The role of financial literacy and fraud awareness in strengthening self-managed superannuation funds (SMSFs)

The current report details findings from a study that sought to better understand the vulnerability of SMSFs to fraud, focused predominantly on the role of financial literacy. In doing this, the project examined the following research questions:
1. What level of financial literacy do SMSF members have?
2. What level of fraud awareness do SMSF members have?
3. What is the experience of SMSF members withdrawing their funds?
4. How does financial literacy interact with fraud awareness and fraud vulnerability for SMSF members?
The project seeks to test the following three hypotheses:
1. SMSF members with lower levels of financial literacy will also have lower levels of fraud awareness.
2. SMSF members with lower levels of financial literacy will have withdrawn their funds more often than those with high levels of financial literacy.
3. SMSF members with low levels of fraud awareness will have withdrawn their funds more often than those with high levels of financial literacy.
To answer these questions, the project used an online survey of 806 SMSF members, aged 18 years and over, who reside in Australia. The survey comprised of six modules which included questions about the respondent’s SMSF and any withdrawals, their level of financial literacy, and their attitudes and understanding of fraud.
Key findings from the report indicate that:
• More than half of respondents demonstrated a low level of financial literacy
• Almost half of respondents demonstrated a low level of fraud awareness
• One third of respondents demonstrated both a low level of financial literacy and a low level of fraud awareness
• One quarter of respondents were approached during COVID-19 to assess their eligibility to withdraw funds from their SMSF or assist with a withdrawal
• One third of respondents had made an early withdrawal from their SMSF
• The most common amount withdrawn was between AUD$50,000 and AUD$100,000
• Almost two thirds of those who withdrew their funds knew it was potentially illegal but withdrew the funds anyway
• Low levels of financial literacy and low levels of fraud awareness impact negatively on those with SMSFs
• Low levels of financial literacy and low levels of fraud awareness increase the vulnerability and potential exposure of SMSF holders to fraud victimisation