School banking failing our kids: ASIC report

Consumer advocate, RateCity.com.au, believes state and territory governments should kick banks out of our primary schools, on the back of today’s damming school banking report from ASIC.

Late last month, the Victorian government dumped the Dollarmites scheme in favour of curriculum-linked financial lessons. Bendigo Bank, IMB, Northern Inland and Southwest Credit have or are in the process of terminating their banking programs in light of this review.

Key findings from ASIC:

• School banking programs say they help children develop long-term savings habits; however, providers could not demonstrate this.
• In the last financial year, schools received $1.3 million in kickbacks for encouraging banking programs at their schools.
• School banking is in 63 per cent of primary schools across Australia, with CBA the largest partner.
• Young children are exposed to sophisticated advertising and marketing tactics by school banking providers.
• Banks aren’t effectively disclosing that a strategic objective of these programs is customer acquisition.

A RateCity.com.au survey found school banking programs did not improve people’s financial confidence later in life and in some cases, fostered complacency.

RateCity.com.au survey of 1,000 respondents:

• Just over half of Australians used a school banking program as a child.
• Of these people, 34 per cent still bank with that same institution as adults – some even into their late 60s.
• Using school banking as a child made little difference to how confident people felt about managing their finances later in life.

Sally Tindall, research director at RateCity.com.au, said: “This is a damning report from ASIC that exposes the weaknesses of letting banks into our schools to teach our kids about money.”

“School should be a safe environment where kids aren’t exposed to financial marketing and advertising,” she said.

“If McDonald’s came into schools to teach kids about healthy eating there would be an outcry. When it comes to teaching kids about money, parents and teachers should be taking the reins.

“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There must be a better way to teach our kids about money that doesn’t involve kickbacks.

“Australia’s other state and territory governments should follow Victoria’s lead and replace school banking with financial literacy lessons.

“Learning about money is a life skill but right now it’s buried in the curriculum. It should be a stand-alone subject,” she said.

ASIC found 61 per cent of parents whose children participate in these programs indicated that they would be “furious if the school stopped school banking”.

“School banking is a convenient way to get your kids to learn about banking, but parents can easily do this at home without being forced to use one specific provider,” she said.

“CBA’s YouthSaver is offering a rate of just 0.80 per cent – parents can teach their kids to do better than this by shopping around.”

Which kids accounts deliver the best returns?

RateCity.com.au put 25 kids’ accounts to the test, working out how much interest they earn when a child puts $10 a week into the account from kindergarten to the end of primary school, applying each bank’s terms and conditions.

The highest interest rates didn’t necessarily turn into the biggest returns.

The findings:

• CBA’s Youthsaver ranked 22^nd in terms of rate and 21^st in terms of interest earned.
• CUA’s Youth eSaver earned the most interest over the seven years from Kindy to Year 6.
• The account with the highest interest rate (LCU) ranked last in terms of interest earned due to onerous terms and conditions.

Source: RateCity.com.au.

Assumptions / Calculations:

• Rates are advertised as of 15 December 2020.
• $10 deposits are made weekly on a Monday.
• Assumes child’s birthday is on 1st Jan of every year.

How to give yourself a financial health check

• Start by comparing rates: on your home loan, credit card and savings accounts, interest rates can vary widely – even between the rates for new customers versus loyal existing ones at the same bank.
• Talk to your lender: negotiate on your rates and fees. You’ll have greater bargaining power if you’ve done your homework first and know what’s available from the competitors.
• Don’t be afraid to switch: the banks have streamlined the process of refinancing in recent years making it faster and easier than before. Refinancing can save a borrower thousands. For a few hours of work on your behalf, it is likely to be the best return on time you’ll get this year.
• Review your bank products regularly: A lot can happen in the mortgage market in a year, as 2020 has taught us. So set a reminder annually and make it a financial health check day.

How to find a competitive rate for your child

• Plan how much you’ll deposit and withdraw:Start by thinking about how much you or your child are likely to deposit each month. Consider if you are likely to make any withdrawals.
• Compare kids savings accounts: Look at the top rate kids’ savers on a comparison site.
• Read the fine print: Carefully read the fine print in line with your personal circumstances. If you are unable to meet the criteria month to month, then try another account.
• Watch for rate caps: Be aware that some accounts only pay the higher rate on balances up to $5K.
• Keep switching: Review your saving account every 6 months.

Compare savings accounts