Beyond the Piggy Bank: Australians and Money

Submitted by Share Trading on 4 December, 2005 - 03:06

Forty-four per cent of Australian's think they will live as comfortably as they do now when they are retired.

Think you know your stuff in the financial world? A survey released on Friday suggests you probably do. ANZ's latest financial literacy survey, last carried out in 2003, shows that 84 per cent of the 3500 adults surveyed consider themselves well informed on financial matters, up from 80 per cent last time around. Of course, it's a subjective thing to say you're well informed: just because you think you are doesn't necessarily mean you are. But there are other indicators showing that, as a society, Australia is pretty clued up.

For example, 97 per cent of respondents have a bank account, compared with about 90 per cent in the United States and Britain. And we are increasingly savvy with electronic payment methods: 40 per cent use internet banking, up from 28 per cent; 60 per cent use direct debit, up from 50 per cent; and 46 per cent use BPay, up from 36 per cent. We're aware of the basics of superannuation too, with 97 per cent of respondents knowing that employers must contribute to super and 92 per cent knowing that you can make extra contributions yourself.

But as is often the case, there are dangers beneath the calm surface. Other questions on investment fundamentals show that we may not all be as smart as we think.

Try this one. An investment product offers well above market rates at no risk. What do you do? Assume it's too good to be true? Invest heavily? Or just invest a bit and see how it goes?

The smart answer is it's too good to be true - nothing offers a great reward without a heightened level of risk. But 47 per cent of respondents say they would invest.

Most say they'd just invest a bit, which perhaps doesn't sound too daft: you never know, and if you only put in a bit you can't be too badly burned. "But this is exactly how scams work," says Jane Nash, ANZ's head of government and regulatory affairs. Scammers rely on pulling in a bit of capital from a lot of people.

Another interesting finding was in response to this question: "Which of the following is most likely to give you impartial advice? [A planner charging by] fee only; commission only; fee and commission."

ANZ highlights the fact that 60 per cent of people with investments did not recognise that advisers who work only for fees are more likely to give impartial advice. But that's really opening a can of worms: most planners being paid on commission will insist their advice is just as impartial as those being paid on a fee-for-service basis. People can hardly be blamed for being puzzled.

Australians continue to hold unrealistic expectations about their quality of life in retirement. Forty-four per cent think they will live as comfortably as, or more comfortably than, they do now when they are retired (down from 49 per cent but still a worryingly large chunk given the state of retirement savings among most of the population). And we're changing the way we make our investment decisions it seems: 40 per cent use no information source in making financial decisions and for those that do, the internet is now the preferred source. When it comes to consulting someone else, family and friends rank above accountants, bank managers or, well down the pecking order, financial planners.

The other interesting part of the survey relates to those who are in financial trouble, drawn from 160 interviews and focus groups. ANZ found that 3 per cent of people feel out of control with their finances. Two-thirds of that number (or 2 per cent of the population) also have borrowings - a worrying combination. So the bank set out to find what the problem was for that group.

It found a combination of lack of skills and knowledge, circumstances beyond the individual's control (such as job loss or ill health) or what it terms "unhealthy financial ways of thinking". This includes living for today, pointless aspirational purchases, indulgence or lack of interest. It also includes a great many unhelpful attitudes to credit: the feeling that people own credit, or a disengagement of responsibility towards it.

For this group, the behaviour of credit providers has hardly helped. When lenders make unsolicited offers to increase credit limits, this group is very likely to accept. "There's a perception that it must be OK because the lender has sent it to them," says Nash. "They're not really looking out for themselves."

Encouragingly, ANZ has recognised that as a bank it has a role in the hardship of this group, and on Monday it set out a revised charter, audited by KPMG, outlining what it thinks is an appropriate way to behave. ANZ has committed not to offer credit card limit increases if customers have a recent poor credit performance or are having difficulty meeting repayments. It will also not offer customers credit limit increases if it knows they are on a fixed income such as a government benefit. There are various other disclosure and information initiatives too. This isn't necessarily to say that ANZ's policies are any better than any other bank's, but in laying down a formal code for distribution it has made an interesting step that may be followed by other banks (the Australian Consumers' Association, for one, would like that to be the case).

It brings us back to one irrevocable law of personal finance that everyone should be financially literate enough to know about: when you've got some cash, if in doubt, pay off the credit card.