Business Daily Media

Consumers need critical thinking to fend off banks' bad behaviour

  • Written by Carly Sawatzki, Assistant Professor, University of Canberra

The irresponsible[1] (if not predatory) lending and the selling of “junk[2]” financial products highlighted by the Financial Services Royal Commission should raise concerns for regulators, educators and parents interested in financial literacy.

Research shows a strong correlation[3] between financial literacy and literacy and numeracy skills. Literacy and numeracy are critical for, among other things, making sense of product disclosure statements and understanding the impact of loan terms and interest rates on the total amount to be repaid.

But teaching financial literacy requires going beyond these skills, by cultivating a healthy scepticism of financial institutions and the capabilities and confidence to make informed financial decisions.

Read more: Financial literacy is a public policy problem[4]

There is a strong relationship between a low socioeconomic background and low financial literacy in both adolescents[5] and adults[6].

It’s not just disadvantaged and vulnerable groups that struggle with financial decision-making. People who are highly educated in finance also make poor decisions[7] – for instance, by focusing too much on growing their assets and ignoring risks.

But studies show[8] that when regulation is effective and the financial system can be trusted, even consumers with limited financial knowledge and information-processing capabilities have the potential to deal with complex financial decisions.

For example, when considering mortgage protection insurance, applicants stand to benefit from knowing the actual risk of events like serious illness or injury that can affect their ability to meet monthly loan repayments.

Building financial capability

One way to develop better financial literacy is through simulating real-world risks, rewards and decisions in safe and supportive environments. For instance, families can play games like Monopoly and The Game of Life.

Secondary school students also have access to more sophisticated online simulations, such as the ESSI Money Game[9] and the ASX Sharemarket Game[10].

Hypothetical scenarios like these provide opportunities for role play, where students can practise drawing on evidence and using it to think and reason about situations.

A recent survey[11] of teachers of Year 7-10 commerce students revealed that more could also be done to teach students how to compare and choose between banks and financial products and services, what to do in the case of a financial scam, and how to escalate an unresolved complaint.

Read more: Should banks play a role in teaching kids about how to manage money effectively?[12]

But we also need to take a look at the role banks play in financial education[13]. Programs like the Commonwealth Bank’s Dollarmites Club[14] and Westpac’s Solve to Save[15] teach children about money on the banks’ terms.

A key call to action in these programs is often to open a bank account and activate a savings plan. In the Solve to Save program, parents pay a $10 weekly subscription, which is “automatically refunded[16]” to their child’s nominated Westpac account every week they complete three mathematics exercises.

Late last year, in response to criticism by the consumer advocacy group Choice[17], the Commonwealth Bank stopped kickback payments to schools related to its longstanding Dollarmites scheme.

While the banks may be proud of their investment in these education programs, they serve to position the banks as experts in money matters while cultivating trust and brand loyalty.

What does it really mean to be smart with money?

Misguided trust has exposed vulnerable individuals to the moral hazard of the banks – and underscores the importance of improved financial regulation and education moving forward.

Given that borrowing decisions are complex, multidimensional and often emotional, it’s important to consider any lender’s motives, or “What’s in it for them?” Banks are profit-driven. This means an important question to ask oneself is: “Where can I get information and support that is independent, comprehensive and easy to understand?”

In the current climate, teaching capabilities[18] for a healthy scepticism and personal agency is the way forward.

We also need to change the public perception of what it means to be financially literate. The conventional focus on individual responsibility and wealth accumulation is flawed[19].

Arguably, this focus has contributed to the need for a Financial Services Royal Commission. Whether you are a bank, a mortgage broker or a consumer, the impact of your decisions on others must be carefully considered.

While education can contribute to preparing all Australians for informed financial participation, the task is challenging.

References

  1. ^ irresponsible (www.abc.net.au)
  2. ^ junk (www.theaustralian.com.au)
  3. ^ strong correlation (research.acer.edu.au)
  4. ^ Financial literacy is a public policy problem (theconversation.com)
  5. ^ adolescents (research.acer.edu.au)
  6. ^ adults (www.anz.com)
  7. ^ also make poor decisions (link.springer.com)
  8. ^ studies show (onlinelibrary.wiley.com)
  9. ^ ESSI Money Game (financialbasics.org.au)
  10. ^ ASX Sharemarket Game (www.asx.com.au)
  11. ^ recent survey (www.vcta.asn.au)
  12. ^ Should banks play a role in teaching kids about how to manage money effectively? (theconversation.com)
  13. ^ role banks play in financial education (theconversation.com)
  14. ^ Dollarmites Club (www.commbank.com.au)
  15. ^ Solve to Save (mathspace.co)
  16. ^ automatically refunded (mathspace.co)
  17. ^ criticism by the consumer advocacy group Choice (www.choice.com.au)
  18. ^ capabilities (theconversation.com)
  19. ^ flawed (theconversation.com)

Authors: Carly Sawatzki, Assistant Professor, University of Canberra

Read more http://theconversation.com/consumers-need-critical-thinking-to-fend-off-banks-bad-behaviour-93489

Business Today

Why A Champagne Hamper Is A Great Corporate Gift

Suppose you’re a business owner looking for the best corporate gift to give your employees or clients. Perhaps, it could be a giveaway during special occasions, such as the company’s anniversary, holidays, or corporate eve...

Why growing small businesses are rejecting traditional loans to stay afloat

Australian small businesses look for alternatives to fund growth A record number of Australian small businesses are ditching traditional bank loans to fund growth and generate cash flow. “Around 75% of businesses who come ...

The most common mistakes active travellers make that put their lives in danger

PIONEERING scale-up Advanced Mobility Analytics Group (AMAG) is calling for the phasing out of historic methods that rely on crash data for managing pedestrian risk on our roads with more powerful, proactive methods enabled by...

6 charts shows key role firearms makers play in America’s gun culture

Sales of handguns have exploded in recent years. AP Photo/Sue OgrockiAmericans have blamed many culprits, from mental illness to inadequate security, for the tragic mass shootings that are occurring with increasing frequency in sc...

3 in 4 fundraisers have experienced sexual harassment on the job – often because of inappropriate behavior from donors

Sexual harassment is a common workplace hazard for nonprofit fundraisers.fizkes/iStock/Getty Images PlusWhile the #MeToo movement that raised public awareness of sexual harassment is making fewer headlines than it did in 2017 and ...

Cathay Pacific 2021 Sustainability Report

New commitments in carbon neutrality and diversity, and supporting the Hong Kong community during the pandemicThe Cathay Pacific Group has released its annual Sustainable Development Report that addresses its commitment and prog...

Business Daily Media Business Development

Why A Champagne Hamper Is A Great Corporate Gift

Suppose you’re a business owner looking for the best corporate gift to give your employees or clients. Perhaps, it could be a giveaway during special occasions, such as the company’s...

Business Daily Media - avatar Business Daily Media

there's a vital way to reduce it that everyone overlooks – raise productivity

Inflation has become one of the great issues of our times. The UK’s is the highest in the G7, weighing in at 9% a year according to the most recent figures on consumer price inflation...

David McMillan, Professor in Finance, University of Stirling - avatar David McMillan, Professor in Finance, University of Stirling

Is it wrong to steal from large corporations? A philosopher debates the ethics

Mike_shots / ShutterstockIf you ask someone whether it’s okay to steal, chances are most people would say no. This absolutist approach – stealing is wrong, no matter what –...

Emma Borg, Director of the Reading Centre for Cognition Research & Professor of Philosophy, University of Reading - avatar Emma Borg, Director of the Reading Centre for Cognition Research & Professor of Philosophy, University of Reading

how a day off work affects the economy

Shutterstock/Ian FrancisThe Queen’s platinum jubilee will be celebrated across the UK with parades, picnics and street parties. But perhaps the most popular event planned to mark her 7...

Edward Thomas Jones, Lecturer in Economics, Bangor University - avatar Edward Thomas Jones, Lecturer in Economics, Bangor University

Why growing small businesses are rejecting traditional loans to stay afloat

Australian small businesses look for alternatives to fund growth A record number of Australian small businesses are ditching traditional bank loans to fund growth and generate cash flow...

Optipay CEO Angus Sedgwick - avatar Optipay CEO Angus Sedgwick

The most common mistakes active travellers make that put their lives in danger

PIONEERING scale-up Advanced Mobility Analytics Group (AMAG) is calling for the phasing out of historic methods that rely on crash data for managing pedestrian risk on our roads with mor...

Simon Washington, AMAG CEO - avatar Simon Washington, AMAG CEO



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion