When a representative sample of respondents in the United States aged over 50 were asked this question, one-third either got the answer wrong or did not know.

Even more troubling, about half of the respondents either believed investing in the shares of a single company stock provided a safer return than a managed fund or simply did not know.

The survey demonstrates that the level of financial literacy among older Americans is poor. This finding is striking because older people typically have significant financial assets and thus have a strong incentive to preserve and grow their wealth for retirement.

Similar surveys confirm that the level of financial literacy across all age groups and different countries, including Australia, is quite low, too.

The Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC) has helped to draw attention to the poor understanding of financial products in the Australian community. It found that customers invest a tremendous amount of trust in their financial advisers and brokers to act in their best interests and that, as a result, often do not ask questions nor seek a second opinion. The abuse of this trust is a recurring theme through the inquiry.

The Senate inquiry is on the right track in recommending that ASIC undertake a campaign to educate retail customers about the care they need to take when entering into a financial transaction and encourage people to seek out affordable and independent sources of advice.

But such a campaign will not address people's poor understanding and knowledge of financial products and services because many will be reluctant to seek out and pay for alternative sources of financial advice.

The interim report of the Financial System Inquiry, delivered last week, confirmed that financial literacy in Australia remains low. Many consumers are disengaged and indifferent around matters relating to their superannuation and there is a distinct lack of price awareness, which is contributing to the high level of super fees in Australia. The proliferation of increasingly complex financial products compounds customers' poor financial knowledge, and that most people need to make only a small number of major financial decisions during their lifetime limits their ability to learn.

In the short-term, higher educational qualifications for financial advisers, better governance practices and stronger consumer protection regulation can help to protect the interests of consumers. But, ultimately, the best protection is empowering customers with information and knowledge. To that end, financial literacy programs should start in schools, establishing a strong foundation in numeracy.

Studies have found that the benefits of financial literacy are significant: retirees with high financial knowledge tend to pay lower investment fees in their retirement accounts and achieve greater diversification of their pension assets.

Given the increase in the pension age eligibility to 70 by 2035 announced in the budget, Australians will need to become more responsible for their financial decisions around retirement. The pay-off associated with a more financially savvy and literate society promises to be substantial.

Salvatore Ferraro is a director of investment research firm Evidente.