SAVING SIMON
Sunday, 1. April 2007, 08:09:19
Mark Latham has achieved his aim of deflecting attention from Simple Simon’s poor poll results by hyping his ’saving plan for low income families’.
Mr Latham said breaking the poverty cycle was crucial in overcoming many social ills, such as welfare dependency and crime. “If you want to do something about the long-term cost to government of welfare and policing and social breakdown … the best way of doing it is ending poverty.
I agree, but the best way to reduce poverty is to improve the public’s ‘financial literacy’ (FL), not give them handouts that will be swallowed up by increased fees (not widely understood by the great majority of consumers, including, I suspect, Mr Latham) that continue to inflate the profits of our financial institutions. His statement,
Working Australians have had a taste of economic ownership and not surprisingly, they want more. Not the cars and refrigerators that their parents aspired to but real economic assets: equity investments, business ownership and financial nest-eggs.
will simply cause a lot more grief amongst low income families, unless they have a better understanding of how to invest.
The ANZ funded the first Australian study into FL with the results published in May this year. Amongst the plethora of motherhood statements a few gems are hidden which give an insight into why the savings ratio in Australia is in such a mess. For instance,
E3.5 Understanding of Investment Fundamentals.
There are few concepts more important to sound investment and money management than the relationship between risk and return. On the positive side, most people (85%) knew that high returns generally mean high risk. However, many people did not apply the concept when presented with specific scenarios. For example, when faced with an investment advertised as having a return ‘well above market rates at no risk’, 47% would have made some level of investment.
It’s not hard to understand why Australians lose upward of $600 million each year in schemes t are touted as ‘no risk’. Consequently it would come as no surprise if some of Latham’s taxpayer contributions to Matched Savings Accounts would end up in the pockets of all sorts of ‘no risk’ schemes. (Forgive me for sounding like Professor Bunyip, I just happen to agree with him on this one !)
The ANZ study continued to highlight the urban myths that have become entrenched regarding anything to do with superannuation. The level of understanding of the national compulsory scheme is ludicrously low, as evidenced from this quote;
E3.6 Planning for Retirement
Given that Australia’s compulsory superannuation scheme is still in its early stages, it is widely recognised that most people will need to rely on more than their superannuation for a comfortable retirement. Overall, respondents understood the basics of superannuation and recognised its importance. For example, only 5% of the adult population aged under 65 and not retired said that superannuation, planning and saving for retirement didn’t really matter because the Government will make up the gap.
However, the survey also found that:
only 37% of people had actually worked out how much they needed to save for
their retirement ; and of those people over 35 with inadequate savings for retirement (calculated by considering the individual’s current level of savings and investments) 40% thought they would be living at least as comfortably in retirement as they are living today.
The survey also highlighted limited awareness of fees, charges and taxes in relation to superannuation:
55% of fund members claimed to know little or nothing about the fees and charges that apply to superannuation; and
only 54% of those with superannuation were aware that it is taxed at a lower rate than other investments.
Further evidence of the average punters reluctance to save comes from Roy Morgan Research May, 2003 in the study.
16% of the adult population spend all their income as soon as they get it and do not really plan for the future; and
26% of the adult population have problems setting aside money for major financial outlays.
A far more efficient method of encouraging people, particularly low income families, to save would be to improve financial literacy at secondary school and make VET courses available for free, so that poor people could better understand where their money goes; a third of every glass of beer, eight cigarettes in every twenty, and a huge proportion of the their pay they pump into the pokies, would be a good start.
Concomitant with the ANZ study, ASIC has issued a discussion paper http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/FinLit_schools_DP.pdf/$file/FinLit_schools_DP.pdf seeking submissions to consider methods by which FL could be improved. Research was carried out on the current levels of FL in schools;
It was found that whilst there are opportunities for teaching financial literacy skills, it is not a formal course of study in any jurisdiction and there is no systematic approach to its teaching. At present not all students will be exposed to financial literacy teaching and no course covers all aspects of financial literacy.
Our research has found that schools are already teaching aspects of financial literacy and that many more opportunities exist in the curriculum. Anecdotal evidence suggests that these opportunities are currently under-utilised. This situation in no way reflects negatively on teachers. Rather, our research suggests that, irrespective of opportunities in the curriculum, for financial literacy to have any chance of being taught in schools, teachers need more support in terms of up-to-date resources and professional development.
There is no systematic approach to the teaching of financial literacy. There are no agreed elements or competencies for financial literacy and no coordination across curricula to reinforce and ensure systematic learning. The term ‘financial literacy’ is rarely used in curriculum documents; however, there are a number of learning outcomes that directly relate to elements of financial literacy. The Northern Territory is the only jurisdiction that uses the term ‘financial literacy’ in its learning outcomes. This occurs in the Enterprise strand in Studies of Society and Environment (SOSE).
At the level of implementation, at both school and classroom level, the Erebus research revealed that there is currently a wide interpretation of the term and its related concepts. In their interviews with educational stakeholders (officials from Boards of Studies and other curriculum authorities and approximately 30 teachers) they found that, overwhelmingly, there was little understanding of the term financial literacy. Very few had actually heard or used the term before. Most could guess what it might mean, but did not have a good grasp on what this might imply in schools.
The research found that there was a common belief among teachers and curriculum developers that the most appropriate people to develop school resources about financial literacy were members of the financial industry. We would support this view, provided that resources were produced in accordance with set criteria and verified by a body independent of the industry. This is explored in further detail in Section 7.
A couple of models already exist in the UK, see Australian Securities & Investments Commission, June 2003 Page 38.
Personal Finance Education Group
pfeg is a UK-registered charity that was established in 1996. Its goal is to promote and facilitate the education of all UK school pupils about financial matters so that they can make independent and informed decisions about their personal finances and long-term security. Pfeg lobbied for the inclusion of personal finance in the National Curriculum. It has a board comprising representatives of financial industry associations and consumer groups and an Advisory Group which consists of 43 organisations, including government departments, consumer organisations, education stakeholders and individual financial institutions. The UK financial services regulator, the Financial Services Authority, acts as a special adviser to the pfeg board. pfeg is funded by members of the financial industry. The FSA, the DfES and National Savings also contribute towards pfeg.
and jump$tart in the US.
Jumpstart was established in 1997 in the US. Its mission is to improve the personal financial literacy of young adults and promote the teaching of personal finance. It also encourages curriculum development to ensure that students attain basic personal financial management skills. Jumpstart has a similar organisational structure to pfeg. It is constituted as a non-profit organisation consisting of a Board with representatives from 30 educational and financial services organisations, and has 140 Partners including government agencies, universities, finance industry bodies and sponsors of education programs.
Now it seems to me that, if I can find out about what our corporate regulators, financial and education institutions think about ways to improve savings rates with half an hours Googling , you’d think that Mark Latham, with the resources at his disposal would be privy to much more (better?) information, wouldn’t you? That’s why I think this ’savings account’ proposal is so much rubbish, designed to keep his leader off the front page.
WIDGETIZE