Many reacted in what they thought was a logical response to such an upheaval in the markets - do anything to preserve capital. Cash became king.
For people on the cusp of retirement, this was a sensible option. But many who opted for cash have years ahead of them in the workforce, and this conservative investment strategy locked them out of the recovery that occurred in equity markets in 2009.
What this highlighted, once again, is that many people, young and old, still don't understand the basic rules of investment.
A key part of the problem is poor financial literacy. It's a sad fact of life that people's interest in investment, particularly superannuation, doesn't really kick in until about the age of 50 when they are financially secure, the burden of their children is hopefully beginning to lessen, and their thoughts are starting to turn to retirement.
How much better would it be if that interest started from the moment they joined the workforce after their schooling and further education?
The Coalition government set up the Financial Literacy Foundation in 2004 and it survived the change to the Rudd government in 2007.
The learning program was rolled out in all states and territories in 2008/09, with about 3500 teachers receiving professional training. In turn, these teachers were to take back what they learnt to mentor other teachers in order to filter the lessons back through the school population.
Although 3500 teachers with specialist training to teach financial literacy sounds impressive, there are about 250,000 teachers in Australia spread across the government and non-government sectors. The expertise is spread thinly and I suspect many teachers will lack the confidence to teach lessons about financial matters.
Another issue is a resistance among teachers, already burdened by high work loads, taking on a new topic with any enthusiasm, especially when they are expected to take on extra curricular activities such as sport and school camps on top of teaching their core subjects.
The foundation's aims are lofty. They want suitably trained teachers to incorporate financial literacy in mainstream reading, writing and arithmetic lessons at the earliest possible stage of schooling and for it to continue throughout a student's progress on to senior subjects such as economics, science and history.
Hopefully, this initiative will start to bear fruit in the years to come, but the roll-out has just started and signs of a more financially literate society might not appear for another decade.
What it means is that other avenues must be found to spread the financial literacy message. A number of leading funds are not sitting back and waiting and are using innovative approaches to educate their members about investment. The approach being taken by the Non-Government Schools Superannuation Fund (NGS Super) is one example.
Its website contains the interactive NGS College, where members are directed into virtual classrooms to have their superannuation questions answered. Although the website was devised with the NGS membership in mind, its user-friendly graphics would not be out of place as a teacher's aid in school classrooms.
The NGS Super site also provides an effective template for other super funds concerned about better ways to educate their membership about investment.
Financial planners are another sector of the investment community that should play a greater roll in educating their clients, especially as the industry now moves towards a fee-for-service basis.
Planners need to consider whether they should take more time to explain to clients the fundamentals of investment and win back client confidence that was badly shattered by the GFC. Such an approach would not only ensure a more financially literate community - I suspect it would also be beneficial to the planners' bottom line.
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