into a zero-fee savings account paying a guaranteed 2% interest rate. You make no further deposits or withdrawals. How much would you have after one year?

2. Imagine the interest rate on your savings account was 1% a year while inflation was 2%. After one year, would your money allow you to buy more than today, exactly the same amount, or less?

3. True or false: Buying shares in a single company usually provides a safer return than buying shares in a number of different companies.

We'll reveal the answers at the end of this article, but first, how did Australians fare in Vanguard's How Australia Retires 2026 report?

• Financial literacy scores were generally higher among older Australians. Scores were relatively consistent among Australians aged 18-44 before rising substantially among older age groups. Men aged 55+ recorded average scores above 80%, with men aged 75+ achieving the highest score of 88%.

• Younger Australians are improving. Men aged 18–24 scored 66%, up from 54% last year, while women in the same age group scored 59%, up from 50%.

• The gender gap persists. Women scored below men across every age group, with the largest gap among 45–54-year-olds: 76% for men versus 58% for women.

Retirement knowledge remains a challenge

Understanding concepts such as inflation and diversification is one thing. Navigating Australia's retirement system is another.

Vanguard asked respondents four questions covering the Age Pension, voluntary super contributions, the taxation of super and when people can generally access their super savings. The results were mixed.

• Knowledge of voluntary super contributions improved. 78% correctly understood that employees can contribute to their own super, up from 74% last year.

• More Australians understand Age Pension eligibility. 75% answered correctly, up from 65%.

• Understanding of super's tax treatment also increased. 57% answered correctly, compared with 49% last year.

• Super access remains a major blind spot. Just 38% correctly identified the super preservation age, down from 40% last year. Among women aged 18–34, fewer than 30% answered correctly.

That's a significant knowledge gap given super is likely to become one of the largest financial assets many Australians own.

How well do Australians understand their super?

The research also asked the 1800 Australians surveyed how confident they felt about understanding different financial products.

Unsurprisingly, the humble savings account came out on top: 56% reported being very or extremely confident in their understanding.

But confidence dropped considerably for products that can play an important role in building and funding retirement.

Only around one-third of Australians reported high confidence in understanding superannuation, while confidence was even lower for equities, managed funds, ETFs, bonds and annuities.

More broadly, just 35% of Australians said they were very or extremely confident in making financial decisions, slightly below 37% last year.

Fees are another area where knowledge could improve.

Nearly half of Australians said they wouldn't feel confident explaining the fees charged on their super account to a friend or family member, while more than one-third weren't very aware – or weren't aware at all – that super funds may charge multiple fees.

Over long investment periods, even small differences in fees may have a significant impact on your investment balance. The extent of that impact will depend on factors such as investment returns, fees and your individual circumstances.

Vanguard's modelling found that an additional 0.5 percentage points in annual fees could reduce the retirement balance of a hypothetical full-time worker by around $77,000, or approximately 12.5% of their accumulated savings under the assumptions used in the analysis.

Building your financial knowledge

The good news is that financial literacy isn't something you either have or don't have.

It's something that can be built gradually through reading, research, conversations and experience.

You could start with some of the fundamentals: understand how inflation affects your purchasing power, learn how compound returns work, explore the relationship between investment risk and return, and understand why diversification matters.

When it comes to retirement, make a habit of learning how your super works, how your savings are invested, what fees you're paying and how the Age Pension fits into Australia's broader retirement system.

Answers to the financial literacy questions:

1. Exactly $102. 2. Less than today. 3. False.

Source: Vanguard How Australia Retires 2026 research. Nationally representative survey of 1,800+ Australian adults aged 18 years and over in February 2026. Survey findings and examples reflect respondents' opinions, expectations and intentions at the time of the survey and should not be taken as forecasts or predictions of individual retirement outcomes.

By: Vanguard Australia | 2026 | vanguard.com.au