The Royal Commission has unearthed enough problems within the current banking system to last several years while Australia tries to work them out, but one of the key underlying aspects of this may yet to have really been discussed.

Financial literacy is considered to be a tough topic to broach in the country, but with it being revealed that many banks were offering out loans to vulnerable customers that should never have been passed, the suggestion has been raised that many households may not actually know if they are signing up to receive an ill-suited product.

According to Michael Hodge QC, the senior counsel leading the assistance for the inquiry held throughout last year, a huge number of Australians adults are unable to process even potentially basic financial information.

Hodge claimed that a worrying 46% of all individuals between 15 to 74 would be expected to find it a complex challenge to read even maps and job descriptions, as well as their payroll details, which means it is entirely likely that complicated financial products could well be beyond most.

This would, in theory, allow many to feel overwhelmed by the level of information banks were putting across, and mean they would submit to accepting various implications of taking on financial products because the consequences were not fully understood. Such realizations only appear to have been clear over the last year or so once the inquiry broke.

Some aspects are more pronounced than others, particularly including planning for retirement and looking into superannuation funds, where the Productivity Commission say the situation is even worse.

Given that part of the issue stemming from the commission inquiry was that there was a culture which targeted sales over helping customers, if this was changed and there was more of an effort undertaken to help people understand potentially complex financial products, it could well help to address the knowledge gap which is now evident.

There have been several studies to try and track many of these issues in the last year, with the Australian Securities and Investments Commission (ASIC) undertaking research via the Australia Financial Attitudes and Behavior Tracker to reveal that, if anything, it is getting worse.

The most recent figures indicate that barely a third of investors are aware of what it means to diversify a portfolio, while other aspects such as risk against reward were not obvious to most.

Now there appears to be a growing effort to try and not just rein in the banks, but make sure that the average household is sufficiently educated in financial products to be able to get access to the instruments they need, and not just sign up to things they cannot pay back.

The communications director of Roy Morgan Research, Norman Morris, has discussed how many of the issues laid out by the inquiry ‘were a result of consumers having insufficient financial literacy skills for the product they were purchasing, and who were obtaining it through a channel not designed to focus on their best interests.’

However, unless change is made at both ends of the scale, it is unlikely enough of a middle ground compromise can be made to see sufficient change. With the momentum currently behind politicians supporting the introduction of Hayne recommendations, any initiatives to improve the situation may well be the ones to get voter backing.