Calculating Behaviour

By Robin Bowerman | More Articles by Robin Bowerman

It seems hard to believe that the first iPhone was released just over a decade ago.

The iPhone and its non-Apple counterparts, in their role as handheld computers, have made most of us much more comfortable with using technology including in regard to our personal finances.

Take the online personal finance calculators provided by super funds, fund managers and the Australian Securities and Investments Commission (ASIC), among others.

These calculators, some long predating the iPhone, can help us to much better understand our financial circumstances.

And ideally, these calculators may just nudge us enough to take action that may include upping our salary-sacrificed super contributions, reducing our home mortgage, cutting our credit card debt, reducing funds management costs and taking financial planning advice.

In a past look at personal financial calculators, Smart Investing has referred to a working research paper – Financial literacy and planning: Implications for retirement research – published a few years ago by the National Bureau of Economic Research in the US.

The paper found, perhaps not surprisingly, that "financially savvy" individuals are more likely to rely on formal means for their retirement planning such as financial advisers, retirement seminars and retirement calculators.

At the latest count, ASIC’s personal finance website, MoneySmart, has 35 calculators – a fast-growing line-up that includes highly-practical calculators to help deal with budgeting and personal debt control. Its 10 most-popular calculators cover: budgeting, compound interest, credit cards, income tax, mortgages, personal loans, retirement planning, savings goals, super, and age access for super and the Age pension.

Vanguard, for instance, has a range of calculators to project your super savings by retirement, your retirement income and how long super may last given certain assumptions; compare investment funds and exchange traded funds (including their performance, asset allocations and fees); assess the short to long-term effect of different investment management fees; and measure the impact of currency movements on your investments.

Calculators offered by some large super funds, for instance, are designed to assist members get a better understanding of their tolerance to investment risk and to help assess their needs for life, total & permanent disability and income-protection insurance.

Some people would use these calculators to help become more informed about their financial position and to better understand their options before consulting a financial planner. This may help maximise the value of professional advice.

In a commentary published last October, independent consultants Rice Warner described online tools such as retirement calculators as "quick-and-ready" reckoners that, however, often did not lead to a change of strategy. "The reason for this is the difficulty in summarising complex issues based on limited data into a simple algorithm – the maths might be accurate but the input often is inadequate."

While personal finance calculators can be informative and useful in practical ways, their potential limitations should not be overlooked.

Robin Bowerman

About Robin Bowerman

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

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