I often tell people that I work in the “oldest profession in the world”. They usually think I’m talking about turning tricks in dark alleys (after all, I do live in St Kilda).
Although selling sex undoubtedly has a history as old as motherhood, selling financial fantasy has been around for just as long.
Let me say from the outset, there are many honourable people in my profession. The problem isn’t necessarily with the foot soldiers of finance – the financial planners, stockbrokers or bank tellers – but instead, with the overall financial system. To quote Brit band Blur, “I’m a professional cynic and my heart’s not in it”.
1 + 1 = ?
A study by a government task force on financial literacy has found that lack of financial education costs the average wage earner $790,000 over their lifetime.
That’s a big number. Multiply that by the millions of kids that aren’t being taught solid financial principles in school and it gets much bigger.
“Lack of financial education costs the average wage earner $790,000 over their lifetime.”
How did the task force come about this figure?
A big part of the $790,000 is attributable to the opportunity cost of failing to institute a savings and investment plan.
The second factor is a failure to understand the fundamentals of risk and return. A case in point: Australians collectively lost $800 million to scams in the past three years according to the Australian Securities and Investment Commission.
The final factor working against us is the fees we pay to the financial services industry. Banks, insurance companies, fund managers and financial planners skim (in many cases unearned) fees off the top of what we’ve managed to accumulate.
In recent times the four pillars of banking in this country have got right behind the Federal Government’s push for increased financial literacy. Banks argue that a more informed consumer makes a better customer.
Nice rhetoric boys, but it doesn’t stack up.
Time to start reading
Educated consumers would drive down banks’ profit margins that collectively added $9 billion in bank fees last year alone – not to mention the $30 billion we have racked up on the fantastic plastic.
According to ASIC “there is no systematic approach to teaching financial literacy in schools”. This being the case, where does the average young person learn solid financial skills? Certainly not from their parents, who are the worst offenders in history for splurging on debt.
In truth, much of what we know about money comes from the financial institutions we deal with. But the glossy brochures aren’t education documents, they’re marketing paraphernalia. How impartial can a bank be in educating young people about proper financial principles when they are the main purveyors of exploding personal debt?
Young and dumb?
The youth market is one of their key target groups: look at the fashionable credit card that comes attached to a necklace with the advertising line “Wear it out”? To counteract this problem, the Federal Government has instigated wide-ranging regulation.
Unfortunately, this mainly results in large wads of unreadable gumph that go straight from the letterbox to the recycling bin. The answer isn’t found in 200 pages of fine print. Dodgy companies simply make the ambiguity work for them, hiding their fees way up the back of these documents.
Make a difference
Regardless of how much regulation government implements, it is treating the symptoms of a sick patient instead of going to the root of the problem. Independent financial education that promotes a sound savings plan and investment strategy from an early age is the key. This has the ability to make a real difference in our country.
There is independent financial education available, notably from the Australian Stock Exchange. But most of it is aimed at adults. An exception is the ASX’s annual school share market game, where the student who accumulates the most money at the end of the competition wins. The concept sounds good, but the underlying message is “who trades wins” – not the best way to learn about the stock market.
As the property boom bites the dust and the growth of mortgages dries up, banks will look to other areas to earn the billion-dollar profits their shareholders expect. In a sophisticated market like financial services, this is likely to come from pushing personal credit and higher fees.
The system is on the take. It’s time for a revolution!
Tread your own path!