Australian Consumers and Money Full Version

A Discussion Paper by the Consumer and Financial Literacy Taskforce June 2004

© Commonwealth of Australia 2004

ISBN 0 642 74251 0

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from the Department of Communications, Information Technology and the Arts. Requests and inquiries concerning reproduction and rights should be addressed to:

The Commonwealth Copyright Administration Intellectual Property Branch Department of Communications, Information Technology and the Arts GPO Box 2154 CANBERRA ACT 2601

Or posted at:

http://www.dcita.gov.au/cca.

Disclaimer

The material contained in this discussion paper is provided for your general information. It is not intended to provide an exhaustive coverage of the topic. It may not cover all the considerations applicable to your circumstances and does not constitute professional advice. You should obtain professional advice which takes proper account of your circumstances before any action is taken in relation to the matters described in this discussion paper.

For a copy of the full version of this paper please go to www.cfltaskforce.treasury.gov.au

Or ring 1300 305 866

Printed by CanPrint Communications Pty Ltd

Page iii

CONTENTS

INTRODUCTION V

PREFACE VII

EXECUTIVE SUMMARY XI

1 THE PROBLEM 1 1.1 Consumers need to catch up 1 1.2 Common consumer problems 3

2 THE CONSUMER 7 2.1 The consumer experience 7 2.2 The Consumer Behaviour Model 8 2.3 The external environment 14 2.4 Socio-economic and demographic factors — our backgrounds 17 2.5 Personal characteristics — the things that are unique to us 26 2.6 Needs and aspirations — the things that are unique to us 29 2.7 Consumer life events — what we all face in life 31 2.8 Consumer skills — the things I can learn 34 2.9 How we get information 45

Page iv

3 THE INFORMATION PROVIDER 49 3.1 Information provision — the people and organisations that

assist consumers to make better decisions 49 3.2 Australia 49 3.3 Overseas experience 58 3.4 The Organisation for Economic Co-operation and Development 58 3.5 The United States of America 60 3.6 The United Kingdom 63 3.7 Canada 64 3.8 New Zealand 65 3.9 Other countries and organisations 65

4 AN INTEGRATED SOLUTION 67 4.1 The way forward 67 4.2 Putting the Consumer Behaviour Model into action through a

central coordinating body 73

FEEDBACK 85 Appendix 1 Membership of the Consumer and Financial Literacy

Taskforce 89

Appendix 2 Taskforce Terms of Reference 97

Appendix 3 The Consumer and Financial Literacy Information Stocktake 101

Appendix 4 Consumer and Financial Education in Australian Schools: A Report by the Curriculum Corporation 103

Page v

INTRODUCTION BY SENATOR THE HON HELEN COONAN

Improved consumer and financial literacy has the potential to save Australia and Australians millions of dollars each year. Put simply, better use and management of money is a vital skill for all Australians.

To have the greatest chance of success we must start the process of consumer and financial education with the very young — in schools and in homes. We must carry it through to Australians at every stage of their life, from school students to retirees regardless of gender, cultural background or language.

In February I announced the formation of a high-level Consumer and Financial Literacy Taskforce to develop the first-ever national strategy for consumer and financial literacy, targeting Australians of all ages and all persuasions.

This discussion paper provides an excellent frame of reference for the upcoming consultations with the public and stakeholders about how to tackle the burgeoning issue of financial illiteracy.

Already a range of good and useful material exists and the Taskforce is by no means attempting to reinvent the wheel or circumvent the work that is already being done. Rather, the Taskforce has been charged with developing a collaborative approach to redefine and enhance the financial skills of ordinary Australians.

I urge all those with an interest in consumer and financial literacy to make a submission in response to the Discussion Paper or to attend the discussion forums which will be held around Australia.

Australian Consumers and Money

Page vi

I would like to thank the members of the Taskforce, and especially the Chairman, Mr Paul Clitheroe, for their outstanding contribution to this issue of great importance.

Senator the Hon Helen Coonan Minister for Revenue and the Assistant Treasurer

Page vii

PREFACE BY PAUL CLITHEROE

The benefits of being financially literate, or to put it simply, being good with your money, are high.

An understanding of how money works can allow us to save, to make good spending choices and sound investment decisions. In many cases it may improve our chances of gaining employment, to earn a higher income, or to give us the key skills to start our own business. In turn, this may give us the opportunity to own a home or invest in property or shares, as well as giving us choices about schooling for the kids, holidays

or our health. Being good with money is not just a nice thought. It can improve our own lives and the lives of those we love.

But if we agree that financial literacy is important to individuals, families and the broader economy, what do we do to improve it and how do we go about it?

Consumers experience many difficulties with financial issues as they move through each stage of their lives. The journey from the first few cents of pocket money, teenage years, adult life and retirement are littered with traps. Overspending, over borrowing, personal debt, underinsuring, scams, schemes, product and legislative complexity need to be avoided, understood or overcome to achieve financial success.

In a perfect world two very simple things would happen to help consumers with money issues.

Firstly, the consumer would be armed with knowledge. This would come from the home, school, workplace and a supportive community, combining to ‘raise the bar’ of financial literacy.

Australian Consumers and Money

Page viii

Secondly, government and financial institutions would make a determined effort to ‘lower the bar’ in terms of the complexity of products, access to information and multiple regulations that make it difficult for even the most knowledgeable consumer to chart a sensible course.

However, it is not a perfect world nor will it be. But in the area of financial literacy it can become a better place.

Recommending a series of actions to empower consumers with financial knowledge is not a difficult task. As the Taskforce has discovered, there are hundreds of programs designed to do this available in the marketplace. So, a lack of information is not the issue. It is also clear that some schools, some workplaces and parts of the wider community already embrace this concept, but these programs need to be made more broadly available. So, the Taskforce will recommend a number of perfectly sensible steps to empower consumers in the school, workplace and the community. But even this does not really tackle the heart of the issue.

Much time, effort, materials and money are being poured into financial literacy, yet it seems we are not seeing effective results, as evidenced in the ANZ Survey into financial literacy, rising personal bankruptcies, or the large number of people being ‘ripped off’ by investment scams. One argument of course, is that our knowledge has improved, but we have no real measure of this, or simply, as our knowledge improves, the complexity of the financial world increases at an even faster pace.

Fortunately, financial competence does not require knowledge of complex investment concepts involving alpha and beta factors, standard deviation and how to calculate your Reasonable Benefit Limit in superannuation, which is fortunate indeed, as a complete understanding of superannuation legislation could take a lifetime in itself.

So, what is important? Well, the foundations of success with money have been the same for thousands of years and include:

• spending less than you earn

• managing cash flow

• protecting yourself from risks

• understanding how debt can be good — or bad.

Preface

Page ix

Success in improving consumer financial literacy can greatly benefit individuals, families and hence our economy. But to be serious, we have to take a serious approach and this means a number of things.

Firstly, we should have a realistic understanding of what level of knowledge Australians should have. What is a ‘competent consumer’? We will supply a definition for consideration. Over time, we should, on a regular basis, measure our progress against this definition.

Secondly, there will be no miracles here. Improvements in knowledge will be seen over years and decades. Frankly, despite so much goodwill in this area, it is unlikely that much will improve unless a permanent central body is created and funded to:

• help coordinate the hundreds of existing programs towards a common goal

• work with educators to ensure a national approach to educating our children

• encourage and establish programs in the workplace and broader community

• develop and support national consumer and financial literacy concepts.

Plenty is happening in the area of consumer and financial literacy. This is not a surprise as it is an important issue. But success will come by a concerted, long-term push towards a common goal.

And wouldn’t success in improving financial literacy be wonderful for all legitimate participants in our economy. Consumers creating more wealth, lower bankruptcies, less bad debts for financial institutions, a greater take-up of superannuation and quality investment products — less ‘rip-offs’. In fact, the only losers may well be the ‘rip-off’ financial crooks. And that has to be a good thing.

We look forward to your comments.

Paul Clitheroe Chairman Consumer and Financial Literacy Taskforce

Page xi

EXECUTIVE SUMMARY

Australians spend over $450 billion on goods and services every year with $29 billion being spent on financial and insurance services alone.1

But despite the amount of money that is spent, we know very little about the decision-making processes that occur when Australian consumers spend or invest their money. How many decisions are based on good advice, sound knowledge and the right attitude and how many decisions are based on bad advice, guess work and the wrong way of thinking?

We know that Australian consumers have lost a substantial amount of money to investment scams over the last three years.

2 We know that more Australians are facing debt issues at a younger age than ever before.

At the same time, we know that many Australians are becoming more prosperous through involvement with the share market and property investment. We also know that many Australians are extremely savvy in the way they make their purchases and are increasingly prepared to negotiate hard for the best deal.

So, the modern Australian consumer tends to be a mixture. For most of us, we are good at some decisions and bad at others. We also tend to adopt different behaviours in different circumstances.

1 2002-03 ABS Catalogue 5204.0 Australian System of National Accounts, Household Final Consumption Expenditure, pp. 74-75.

2 Australian Securities and Investments Commission, Financial Literacy in Schools, Discussion Paper, June 2003.

Australian Consumers and Money

Page xii

While this may not be a surprise to many, it is only recently that economists have sought to understand the complexity of our decision-making. In doing so, they have drawn on other disciplines such as psychology to better understand the factors that lead to different consumer behaviour.

In 2002, Daniel Kahneman won the Nobel Prize for his work on bounded rationality; the concept that there are limitations on the rationality of consumers in the decisions that they make. Economists and service providers can sometimes inappropriately assume that consumers use information in deductive ways to make logical decisions to suit their needs. In his studies, Kahneman found that most decision-making was based on intuition rather than reasoned analysis.3

As more and more work is being done on the consumer or ‘demand side’ of economics, there is a growing acceptance that the modern consumer can no longer be assumed to be someone who makes fully rational decisions based on objective assessments of the information presented to them.

Just as we all have different personal characteristics, we also have different socio-economic and cultural backgrounds which affect the way we approach decision-making. For example, a person from an Arabic community who adheres to the strictures of the Koran is not likely to choose a credit provider as the Koran forbids ‘riba’ — the practice of charging interest on lending money.

It should also be recognised that consumers go through different phases in their lives. The attitudes and behaviour we have in our teens can be completely different to the attitudes and behaviour we have when we approach retirement. So, understanding of consumer behaviour also needs to be rooted in an understanding of what stage we are at in life.

This is also true for the economic factors that influence our behaviour. For example, changes in interest rates can affect behaviour in different ways. People who have lived through periods of high interest rates may be more cautious in allowing for fluctuations while those who have not experienced high interest rates may take more risk in structuring their loans with no margin for increase.

3 Kahneman, D. (2002), Maps of Bounded Rationality: A perspective on intuitive judgement and choice, Nobel Prize Lecture, December, Princeton University.

Executive summary

Page xiii

Similarly, legislation and regulation can often affect the complexity of products and thus consumers’ ability to properly understand them.

Finally, we all have different skill levels. Some consumers struggle with basic literacy and numeracy while others are extremely knowledgeable about money management and their consumer rights. Skill levels are very important in ensuring Australians are equipped to manage the thousands of purchasing and investment decisions they are faced with in their lives.

Skills also need to be taught at a young age, which is why the Taskforce has looked at the issues associated with teaching consumer and financial literacy within the Australian school system.

However, skill levels alone do not explain why we have well educated and knowledgeable people still making bad financial decisions. It is only by understanding the different elements of personal characteristics, social background and life events that we can begin to piece together the whole picture.

It is with this in mind, that as a first step, the Taskforce is proposing a Consumer Behaviour Model for better understanding the factors that contribute to consumer decision-making. This is in order to encourage information providers and policy makers to better understand the needs, backgrounds and motivations of today’s consumer when delivering solutions in the marketplace.

The Taskforce views this as an important first step in improving the provision of information to consumers. It is important because it provides a proper framework for taking action that ensures effectiveness, efficiency and consistency across sectors.

With this framework, the Taskforce hopes businesses will strive to provide more independent and useful information to consumers while at the same time, simplifying the complexity of the products and services they offer.

While not actually breaching any laws, it is an unfortunate fact that many business operators in Australia continue to act in unethical or unhelpful ways to consumers. A good example of this is the way in which some credit services are marketed towards vulnerable consumers.

Australian Consumers and Money

Page xiv

This is why the Taskforce proposes a pincer approach — improving consumer and financial literacy while at the same time, improving business practices. Smarter consumers drive better choices in the market while responsible businesses drive longer term profits by building trust with consumers. This is clearly a good outcome for both businesses and consumers.

Governments also have a role to play in providing proper regulatory frameworks that improve information flow and protect against consumer detriment. An unintended consequence of this can sometimes be complexity and bureaucracy which leads to confusion and frustration amongst consumers and high compliance costs for business which are, in turn, passed on to consumers.

It is therefore important that there be ongoing information flows between consumers, business and government to ensure that things are working properly.

There also needs to be a consistency in the approach to consumer and financial literacy. In Australia today, a large number of government, commercial and consumer organisations are investing considerable resources to address issues of consumer and financial education. While there is commonality in their aims, a wide range of approaches and methods are evident.

In some instances, effective partnerships are engaged but in many instances they are not. In some instances, providers know how to effectively target audiences with information but in many instances they do not. In some instances, effectiveness is evaluated but in many instances it is not.

The number of different information providers, programs and sometimes conflicting information can result in consumers feeling bewildered and mistrustful. In these situations, consumers tend to resort to easier and more trusted sources of information such as the media, friends and relatives.

The Taskforce conducted a preliminary stocktake of consumer information initiatives (with a focus on financial education) and found over 700 initiatives being produced by public, private and community sector bodies. It is the Taskforce’s view that there is no shortage of good consumer information available to assist Australians. However, a good proportion of that material is either not known, not properly targeted or not used by Australian consumers.

Executive summary

Page xv

The Taskforce also found that there were no formal networks for communication amongst information providers and thus a general ignorance of what others were doing. This has led to much overlap and duplication in the work done by organisations. It has also led to a lack of corporate knowledge over time where failures can be repeated and best practice is often not followed.

In looking at solutions to these problems, the Taskforce has also drawn on international research and expertise to determine what has worked well in other countries. Many countries have come a long way in developing solutions to these problems and the Taskforce was fortunate to be able to draw on this work as well as recent work on financial literacy in schools by the Australian Securities and Investments Commission.

With the Consumer Behaviour Model as a first step, the Taskforce proposes that a second step should be the establishment of a coordinating body that better connects information providers with consumers and that is able to take a more strategic view of consumer information issues.

This paper outlines the possible functions and services of such a body and how it can make a difference to the lives of Australians over time.

In approaching these issues, the Taskforce initially considered taking a more prescriptive approach, recommending specific consumer education initiatives be put in place. However, it soon came to the view that a longer term, systematic approach would deliver far greater and lasting benefits to Australian consumers.

Indeed, it was felt that short term thinking was responsible for the situation the Taskforce had been asked to improve. The history of consumer information provision in Australia is characterised by well-intentioned initiatives that begin with a big bang and peter out over time.

For these reasons, the Taskforce is keen to take a longer term view and to facilitate a greater engagement between stakeholder organisations and the general public in developing a framework for improvement which would better withstand changes in the market and within government.

The Taskforce believes that consumer and financial literacy needs to be embedded in the Australian culture in the same way that Australians know how to ‘Slip, Slop, Slap’ when going in the sun or wear a seatbelt while driving. However, these cultural shifts take time and require concerted effort from information providers in pushing strong and consistent messages.

Australian Consumers and Money

Page xvi

It is with this strategy and vision that the Taskforce is seeking public views. Have we got it right? Is a coordinating body the best way to go? Do we have it in ourselves to change our behaviours in more positive ways? The Taskforce encourages you to respond to these questions by making a submission to this paper or by attending the consultation meetings that will be held across Australia.

This is an important issue that will shape the future capacity of all Australians. The Taskforce looks forward to your involvement and views.

Page 1

1 THE PROBLEM

1.1 CONSUMERS NEED TO CATCH UP

The world has changed a lot in the last fifty years.

We have seen a dramatic increase in the range of choice available to consumers, particularly in the area of financial products and services. This, coupled with the growing wealth of our nation, has given us more opportunity to spend and invest money than ever before.

However, the increase in choice and prosperity has also seen an increase in the complexity of products as more and more providers try to tailor their products to the varying needs of today’s consumer. The wide range of choice available has also led to more aggressive marketing practices, as companies try harder and harder to break through the ‘clutter’ of competing advertising messages.

Thus we find consumers locked into long term contracts on the basis of an attractive opening offer (for example, a ‘free’ mobile phone), consumers who are binging on credit in order to satisfy their lifestyle aspirations (often marketed to them by companies), and consumers who are investing in get-rich-quick schemes that are doomed for failure.

As a result of some of these practices, Australians have demanded tougher regulatory regimes to protect their investments, safeguard them from unscrupulous operators and promote competition. This too, has resulted in an increase in complexity as legislation has increased to keep pace with societal changes.

Australian Consumers and Money

Page 2

The last fifty years has also seen a shift from governments and businesses playing a largely paternal role in the financial affairs of consumers to the consumer being responsible for their financial decision-making.

Through all of these changes, governments and businesses have recognised the need for consumers to be informed. However, this too has not been without its problems as consumers have become confused and fatigued by the plethora of information sent to them from many different sources. Not only is it a problem of processing and understanding information but also of knowing what information to trust.

So, this is the problem we face. We have developed as an economy to offer greater access, choice and protection than ever before but, at the same time, we have not developed the capability of all consumers to take advantage of these changes, nor to avoid the risks that come with greater access to money.

Consumers need to catch up. As a nation, we need to be better skilled in negotiating transactions and in managing our money. A number of reports over recent years have also highlighted the need to improve Australian consumer and financial competencies. These include:

• The 1997 Australian Law Reform Commission’s Seen and Heard report which found that young people were ill informed about a range of consumer services.

• The May 2003, ANZ Bank Survey of Adult Financial Literacy in Australia which showed that while most Australians have basic financial literacy skills, young consumers and those from lower socio-economic backgrounds are facing particular disadvantage in making informed decisions about the management of their money.

• The June 2003, Australian Securities and Investments Commission (ASIC) Financial Literacy in Schools report which recommended the championing of financial literacy within schools and more generally.

1 The problem

Page 3

• Australian consumers have lost a substantial amount of money to scams over the last three years.1

• The July 2003 Senate Select Committee on Superannuation report on Planning for Retirement which recommended that the Government increase efforts to educate the general population about the importance of planning for retirement.

• The Investment and Financial Services Association 2003 policy paper on Retirement Incomes and Long-Term Savings: Living Well in an Ageing Society which noted that education, information and quality advice are critical to the achievement of Australians’ expectations of their retirement incomes.

1.2 COMMON CONSUMER PROBLEMS

The following common life events illustrate the sort of problems facing Australians today:

• Superannuation: Most consumers of working age contribute to superannuation schemes and possibly make other investment decisions and despite the amount of information and advice in the general marketplace, may not know where to turn for contemporary and effective support.

• Buying a house: Consumers make major life purchasing decisions, such as buying a house, often with limited understanding of financing options and risk management.

• Debt: Household debt is accumulating at a rapid rate and is becoming more prevalent amongst young people.

Many consumers also experience difficulties in the retail market. Compulsive shopping is a well known phenomenon. Others have problems with retail-based credit and leasing arrangements which are sold by sales personnel (who are not trained in financial areas and are not subject to the same checks and balances as financial advisors).

1 ASIC, Financial Literacy in Schools Discussion Paper, June 2003.

Australian Consumers and Money

Page 4

However, purchasing financial products is particularly problematic due to the characteristics of this product category (compared with say, consumer goods). Some key differences include:

• financial products are not usually purchased frequently and so we develop limited experience in selecting products

• the value of the purchase (for example, an investment product) is often not clear at the time of purchase, products cannot be tested prior to purchase and often we cannot appreciate the value of a financial product until some time later (and sometimes, too late)

• it can be difficult to verify claims made by financial suppliers.

Regulation is part of the solution and, to some extent, part of the problem. Regulation (for example, disclosure rules), goes a long way towards addressing some of the problems facing consumers. However, regulation can only go so far. Inevitably, due to the complex nature of the financial market, regulation necessarily also becomes complex.

Also, regulation since Federation has not been successful in stamping out consumer scams. Scams can be generally characterised as offers that are not genuine or as the saying goes — ‘if it seems too good to be true, it probably is’. Scams such as advance fee fraud (for example, the Nigerian scam) have been around since the 1500’s (then known as the Spanish Prisoner scam) and do not look like disappearing any time soon.

In many cases, scammers are successfully prosecuted by consumer regulators such as the Australian Competition and Consumer Commission and ASIC. However, some scammers will always be one step ahead of the law and, even when caught, rarely have remaining assets to fully compensate victims. This is where consumers need to be able to recognise the hallmarks of a scam in order to combat the increasingly sophisticated advances of scammers.

We are also seeing Australian children falling behind in the financial and consumer skills they will need for the future. This has already manifested itself in the problems of youth debt we are currently seeing amongst 18-24 year olds.

As has been noted, the world has changed a lot. However, the teaching of children has not kept pace with these changes and, as a result, children are often

1 The problem

Page 5

poorly equipped to understand financial concepts and consumer considerations in life. Many young Australians also have negative attitudes to money management choosing to ‘live for today’ rather than plan for the future.

However, planning for the future has never been more important as the fiscal implications of changing demographics (ageing population) have led governments around the world to shift the responsibility for saving to the individual. Australia is at the forefront of these changes with the introduction of compulsory superannuation.

Thus, as consumers, we need to accept increasing responsibility for our financial outcomes. We need to be able to manage our own way around complex consumer and financial markets while avoiding scams and other pitfalls. We need the right skills and attitudes to do this.

In summary, despite the amount of information and advice in the market place, there is substantial evidence that appreciable numbers of consumers experience difficulties managing money matters in both the financial and retail markets.

The question facing us is: How can we ensure that Australian consumers avoid money traps and get the most from their money in an increasingly complex market?

Page 7

2 THE CONSUMER

2.1 THE CONSUMER EXPERIENCE

Eat less. Exercise more. Quit smoking. We all know such behaviours would improve our lives. Yet, ‘I know’ and ‘I do’ are often very different concepts.

While the previous chapter noted the need to build consumer skills, an improvement in consumer and financial literacy does not always translate into a positive change in behaviour. It is often assumed that issues of consumer detriment are caused by consumers not having the correct information or the appropriate skills to make sound decisions. Although this is often the case, the empirical evidence also points to a more complicated situation, where consumers decision-making is shaped by more than just access to the knowledge available in the marketplace.

The recent ANZ Survey of Adult Financial Literacy in Australia (ANZ Survey) found that despite a general community awareness of the basics of financial literacy, people were nevertheless making poor decisions about the use and management of their money. While 98 per cent of those surveyed understood the need to prioritise their needs to balance income and expenditure, 16 per cent chose to spend all their income as soon as they received it.1

It is somewhat of an understatement to say that consumer behaviour is complex and multi-faceted. Many factors play a part in determining an individual’s actions and even when sound decisions are made, they are never completely future proof. For example, a consumer can choose the most competitive home loan in today’s market but find that it becomes less competitive within a year.

1 ANZ Survey of Adult Financial Literacy in Australia (2003), conducted by Roy Morgan Research.

Australian Consumers and Money

Page 8

This does not mean that programs to improve consumer and financial literacy do not have an important role to play. On the contrary, it recognises that the problems faced are often not only ones of knowledge but also attitudes and behaviour. For programs to be successful they must recognise the interactions between the differing variables that impinge on consumer behaviour, consumer knowledge and long term change.

International research on the effectiveness of consumer and financial literacy programs has shown that programs with these understandings have had more consistent success than those that simply targeted consumers under an ‘information asymmetry’2 assumption.

The key to success has been in recognising consumers are a heterogeneous group and that programs need to target specific skills, attitudes and behaviours depending on the consumer and the type of transaction or activity.

This chapter draws on research from Australia and overseas to identify the key drivers of consumer decision-making that need to be understood and influenced in effecting positive change.

This analysis is by no means exhaustive; rather it aims to be used as a starting point for further discussion and research.

2.2 THE CONSUMER BEHAVIOUR MODEL

To better understand the factors that lead to consumer decisions, the Taskforce believes there is a strong need for an agreed model to measure consumer and financial literacy over time. The Consumer Behaviour Model (Figure 2.1) is proposed as such a model for discussion.

2 Information asymmetry is the economic term used to describe any imbalance in the information held by suppliers and consumers in a market. For example, consumers are likely to know less about home loan products than mortgage providers who are employed to have a specialised knowledge of the product.

2 The consumer

Page 9

Figure 2.1

Australian Consumers and Money

Page 10

The Model looks at things from the consumer’s perspective and shows how external events, socio-economic background, personal characteristics, skill levels and choice of information can all shape the way decisions are made.

The Model is a synthesis of all of the best approaches to these problems drawn from a wide range of disciplines.

It is the Taskforce’s hope that this model can be developed and tested in a collaborative way across all sectors. This would include incorporating relevant data streams such as research on skill levels (for example, literacy and numeracy levels), complaint data (to indicate both levels of detriment and access to redress services), attitudinal research (such as the ANZ Survey) and relevant socio-economic data.

In this way, the Model can be measured and used by information providers to determine priority areas and the effectiveness of current programs. To show this in a practical sense, Figure 2.2 illustrates a simple example of a consumer named George buying his first car.

This example illustrates a common problem experienced by young people when buying their first car. While many shop around and negotiate the purchase price of the vehicle, many do not shop around for finance, but simply accept whatever linked finance the dealer offers. As a result, the total cost of the acquisition (the cost of the vehicle plus the cost of the finance) can be uncompetitive and sometimes, unaffordable for the purchaser. George was a good negotiator; he did well negotiating on the purchase price. However, he failed to understand that he was making two purchases, the vehicle plus the finance.

The fictional story of ‘George’ buying his first car, shows how the model can assist us to understand this consumer problem and identify areas where further assistance may be required. The Model shows how George’s problem was caused by a number of things:

• his age and background (he sought independence and rebelled against his parent’s values)

• incorrect assumptions (for example, all personal loans are the same)

• lack of information (for example, about personal loan products, other sources of finance)

2 The consumer

Page 11

• lack of shopping around (for example, he might have found that the university credit union offered better finance)

• misplaced confidence in his friend’s expertise (which did not extend to finance).

In George’s case, taking time to shop around for finance and seeking advice from an independent source (for example, from the free student financial advisory service at the university) would have delivered better outcomes.

The problem however is that George did not know that he had a need for advice and so he did not seek out advice. Thus no matter how good the available government and consumer financial advisory services are, these would not have reached George. Some other type of strategy is clearly needed to help the Georges of this world.

At Chapter 4, The Solutions, the George example continues with the focus being on solutions that would be effective in addressing this particular type of consumer problem. The remainder of this chapter explores the components of the Model and how, combined, they paint a picture of the current consumer experience. This Model is then explored again in Chapter 4, where it is shown how it can be used by information providers as a tool to more effectively change consumer behaviour.

Australian Consumers and Money

Page 12

Figure 2.2: The Consumer Behaviour Model in action — the story of George

2 The consumer

Page 13

Australian Consumers and Money

Page 14

2.3 THE EXTERNAL ENVIRONMENT

Consumer behaviour does not occur in a vacuum. Economic, regulatory, cultural and political factors shape the external environment in which we make our choices.

This often means that individual consumers are unable to control the direction of their external environment. Nevertheless, the principles of market forces and of political representation show that while one consumer may not be able to affect change, several consumers can. That is not to say that certain consumers may not be able to influence wider change through political or social action, but for most, it means accepting and dealing with the economic, cultural and political environment that is dealt to us.

Economic

Technological change and increased competition (particularly in the finance industry) have brought many benefits to consumers in terms of increased choice and accessibility. At the same time, these trends have brought with them the need for consumers to be informed about an ever increasing range of products.

As the range of products expands, the market becomes more complex and the information required for decisions increases. Chairman of the United States Federal Reserve Board, Alan Greenspan, has highlighted the importance of financial literacy in an increasingly complicated financial landscape by saying:

‘Forty years ago, a simple understanding of how to maintain a checking and savings account at local banks and savings institutions may have been sufficient. Now, consumers must be able to differentiate between a wide range of products and services, and providers of those products and services. Previous, less–indebted generations may have not needed a comprehensive understanding of such aspects of credit as the impact of compounding interest and the implications of mismanaging credit accounts. Today, however, the advance of telecommunications technologies and the development of other new technological tools have broadened the availability of credit and other banking services.’ 3

3 Greenspan, A. (2003), Remarks by Chairman Alan Greenspan at the 33rd Annual Legislative Conference of the Congressional Black Caucus, September 26, 2003, Washington D.C.

2 The consumer

Page 15

Other economic factors which affect behaviour and capacity include:

• the employment opportunities available

• the level of inflation

• the level and complexity of products

• the competition present in the market

• the extent to which products are marketed.

The way in which an industry markets the products and services it has to offer can affect how a consumer behaves. If credit is marketed as an easy consumer commitment through terms such as ‘buy now, pay later’, then consumers are likely to embrace these offers in a carefree way. However, if credit is marketed as a serious consumer commitment, then consumers are likely to think twice before committing.

Similarly, many industries are aggressive in the way they market their products as consumer ‘needs’ rather than consumer ‘wants’. For example, many young people today would see a mobile phone as a social ‘need’ rather than a social ‘want’.

Government

The political environment also has an impact on consumers through the direction of government policy that is applied to the economic and regulatory environment.

Some governments may favour interventionist approaches to market regulation while other governments may favour less interventionist approaches. Individual politicians will also have their own policy priorities that they bring to government.

Some political policies can have immediate effects on consumer behaviour. For example, the deregulation of the banking sector means that consumers can now use credit unions, building societies and other non-bank financial institutions for finance in a way that was previously reserved for banks.

Australian Consumers and Money

Page 16

Other government initiatives have longer term effects. For example, in recent years there has been a decisive shift in most member countries of the Organisation for Economic Co-operation and Development (OECD) toward consumer responsibility for savings, credit and investment management. This shift has meant that consumers’ incentive to acquire a better understanding of financial issues has increased.

In the United Kingdom (UK), which differs from the Australian environment in many ways, there is evidence that consumer interest in financial matters has been blunted historically by the political post-war ‘safety nets’ of the welfare state and by the generous occupational pension schemes that employers had been required to provide.4

Consumer regulation is also important in ensuring consumer confidence as it can provide fairness and transparency in transactions.

It is recognised that financial products are inherently more complex than other types of consumer goods and it is widely accepted that consumers are in an unusually weak position because of an imbalance in information (information asymmetry).

The recent introduction of the Financial Services Reform Act 2001 (FSRA) has established a harmonised licensing, conduct and disclosure regime for all financial product providers and advisors with the aim to improve the level and quality of information that is available to consumers. The information that is provided is required by the legislation to be ‘clear, concise and effective’.

The most noticeable effect for consumers of this change is in the products and services that were previously not subject to comprehensive information requirements.

For example, pre-FSRA, consumers did not always receive full information about financial products and services.

Post-FSRA, consumers would typically receive the following information, regardless of the type of financial product being sold:

• a Financial Services Guide setting out the terms and basis of their services

4 UK Treasury (2002), Medium and Long Term Retail Savings in the UK: A Review, July, UK.

2 The consumer

Page 17

• a Statement of Advice setting out the basis of that advice, as well as the amount and source of any commissions or other remuneration they receive from product providers

• a Product Disclosure Statement providing the essential details about that product.

Consumers now have more information than ever to comprehend and the need for a coordinated and consistent approach to disseminating information, particularly information from government, has never been so strong.

Feedback Economic forces and government intervention can both improve and constrict a consumer’s ability to understand and act on information. As such, information providers must make assessments about the extent to which information alone can change consumer behaviour.

Are economic and government factors sufficiently understood by information providers in information provision to consumers?

2.4 SOCIO-ECONOMIC AND DEMOGRAPHIC FACTORS — OUR BACKGROUNDS

Socio-economic status and demographic profile are also key determinants of consumer behaviour. A person’s level of income, their cultural background, their gender, their health status, their educational background and their location are all important factors in how they make decisions.

The ANZ Survey found that consumers from a lower socio-economic background and those who had non-mainstream demographic profiles were over-represented as having the lowest levels of financial literacy as defined by the survey (Figure 2.3).5

5 ANZ Survey of Adult Financial Literacy in Australia (2003), conducted by Roy Morgan Research.

Australian Consumers and Money

Page 18

Figu

re 2

.3:

Segm

ents

with

low

er fi

nanc

ial l

itera

cy —

Aus

tral

ian

adul

ts

Segm

ents

str

ongl

y ov

er-r

epre

sent

ed in

low

est

quin

tile

Segm

ents

mod

erat

ely

over

-rep

rese

nted

in

low

est q

uint

ile

Segm

ents

slig

htly

ove

r-re

pres

ente

d in

lo

wes

t qui

ntile

Educ

atio

n le

ss th

an y

ear 1

0 an

d no

occ

upat

ion:

Lo

wes

t lev

el o

f fin

anci

al li

tera

cy o

vera

ll; p

artic

ular

pr

oble

ms

with

kno

wle

dge

of p

aym

ent m

etho

ds, b

asic

ar

ithm

etic

, fin

anci

al te

rms,

risk

and

retu

rn, c

onsu

mer

re

dres

s op

tions

. U

nski

lled

wor

kers

and

non

-wor

kers

: Per

form

po

orly

in m

any

area

s in

clud

ing

know

ledg

e of

ch

anne

ls, f

ees,

arit

hmet

ic, r

isk

and

retu

rn

Peop

le w

ith lo

wer

inco

mes

(hou

seho

ld in

com

e of

le

ss th

an $

20,0

00 p

er a

nnum

): P

oor k

now

ledg

e of

ch

anne

ls, f

inan

cial

term

s, ri

sk a

nd re

turn

Lo

wer

sav

ings

(les

s th

an $

5,00

0): P

oor p

erfo

rman

ce

on m

ost m

easu

res

Look

ing

for w

ork:

Poo

r arit

hmet

ic a

bilit

y, li

ttle

plan

ning

, low

kno

wle

dge

of c

onsu

mer

redr

ess

optio

ns

Peop

le a

t eac

h en

d of

the

age

spec

trum

: You

nger

ad

ults

(18

— 2

4 ye

ars

old)

hav

e di

fficu

lties

un

ders

tand

ing

finan

cial

term

s, s

uper

annu

atio

n, b

asic

ar

ithm

etic

, ris

k an

d re

turn

. Old

er p

eopl

e (a

ged

over

70

yea

rs) h

ave

diffi

culty

und

erst

andi

ng p

aym

ent

met

hods

, as

wel

l as

mos

t oth

er a

spec

ts.

The

follo

win

g se

gmen

ts h

ave

a be

tter

unde

rsta

ndin

g of

pay

men

t met

hods

, but

hav

e di

fficu

lties

with

fina

ncia

l ter

ms,

risk

and

retu

rn,

supe

rann

uatio

n an

d w

here

to g

o w

ith

com

plai

nts

or d

ispu

tes:

•

Stud

ents

•

Pers

onal

inco

me

less

than

$20

,000

•

Peop

le w

ho re

nt th

eir r

esid

ence

•

Sem

i-ski

lled

wor

kers

•

Cas

ual e

mpl

oyee

s •

Ret

irees

•

Sing

le p

eopl

e (li

ving

in a

sha

red

hous

ehol

d, li

ving

alo

ne, s

ingl

e pa

rent

s)

• Lo

wer

edu

catio

n (le

ss th

an Y

ear 1

0)

• Pe

ople

who

spe

ak a

lang

uage

oth

er

than

Eng

lish

at h

ome.

Mar

gina

lly lo

wer

fina

ncia

l lite

racy

am

ong

the

follo

win

g tw

o se

gmen

ts is

ass

ocia

ted

with

lo

wer

leve

ls o

f inc

ome

and

educ

atio

n (w

hich

ar

e st

rong

ly a

ssoc

iate

d w

ith fi

nanc

ial l

itera

cy):

• W

omen

•

Peop

le li

ving

in c

ount

ry a

reas

2 The consumer

Page 19

When looking solely at skill levels (as outlined in chapter 2.2), the level of income and the level of education are the strongest determinants of a consumer’s skills. Although other factors can appear, on closer inspection they tend to come back to income and (or) education.

This is consistent with research undertaken overseas. A UK Review suggested that people from poorer backgrounds can have excellent day-to-day budgeting skills since their spending and saving need to be carefully planned, while their lack of education precluded them from more sophisticated financial activity. Conversely, those from wealthy backgrounds may engage in more sophisticated financial activity due to their education but some have low financial literacy and poor day-to-day budgeting due to the amount of money at their disposal.6

Socio-economic status

Socio-economic status generally refers to a measure of an individuals or groups social standing and can be used, to some degree, to measure potential disadvantage. It usually relates to the income, occupation, educational attainment and wealth of either an individual or a group

The increased range of financial services now available to Australians has benefited the majority by providing more choice and tailor-made products. However, for some socio-economic groups the additional complexity has compounded existing disadvantages and these changes have meant they are at an increased risk of exclusion.

Some social groups may be more likely to experience financial exclusion — the process that prevents poor and disadvantaged social groups from gaining access to the financial system. Key factors involved in financial exclusion include physical lack of access to banking and financial services, geographical exclusion, low levels of financial literacy and other barriers such as risk assessment discrimination; and low income. Aspects of financial exclusion include: 7

• Access exclusion — Where people are not appropriately treated in risk management processes. This can work to unfairly restrict peoples’ access to

6 UK Treasury (2002), Medium and Long Term Retail Savings in the UK: A Review, p. 49, July, UK. 7 Financial Services Authority (2000), In or Out? Financial Exclusion: a literature and research review,

UK, July.

Australian Consumers and Money

Page 20

finance. However, we also see finance unethically provided to people who do not have the capacity to meet repayments.

• Condition exclusion — Where conditions attached to financial products make them inappropriate for the needs of some people. In other words, products and services are tailor-made for certain consumers and not others, usually according to capacity to pay.

• Price exclusion — Where price precludes people using the type of financial products they need, including basic products like savings accounts.

• Marketing exclusion — Where some people are effectively excluded by targeted marketing and sales (because they may not be considered as profitable a prospect as other consumers)

• Self exclusion — Where people decide that there is little point applying for a financial product because they believe they will be refused.

A recent paper on financial education8 identified the socio-economic and demographic groups most likely to be financially excluded in Australia as follows:

• households and individuals who have never had a secure job

• elderly people who are part of a cash only generation

• young people and households who have not yet made use of financial services

• people on low incomes

• women who become single mothers at an early age

• people and communities from non-English speaking backgrounds

• regional and remote communities and depressed urban communities

• consumers with disabilities

8 Connolly C. and Hajaj K. (2001), Financial Services and Social Exclusion, Financial Services Consumer Policy Centre, Chifley Research Centre, University of New South Wales.

2 The consumer

Page 21

• consumers with literacy difficulties

• indigenous consumers.

Education

In most studies, both in Australia and overseas, education level was the strongest predictor of a consumer’s competency. The lowest levels of consumer and financial literacy were found with those having a lower high school education (equivalent to Year 10 or less), while those with higher levels were more likely to have a higher level of education.9

In addition, most Australians would not have been exposed to consumer and financial education at school. The Australian Securities and Investments Commission Discussion Paper, Financial Literacy in Schools, found that whilst there were opportunities for teaching financial literacy skills, it has not been a formal course of study in any jurisdiction.10

As the following table illustrates, education level is also associated with long term financial wellbeing. On average, people with a university education will have approximately 60 per cent higher net wealth than those that finished year 12. Interestingly, university educated consumers have a 60 per cent higher debt level than year 12 graduates, which indicates the university graduates are in a better position to access loans and that accessibility to credit markets is an important determinant of financial wealth. The debt : net worth ratio was approximately the same for both educational groups.

9 ANZ Survey of Adult Financial Literacy in Australia (2003), conducted by Roy Morgan Research. 10 Australian Securities and Investments Commission (2003), Financial Literacy in Schools,

February, Sydney, p. 7.

Australian Consumers and Money

Page 22

Figure 2.4: Mean net wealth and debt by education level

0

100

200

300

400

500

600

700

University degree Diploma Finished Year 12 Finished Year 11

Net wealth Debt

$'000

Age cohort

Being a certain age means belonging to a certain generation. That generation, be it Baby Boomer or Generation Y usually share some sociological traits. These sociological factors can lead to relatively homogenous groups (particularly where those groups have grown up with similar experiences). In these circumstances, age can, to a degree, predict certain cultural and behavioural commonalities.

However, as society and culture has grown more complex, the commonalties of generation are breaking down. This is most evident with young people, the so-called Generation Y. They exist in a society that offers more choices for recreation, lifestyle and employment and thus tend to be more splintered as a generational group.

Teenagers from Generation Y are more likely to have debt management problems associated with mobile phones than their parents as teenagers who did not have mobile phones or the same opportunities for credit.

Gender

There is evidence to suggest that women and men exhibit different financial behaviour. This may be explained by a variety of environmental factors that affect men and women in different ways. For example, women tend to work in

2 The consumer

Page 23

lower paying jobs compared to men and have to take more time out of paid work to look after children. This impacts on their ability to save for retirement.

The precarious position of some women has been highlighted by the increasing concern over ‘relationship debt’, where, following a break-up or divorce, the partner (usually the woman) has been saddled with the responsibility of a loan taken out by her partner.11

However, it is dangerous to generalise or predict consumer behaviour based on gender in all circumstances without proper research into the specific problem.

Cultural background

Indigenous communities

Aboriginal and Torres Strait Islander consumers are far more likely to have low financial literacy and experience financial exclusion relative to the rest of the population. Their vulnerable position is often exacerbated by poor health, low socio-economic circumstances, geographical isolation and limited English. Given that Indigenous people face particular disadvantages, it is recognised that targeted programs are necessary to improve financial literacy and raise living standards. Although circumstances and issues can differ significantly across jurisdictions, there are also many common problems that can be addressed through coordination.

The uniqueness of Aboriginal and Torres Strait Islander cultures must be appreciated in any attempt to improve financial literacy. For example, many Indigenous communities place an emphasis on the community and extended family rather than the individual, which can result in the practice of the individual sharing access to money within the community. Another money management practice unique to Indigenous communities is the ‘book-up’ system where consumers tend to place all their expenditure with a certain business.

The recent Cape York Family Income Management project also found that most Indigenous consumers prefer face-to-face assistance when seeking advice on money management. They found that when this advice was offered in a

11 Issues Paper 17 (2000) Guaranteeing Someone Else’s Debts by the New South Wales Law Reform Commission.

Australian Consumers and Money

Page 24

culturally-sensitive way, there was an increase in motivation by the consumer to properly plan for their future through budgeting, saving, workforce participation and increasing their awareness of exploitative practices.

Culturally diverse communities

Consumers from culturally diverse communities, particularly where they were born overseas, may be unfamiliar with Australian practices and lack access to proper information. Some community members may be discouraged from establishing a traditional banking relationship to acquire financial services because of language, cultural and educational barriers.

For example, those living in the Arabic community tend to choose Arabic financial institutions as they conform to the Koran and do not charge interest. However, these consumers may not be aware that they are being charged administrative fees by these institutions, which in some cases, cost more than the interest that would have normally been charged.

Location

Where someone lives can determine their access to information. Those who live in rural and remote Australia generally have poorer access to information than those who live in metropolitan centres. Because of their isolation, many rural consumers are forced to rely on printed and online resources rather than face-to-face services.

However, in many isolated and Indigenous communities, consumers do not have, or are not equipped to have, access to online resources. In these communities access to any information or assistance can be difficult.

A 1997 report on the Consumer Education Needs of Rural and Remote Australians, highlighted the limited consumer choices available in rural communities and the reliance that consumers placed on getting appropriate information and satisfaction of their needs from the small number of businesses located in their community.12

12 Department of Industry, Science and Tourism (1997) Education Needs of Rural and Remote Australians, Australian Government Publishing Service, Canberra.

2 The consumer

Page 25

From a demographic point of view, the report also found that rural consumers tended to be older (a median age of 48), less-educated (40 per cent have not completed high school and 23 per cent have tertiary qualifications) and more likely to be married with children at younger ages (85 per cent).

Health status

Health factors such as mobility and the ability to properly communicate can limit the opportunity and capacity to properly engage in consumer and financial activities. Many surveys have showed the difficulties that consumers with visual impairment face when accessing banking services such as ATMs, websites and printed material.

Similarly, consumers with intellectual disabilities or who suffer psychiatric disorders often require assistance in determining the most suitable products and services to meet their needs.

Aside from specific health issues, all consumers face their own life expectancy. Women now have an average life expectancy of 82 years and men 77 years. These figures are projected to increase to at least 86 years for women and 81 years for men. This means that young people need to plan for at least 20 years in retirement, which makes planning for an uncertain future all the more complicated.

Family background and status

Family background and current family status also affects a person’s ability and attitudes in managing money.

For example, the ANZ Survey found that single people had a lower level of financial literacy when compared to couples. A reason for this may be that couples have a greater incentive to seek out financial information because they feel a need to plan for their financial future, especially if they have children. Single people may be waiting to meet a partner and ‘settle down’ before they get involved in planning for their future.

Families also impart informal learning. Learning that occurs in the early, formative years in the home can have a strong influence on behaviour later in

Australian Consumers and Money

Page 26

life. Here, children are exposed to particular practices and attitudes which can often shape their approach to consumer and financial decision-making.

Feedback Where we come from and our socio-economic status in life are key determinants in how we access and use information. As such, it is important for information providers to recognise the particular disadvantages that some consumers face in both accessing and acting on information.

Are socio-economic and demographic factors that important? How should they be factored into what information providers produce?

2.5 PERSONAL CHARACTERISTICS — THE THINGS THAT ARE UNIQUE TO US

At some stage, we have all probably been guilty of making decisions, that in hindsight, we realise were not in our best interests.

Lack of information is not the only limitation to optimal decision-making. Individual characteristics, including intuition, attitudes, motivations and our limited problem-solving capabilities will shape the choices that we make. Attempts to improve financial literacy are more likely to succeed if we can design tailored programs that acknowledge consumers as a diverse group.

The cognitive processes involved in decision-making are receiving increasing attention in academic literature. Daniel Kahneman won the 2002 Nobel Prize for his work on bounded rationality13 and the distinction between intuitive and deliberate thought processes. Kahneman found that most behaviour is intuitive and based on perceptions. Only in some cases, is intuition modified or overridden by deliberate reasoning.14

13 The term ‘bounded rationality’ refers to our limited information processing and problem solving capabilities. Departures from rationality emerge both in judgements (beliefs) and choice. Some examples of these departures include over confidence, optimism, extrapolation, intuition and making judgements not based on probability.

14 Kahneman, Daniel (2002), Maps of Bounded Rationality: A perspective on intuitive judgement and choice, Nobel Prize Lecture, December, Princeton University.

2 The consumer

Page 27

In the United States (US), there is evidence to suggest that the primary cause for poor savings amongst consumers is procrastination, since virtually all saving done by Americans is accomplished through ‘forced savings’ mechanisms such as participation in pension plans.15 Many people do not have voluntary savings strategies because they have high ‘discount rates’, which means that they value a dollar of current consumption more than a dollar of future consumption.

The power of the present outweighs concerns of long term wellbeing, since the future is unknowable and the emotional components of decision-making are associated with the immediate present. Unfortunately, the benefits of most financial products, especially savings vehicles and insurance products, are delivered over the long term. The ongoing problem of insufficient retirement savings is, in a sense, an understandable response to the length of the timescales and the uncertainty involved.

Behavioural experiments have been conducted in the US to assess the relative influence of opt-in and opt-out programs on encouraging employee contributions to retirement saving accounts (employers have the option to make matching contributions). Under the existing system, employees are required to nominate to have contributions deducted from their salaries which the employer will match. In one experiment, 43 per cent of employees chose to opt-in to a retirement savings program at one company, while at another company where the employer automatically enrolled all employees in a matched-contributions scheme, 92 per cent chose to remain in the program even though they had the option to opt-out.16

Like superannuation, attempts to improve consumers’ understanding of the need for insurance are beset with the same behavioural problems. The future is unknowable and rather than use probability theory to make a decision, consumers tend to automatically defer to their intuition which may be clouded by past experiences or optimism. As a result, a good proportion of Australian households and small businesses are underinsured or not properly insured. The insurance industry estimates up to 40 per cent of homes either do not have

15 Mullainathan, Sendhil and Thaler, Richard H. (2000), Behavioural Economics, Working Paper 7948. National Bureau of Economic Research. Cambridge MA.

16 Benjamin, D. and Laibson, D. (2003), ‘Good Policies for Bad Governments: Behavioural Political Economy’ prepared for Behavioural Economics Conference, Federal Reserve Bank of Boston , June 8-10 (and available on the bank’s website: http://www.bos.frb.org/economic/conf/conf48/papers/benjamin_laibson.pdf.

Australian Consumers and Money

Page 28

insurance or are not properly insured while the Australian Consumers’ Association found most homeowners inadvertently underestimate the value of their properties.17

Most of us know people who are overly cautious to the point of missing out on financial opportunities. At the same time, there are other people whose misplaced high level of confidence in their financial ability has led to poor financial decisions. Research in the UK found that confidence and risk aversion are important influences on financial behaviour.18 Similarly, the UK Financial Services Authority and the Basic Skills Agency (a not-for-profit UK organisation whose aim is to improve literacy and numeracy) describe three levels of financial capability, each of which is closely linked with confidence:

Confidence is important at each stage as it is one of the key inhibitors to effective financial capability and with it comes the ability to develop the necessary skills/confidence, a willingness to acquire appropriate knowledge, a true understanding of the relevant issues/services and a desire to question attitudes relating to financial matters.19

Why are some people compulsive shoppers and unable to save but others, with similar incomes are far more successful financially? As well as confidence, risk aversion and procrastination, many other personal characteristics play a role in consumer and financial decision-making. These include fatalism (where some people see themselves as largely powerless and being victims of fate, while others believe they are in control of their destiny), self-control/self-discipline, willpower, self-interest, attitude to authority, self-esteem and optimism/pessimism.

Exactly how all these influences interact and impact on behaviour remains unclear. What is clear is that more work needs to be done on how consumer and financial education campaigns can affect behavioural change.

17 Australian Consumers’ Association (2001), Choice Magazine, September edition. 18 Collard S. (2000), Consumers in the Financial Market. A Financial Services Consumer Panel Annual

Survey of Consumers, Personal Finance Research Centre, Bristol University, UK. 19 Financial Services Authority and the Basic Skills Agency (2002), Adult Financial Capability

Framework, UK.

2 The consumer

Page 29

Feedback Understanding the different personal characteristics that lead to consumer problems helps information providers decide whether they need to target behaviour rather than product knowledge in any information campaign.

Is a broader understanding of human behaviour useful in addressing consumer and financial literacy? How do we best discern the different personal characteristics of people in the community?

2.6 NEEDS AND ASPIRATIONS — THE THINGS THAT ARE UNIQUE TO US

As consumers we all have needs and aspirations that help us focus on how we manage and use money.

In a broad sense, much human behaviour results from people trying to satisfy their needs. Different people have, of course, different needs. Some needs can be easy to identify, such as the physiological needs for food and water and safety and security. But they can also be more complex such as the social need for status. For example, many young people would feel a loss of status without a mobile phone.

At the same time, we all experience different levels of motivation in trying to satisfy those needs. The degree of motivation can determine the size of the goals and thus our aspirations as consumers. For example, I may need to retire on a basic income but aspire to retiring on a more generous income. These are the things we would like to strive for in life — our future wants rather than our current needs.

Traditional approaches have seen these issues characterised as the distinction between ‘wants’ and ‘needs’. However, modern theories of needs and behaviour have shown a ‘blurring’ between ‘wants’ and ‘needs’. Part of the responsibility for this ‘blurring’ rests with the aggressive marketing techniques and activities used by some product and service providers.

In fact, some of these activities have crossed the line into unethical advertising, which has been especially evident with property investment ‘spruikers’.

Australian Consumers and Money

Page 30

Techniques commonly used by sales people are also aimed at persuading consumers to purchase products or services which they not only don’t need but which they hadn’t actually even wanted (and may never use). For example, ‘upselling’ (where the consumer wants to buy a standard item but is pressured into buying a more expensive version) and ‘incentive buying’ (where a consumer is given an extra item or a reward when buying a certain product).

This is where consumers are being persuaded that their wants are in fact their needs.

This is why the Taskforce has viewed the distinction as one of needs and aspirations. It recognises that needs have a physiological base but in some cases have taken on social dimensions dependant on the individual’s lifestyle. It also recognises that we have a myriad of wants which may be realistic or unrealistic and be as small as a new music CD or as large as a luxury house. However, aspirations represent the bigger wants in our lives that are realistic and that we are actually motivated to strive for as goals.

In other words, as consumers we all have our own shopping list of things we need and things we aspire to have. For some of us, this shopping list is well thought out and structured to suit our particular circumstances. For others, it is rewritten every week in response to the people and organisations that influence our lives.

It is therefore important for consumers to properly develop their thinking on what their needs and aspirations are and what decisions they need to make in the market to satisfy them.

Feedback Understanding and appreciating the differences between consumer wants and aspirations helps information providers better prioritise information while recognising that many consumers take an aspirational outlook to issues that face them.

Is an appreciation of needs and aspirations useful?

2 The consumer

Page 31

2.7 CONSUMER LIFE EVENTS — WHAT WE ALL FACE IN LIFE

Throughout our life, the average person will engage in many life events that have major financial implications (for example, having children, buying a house, losing a job).

Some of these life events are linked with life stage. For example, buying a mobile phone and acquiring a credit card are almost rites of passage for today’s teenagers, while planning for retirement becomes more important as we get closer to retirement (when it should be important long before then).

Thus a life stage approach could be used to map key events that occur at different stages of life and to examine the associated priorities and aspirations of Australian consumers at different stages of life (school children, teenagers, young adults, older adults, retirees and so on).

However, there are many different pathways through life. Many of us do not live in traditional nuclear families. Single parent and blended families are common. Employment opportunities and preferences can also set us on different pathways (for example, some people choose to opt-out of the paid workforce, some return to study later in life). Also, our journey through life is often disrupted by unexpected events or crises. Events such as injury, illness or natural disasters can upset the best laid financial plans.

A life stage approach is useful but will not necessarily accommodate the many and varied family and household structures that make up Australian society today.

This diversity is illustrated in Figure 2.5. The diagram includes many (but certainly not all) different sectors of our society and illustrates that many key life events can occur at various stages of the life cycle.

Australian Consumers and Money

Page 32

Figure 2.5

2 The consumer

Page 33

Australian Consumers and Money

Page 34

Feedback

Understanding the life event triggers behind the big decisions that consumers make, assists information providers in targeting information at the times and places in people’s lives when they most need it.

Does this help? How can the Taskforce’s understanding of life events be enhanced?

2.8 CONSUMER SKILLS — THE THINGS I CAN LEARN

As consumers progress through life they also acquire a degree of skill in the way they use and manage money. Some consumers develop sound financial management skills at an early age while others develop these skills over the course of their life through experience or through guidance. Still other consumers never significantly progress their skills and, as a result, repeatedly make bad decisions.

Figure 2.6 presents a framework for looking at the skills that consumers need to become competent in properly using and managing their money. These include skills for planning, investing, borrowing and spending.

2 The consumer

Page 35

Figure 2.6

Australian Consumers and Money

Page 36

Pre-requisite skills

To engage in basic financial activities and to properly understand basic consumer contract terms, you need to possess a functional level of numeracy and literacy. You cannot begin to develop budgeting skills without first being able to add up figures. Similarly, you cannot negotiate terms in a contract without being able to read it.

We know that, on average, roughly 3 per cent of the Australian population has no literacy skills and that 31 per cent of the population have poor literacy skills.20

Meanwhile, according to the OECD, Australian students score significantly higher than the OECD average in the area of mathematical literacy. However, the ANZ Survey has estimated that around 40 per cent of the population have poor numeracy skills.21

This means that a significant proportion of Australians come to any financial or consumer decision with a distinct disadvantage. It also severely limits their ability to manage money over their lifetime.

On education, the Australian Government is estimated to spend $6.7 billion on funding to schools in 2003-04, of which $2.3 billion will go to the states to fund government primary and secondary schools and $4.4 billion will go through the states to non-government primary and secondary schools.

As part of the next funding agreement, the Government will invest $32 billion over four years into schools. This will include funding to support the implementation of the National Literacy and Numeracy Plan through the following programs: the Strategic Assistance for Improving Student Outcomes Program and the National Literacy and Numeracy Strategies and Projects Program.

20 OECD (2003), Education at a Glance, OECD Indicators, France. 21 The reference to this is the ANZ Survey of Adult Financial Literacy in Australia (2003), conducted

by Roy Morgan Research, p. 19-20, where we have defined ‘poor numeracy’ as the inability to perform basic multiplication.

2 The consumer

Page 37

Planning skills

To get further ahead in life you need to be able to set goals and work out how you are going to get from where you are now to where you want to be in the future. This involves planning, or in other words, breaking down things into manageable steps.

Budgeting is an important planning skill which involves self-discipline and awareness of our income and expenditure. It also enables us to distinguish between ‘wants’ and ‘needs’.

A key component of budgeting is the ability to save money so that it may either accumulate or be used for other things in the future. Evidence shows that consumers tend to be active savers (and complacent savers) in response to different life events. Research conducted in the UK found that it was possible to see patterns in the way consumers engaged in savings (Figure 2.7).

Figure 2.7: United Kingdom savings patterns22

Reasons for saving Reasons for stopping saving

No specific reason (41 per cent) Drop in earnings of 10 per cent or more

Holidays (22 per cent) Becoming a carer

Old age (9 per cent) Taking out a mortgage

House purchase (5 per cent) Increase family size

Special event (5 per cent) Starting a new family

Car (4 per cent) Becoming self-employed, from non-worker

Children (3 per cent) Divorce

Home improvements (3 per cent) Bereavement

Pay household bills (1 per cent) Becoming unemployed

Own education (1 per cent)

Other reason for saving (6 per cent)

22 Kempson, E. and MacKay S. (2003), Savings and Life Events, the Personal Finance Research Centre, UK Department for Work and Pensions.

Australian Consumers and Money

Page 38

What is of interest in this Figure is the threshold that seems to change consumer’s reliance on saving or credit to purchase items. For example, consumers are willing to save for a holiday but are less likely to save for a car.

Another UK study found that in one third of cases, the consideration or purchase of financial products was prompted by life stage events, such as buying a house, having a child or retiring.23

The Government has identified the importance of planning for retirement in Australia’s Demographic Challenges3 and A More Flexible and Adaptable Income System. Longer life spans will mean people will spend more time as a retiree. Therefore, the earlier a person starts to plan for their retirement, the more likely it is that they will satisfy their retirement expectations. The fact that people need reminding of the importance of saving for retirement flies in the face of the assumptions that are often made about the rationality of consumers. It is often assumed that consumers generally seek to smooth out their consumption over the course of their life — that is that consumers will save more when their income is high so that they can experience the same level of current consumption when their income is low (as in retirement).

Unfortunately, savings behaviour in reality does not conform to rational predictions. Instead of a smooth consumption profile, consumption tends to drop sharply as individuals retire and their income drops.24 Only 37 per cent of superannuation members in the ANZ Survey had actually worked out how much they needed to save for their retirement.

Investment skills

Before you can manage or spend money you have to actually earn it or acquire it. For most people, this means getting a job and earning an income. But as people progress through life, they will often seek to supplement their employment income with investment income. Investment income can be anything from the simple interest that is paid on a savings account to dividends that are paid on shares and returns on investment properties.

23 Better Informed Consumers: Assessing the Implications for Consumer Education of Research by BMRB (2000), Financial Services Authority UK.

24 Banks, James; Blundell, Richard; Tanner, Sarah (1998), ‘Is There a Retirement — Savings Puzzle?’ American Economic Review. Vol. 88 (4), p. 769-88, September.

2 The consumer

Page 39

Throughout the course of our lives, we all need to ensure a dependable income stream, which as we head for retirement, means an investment strategy.

However, we know that many consumers fall prey to ‘get-rich-quick’ scams that demonstrate a lack of appreciation of risk and the proven paths to wealth.

Borrowing skills

At key life stages, consumers are faced with ‘wants’ and ‘needs’ that outweigh their earnings and savings. For example, when buying a house or a car, we are often forced to borrow money and take on debt.

In these circumstances, it is important that consumers understand the key attributes of lending products and are able to manage their debt.

Debt can enhance wealth or destroy wealth depending upon how you use it. Many older Australians who recall the Depression are very anti-debt. They often save first and make purchases with cash. Clearly, this is a good discipline.

Younger people, who often have a different attitude, may prefer to buy now, pay later. With consumer debt, this can lead to disaster, but the use of debt to negatively gear into quality assets can be a very powerful strategy.

So debt can be bad or good. Competent consumers need to be able to see past the emotions we have about debt to make good decisions.

The figure below shows the broad characteristics of debt in simple terms.

Figure 2.8: Good and bad debt Good debt (debt used to buy appreciating assets)

Bad debt (debt used to buy depreciating assets)

Potentially disastrous debt (debt used to fund lifestyle)

Money borrowed at a competitive rate of interest to invest in a quality asset.

A personal loan to buy a car, a boat or similar item.

Failing to pay off an ‘interest free’ loan for a set term on household goods inside set term and it converting to a 26 per cent personal loan.

A competitive home loan that is used to buy a home and is being paid off in the planned fashion.

The use of credit to purchase furniture or household items.

Taking out a new credit card to fund the minimum repayments on other credit cards.

A high interest personal loan to pay for holiday or other lifestyle costs.

Australian Consumers and Money

Page 40

Spending skills

At the end of the day, we all earn and accumulate money to buy things. What we buy differs on where we are at in life and on our own unique set of preferences. However, consumers can get into trouble if they fail to spend wisely.

It is important to know how to compare products that are on offer and to negotiate for the best deal to suit your circumstances rather than the circumstances of the sales person.

Easy access to credit and ‘buy now, pay later’ retail offers have also seen an increase in indiscriminate or compulsive spending which has led to debt problems. This has become most apparent in recent times with young consumers. Peer group pressure to conform has led to overspending on items such as mobile phones, clothing, clubbing and cars.

The New South Wales Office of Fair Trading commissioned a study into youth debt in 2003.25 The study found that nearly a quarter of 18 to 24 year olds had experienced troubling debt. Thirty per cent of parents and 22 per cent of youth in New South Wales considered youth debt a major problem.

Retail shopping is also an area where advice is not necessarily given in a financial context. Depending on the training of the sales person and the policy of the retailer, the consumer may not receive a full explanation of the financial implications associated with credit and forward commitments such as mobile phone lease agreements. As a result, many consumers take on financial obligations they later have difficulty meeting. With some of the more problematic product purchases, this is an area where educative strategies might extend beyond consumers to include retail staff.

Risk management skills

In all the ways we manage and use money, it is important to protect ourselves from loss or detriment. This is where we need skills to manage the various risks that occur throughout our lives. These risks can relate to the protection of our assets (insurance) or to the validity of offers that are put before us (scams).

25 Dangar Research (2003), Youth Debt, The Office of Fair Trading NSW, November.

2 The consumer

Page 41

Insurance serves to protect a person’s assets, income, health, business or life. Making consumers aware of insurance issues is an important goal of consumer and financial education. The protection of the rights of insurance policyholders is another important issue.

The growing importance of insurance as an issue for consumers reflects the fact that there are an increasing number of insurance products and providers, with some ‘blurring’ of the line between insurance and other financial services such as wealth management and banking. The different types of domestic and personal insurance include life insurance, disability insurance, unemployment insurance, long-term care insurance, health insurance, home and apartment insurance, contents insurance, car insurance, and mortgage insurance.

Given the wide range of products, consumers need to be able to determine in what circumstances they need insurance, what type of insurance they need and to what level they should be insured (based on assessment of risk).

Consumers also need skills to assess whether transactions or offers are genuine or are a scam.

Australian consumers lost a substantial amount of money over the last three years by believing and investing in scams.26 Despite ongoing awareness initiatives targeting specific scams, scammers are constantly developing new ways to re-invent old scams.

It is therefore necessary for consumers to understand the factors that are common in all scams and to be wary of the emotions that scams prey on, such as our desire to increase our wealth or to improve our lifestyle.

Most scams succeed by manipulating psychological triggers to produce an automatic response in the consumer.27 In addition to these psychological triggers, some people hold beliefs which leave them even more vulnerable to scams. One of them is the belief that all companies, businesses and organisations are legitimate because they are all vetted and approved by the government or some other authority.

26 ASIC, Financial Literacy in Schools Discussion Paper, June 2003. 27 Cialdinis, R. (1993), Influence: The New Psychology of Modern Persuasion, Morrow, William and

Co, revised edition.

Australian Consumers and Money

Page 42

Another belief that makes people vulnerable to scams is the idea that there are secret short cuts to wealth that are known by certain financial ‘gurus’. Believing that all businesses must be legitimate and that wealth or other benefits can be obtained through special tricks can place consumers at risk.

Common forms of scams include:

• pyramid schemes

• advance fee fraud (Nigerian Scam)

• misleading share promotions (where the scammer contrives a boom in a stock in order to sell his holdings at a highly-inflated price)

• misleading investment seminars (promoting high-risk investment schemes)

• property marketing scams

• false billing

• email internet banking scams

• uninvited offers of prizes, lotteries, psychic selections or gambling systems

• door-to-door sales scams

• cold-calling investment scams

• medical scams (miracle cures, weight loss scams)

• internet scams (spam, modem-jacking, online auction scams, bank e-mail ‘phishing’)

• self-employment scams (work-from-home offers).

Undertaking risk assessments protects people by avoiding adverse outcomes and at worst, ensuring adverse outcomes are not as severe as they could have been. For example, to avoid becoming a victim of scams, investors should always say ‘no’ if they feel they do not fully understand the offer presented. Consumers should then seek advice from the relevant consumer protection regulator as to whether an offer is legal. These procedures can be considered to be part of a risk

2 The consumer

Page 43

management program because they seek to identify and analyse the consequences of potential problems.

Market awareness

Technological change and increased competition have brought with them the need for consumers to be informed about an ever-increasing range of products. The already mentioned skills are necessary, but not sufficient, conditions for making astute decisions in the market.

We also need to have an up-to-date awareness of market conditions, which include:

• an understanding of current financial products and services (for example, how do the returns and risks in different investments compare?)

• the suitability of different products to our specific needs (for example, should I choose a credit card with an interest-free period or an annual fee and low interest rate?)

• how these products are affected by changes in economic conditions over time (for example, how will my mortgage repayments be affected by changes in interest rates?)

• latest financial terminology and concepts (for example concepts such as ‘negative gearing’ and ‘margin lending’)

• how to obtain information and advice on market conditions (for example, what information is important when I read the financial press?).

In this regard, proficiency levels between individuals varies immensely. Most consumers have basic market awareness, while a minority group have a detailed understanding of quite complex ideas and products.

The ANZ Survey showed that consumers demonstrated a good general understanding of using property for financial advantage. However, people were generally less clear about the disadvantages, with a relatively low proportion

Australian Consumers and Money

Page 44

(12 per cent) identifying potential for a fall in the market value of properties.28 Interestingly, market awareness appears to increase with the number of financial products owned.29

Rights and responsibilities

Armed with the requisite skills and market awareness, consumers must also be conscious of the legal framework surrounding their choices and behaviour.

Consumers are protected by certain rights designed to provide fairness and transparency in transactions. But unless consumers know their rights, they can fall prey to illegal consumer and financial practices.

On the flip side, consumers must comply with formal responsibilities under the law. All financial and consumer contract arrangements have responsibilities attached. Consumers should ensure that they are fully aware of their responsibilities and evaluate whether they can meet them before entering into any arrangement.

Similarly, most consumers have tax obligations which they are legally required to meet. Understanding what levels of tax apply in certain circumstances is an important part of being financially literate.

Feedback Learning consumer and financial skills is all about building our capacity to make better decisions throughout our lives

What skills are important to consumers? Do the consumer and financial skills presented in this section capture all relevant skills? How can we benchmark these skills over time?

28 ANZ Survey of Adult Financial Literacy in Australia (2003), conducted by Roy Morgan Research, p. 39.

29 Collard, S. (2000), Consumers in the Financial Market. A Financial Services Consumer Panel Annual Survey of Consumers, the Personal Finance Research Centre, Bristol University, UK.

2 The consumer

Page 45

2.9 HOW WE GET INFORMATION

Whether it be television, brochures, professional advisors, the Internet or newspapers; Australian’s have a wide range of choice when it comes to obtaining information.

But do consumers choose to use this information in making decisions? We have already explored the complex factors that lead to consumer decision making and the need for information to properly accommodate these factors.

We also know that information of itself does not automatically result in improved behaviour and that there is a need to tailor information to the individual in ways that they trust and keep them engaged.

Learning styles

Not all consumers adopt the same approach to acquiring information. We all learn in different ways and learning theory shows that we need to tailor learning to suit the individual. For example, some of us are oral learners and like to be told things by other people while others can be visual learners and absorb information through television or advertising.

Research in the field of behavioural economics has found that people can interpret the same problem differently depending on how the problem is framed. This finding has important implications for the way in which financial concepts are presented because it shows that some ways of describing or framing information are more accessible to consumers than others.

It is recognized that across all learning categories consumers have a number of common problems with information and advice. These include:

• not knowing what information is available or appropriate for their needs

• being overwhelmed and confused by different information

• not trusting the information

• not understanding the jargon and terminology in the information and advice received

Australian Consumers and Money

Page 46

• not feeling the information is relevant to their needs and lifestyle (particularly the case with young consumers)

• understanding the information but not being able to act on it in any meaningful way.

Sources of information and intermediaries

As consumers, we all prefer to get information from sources that are convenient, affordable and trustworthy.

Evidence suggests that consumers tend to prefer personal contact over written information provided it is from a (perceived) independent source. In the US, the most commonly cited sources of information about personal finances were in order of preference:

• personal experience

• friends and family

• mass media (TV, radio, magazines, newspapers)

• information brochures

• Internet, seminars, and classroom courses.30

A UK study found that 70 per cent of recent financial purchases were made using just one source of information and usually with minimal shopping around.31 The following were the most commonly used information sources in order of preference:

• financial advisors

• product information requested and sent through the post

• product information picked up at a branch

30 Braunstein, S. and Welch, C. (2002), ‘Financial Literacy: An Overview of Practice, Research and Policy’ in Federal Reserve Bulletin, November, pp. 445-457.

31 Collard S., Consumers in the Financial Market. A Financial Services Consumer Panel Annual Survey of Consumers, Personal Finance Research Centre, Bristol University, 2000.

2 The consumer

Page 47

• advice of friends/relatives

• newspaper articles

• best-buy tables

• specialist magazines.

These surveys illustrate the reality that most people seek information from sources outside of government agencies and corporate providers.

Many of these sources are intermediaries such as financial advisors who have a depth of knowledge about complex financial products. It is often said that you don’t need to know about internal-combustion engines to buy a car and the same is true of complex financial products such as superannuation. Consumers do not need to, or want to, know the detail of many of the products they buy. They just need to know the right questions to ask an intermediary who does know and who can tailor a product to fit. In these circumstances, the intermediary plays a crucial role in delivering outcomes for the consumer.

Other information sources can be informal such as family, friends and media commentators. However, it is also true that these sources themselves obtain their information from government and corporate providers and act as intermediaries in disseminating this information to other consumers.

As in the earlier example, George wants to buy a car and ignores the wealth of information provided by his local consumer affairs agency and by the motor industry through his car dealer. Instead, he chooses to ask his mate who he considers to be an expert on cars. George in turn gets his information from motor magazines, which in turn, get their information from the motor industry and government.

Feedback Understanding consumers’ preferences for information allows information providers to properly target their messages and maximise their reach.

What information sources do consumers trust? Are consumers confused by different information on the same issue? Is information tailored to the learning style of the target audience?

How important are intermediaries such as financial advisors in delivering outcomes for consumers?

Page 49

3 THE INFORMATION PROVIDER

3.1 INFORMATION PROVISION — THE PEOPLE AND ORGANISATIONS THAT ASSIST CONSUMERS TO MAKE BETTER DECISIONS

The previous chapter showed the complex factors that lead to our consumer decision-making including our preferences for different types of information.

The other component in looking at consumer and financial literacy is the level and effectiveness of information provision by organisations and individuals to consumers.

This chapter provides an overview of the current landscape for consumer education and financial literacy programs provided in Australia. It also looks at how this compares with various overseas countries.

3.2 AUSTRALIA

The Taskforce has identified over 100 organisations in Australia delivering over 700 Australian consumer and financial literacy initiatives directed at a wide range of audiences. This is a preliminary investigation and the Taskforce recognises that many more programs may be in existence. The full stocktake forms Appendix 1.

Figure 3.1 shows these initiatives in terms of target audiences and providers.

Australian Consumers and Money

Page 50

Figure 3.1: Consumer and Financial Information Stocktake Target Audience Initiatives

General public 373

Investors 149

Youth (including school students) 62

Seniors (including retirees and pensioners) 68

Indigenous 18

Women 7

Other 34

Total 711

Provider Initiatives

Commonwealth Government 152

State/Territory Government 86

Private sector 161

Community sector 51

Education sector 18

Independent (including consumer/financial magazines, publications and regular newspaper columns)

243

Total 711

The Taskforce has refrained from making judgements about the effectiveness or efficiency of individual programs and initiatives. Instead, the Taskforce believes there is a need to determine how well these programs, collectively, meet the needs of Australian consumers using the Consumer Behaviour Model as a framework for assessment. It is only through a national review using a consistent framework (such as the Model) that a proper assessment can be made.

However, it is clear that many good initiatives exist and that organisations are actively engaged in delivering consumer information. However, it is also clear that the spread of information is uneven across different topics and target audiences. For example, there appears to be more information available to consumers on credit and loan products and how to manage borrowing (including information provided by each state and territory), and less on insurance and superannuation.

3 The information provider

Page 51

This may actually be appropriate. Until proper research can be undertaken to determine priority issues and the factors that underpin them (as outlined through the Model in the previous chapter), it is difficult for the Taskforce to make judgements on whether consumer needs are being met and whether the information messages are appropriate.

Instead, the Taskforce has chosen to look at the landscape for information provision in Australia and the current structures that support effective and efficient delivery.

Information providers

In Australia today, there exists a wide range of information providers involved in developing and delivering consumer education programs. As outlined in the previous chapter, these can be categorised as formal, informal and intermediary.

The formal sources include:

• Commonwealth, state and territory and local government bodies

• industry and professional bodies (for example, finance and telecommunications industry associations)

• consumer and community groups

• private sector organisations (for example, banks, insurance companies, retailers).

The informal sources include:

• the media (from news reportage to high-profile commentators to issues covered in television drama)

• family members (often with certain knowledge or professional qualifications)

• friends or work acquaintances (often with certain knowledge or professional qualifications).

Australian Consumers and Money

Page 52

Information intermediaries include:

• financial advisors (for example, financial planners, accountants, stock brokers, mortgage brokers)

• real estate intermediaries (who act as an agent to negotiate the best deal from a real estate agent, often through real estate auctions)

• retail intermediaries (for example, tourist agents, ‘discount’ shopping tour operators).

These different providers each have different objectives in delivering consumer education, which is reflected in the types of programs offered. For example:

• government bodies aim to inform consumers about their rights, responsibilities and opportunities under certain government laws

• industry associations aim to increase consumer understanding about the benefits and protections of their industry

• consumer groups seek to empower consumers and help consumers successfully deal with product and service providers

• individual businesses often try to encourage understanding for take-up of particular products or services

• family and friends often seek to project their own experiences and preferences.

Consumer segments

Many providers have developed programs for specific groups of consumers, such as Indigenous consumers, youth and seniors. Some examples are as follows:

• Indigenous people: In an encouraging move, state, territory and Commonwealth consumer agencies have agreed to develop a five year National Indigenous Consumer Strategy to respond to the particular issues facing Indigenous consumers in Australia. The strategy will consider education, policy, legislation and enforcement in the areas of financial literacy, financial and banking services, motor vehicles, trading practices in

3 The information provider

Page 53

remote communities, tenancy issues and consumer issues associated with intellectual property and the Arts.

• Generation Y: There are many good programs being developed to enhance financial responsibility among Generation Y consumers.

• Non-English speakers: Commonwealth, state and territory governments provide consumer education information in a range of community languages for people from non-English speaking backgrounds.

Education sector

As mentioned previously, the Taskforce considers school and vocational education to be a priority area for future work.

The issues associated with consumer and financial education are discussed in detail in Appendix 4 which includes a report commissioned by the Taskforce. However, the issues can be best summarised as:

• Lack of consistency — there are no agreed standards for consumer and financial education in schools as it does not exist as a dedicated subject.

• Curriculum overcrowding — teachers are currently struggling to teach the Key Learning Outcomes of the current curriculum and often do not find time to teach consumer and financial education.

• Teacher capacity and engagement — teachers often do not know where to find resources. Teachers also mistrust resources that are branded or are not specifically designed to meet curriculum outcomes. Teachers also require professional development to develop their own knowledge of consumer and financial concepts.

• Resource overcrowding — school principals currently receive a multitude of resources from industry and government on a range of topics. In most cases, these resources are sent to the library or discarded as the principal is unable to make a decision about the worth of the resource. This is particularly the case where several good resources already exist (for example, the 62 resources the Taskforce found that target young Australians).

Australian Consumers and Money

Page 54

Despite these problems there have been successful consumer and financial education programs run in many schools. In addition, there has been a rise in the take-up of enterprise education which seeks to foster an entrepreneurial approach to finance with students developing the skills necessary to run a business. A good example of this is the long-running Australian Business Week Enterprise Education program where students spend a week running a simulated company with the help of a business mentor.

Information delivery

Excluding programs in schools, most of the consumer programs identified thus far in the stocktake deliver information via web-based or hardcopy publications such as booklets and fact sheets. A few programs provide information and advice on a one-to-one basis, and these programs are mostly helplines (for example, National Information Centre on Retirement Investments, Australian Securities and Investments Commission, Australian Competition and Consumer Commission, state and territory fair trading and consumer affairs departments) and seminars that are run on an ad hoc basis.

Two exceptions are Centrelink’s free Financial Information Service and the Australian Stock Exchange’s investment seminar program. Both of these programs deliver information face-to-face, which is generally acknowledged as being a more effective way of learning.

As can be seen, there is a plethora of information available in Australia on consumer and financial education. However, the extent to which this reaches the intended audience is variable. For example, people with higher levels of consumer and financial literacy (and less need for consumer education) tend to be the larger users of consumer education programs.

A preliminary examination of the programs identified to date shows that for each topic area a number of organisations provide consumer education programs. This is a positive finding as it demonstrates that many organisations are committed to helping Australian consumers learn how to use and manage money effectively.

However, we don’t really know how effective these organisations have been in improving knowledge and changing behaviour. This is because there is no national or ongoing evaluation of initiatives from the consumer’s perspective.

3 The information provider

Page 55

No one is measuring consumer competencies, no one is measuring broad effectiveness against key problems (for example, how are public, private, community and education organisations addressing scam awareness rather than an evaluation of one scams campaign) and no one is measuring consumer decision-making changes over time.

Because of this, the Taskforce finds that information delivery can be generally characterised as ad hoc in nature and splintered in delivery. However, having different initiatives delivered by different providers in different ways does not necessarily mean that there is duplication and wastage. Different programs may address different issues, be aimed at different target audiences, and so on. Nevertheless, a great degree of duplication does exist and causes wastage of resources and confusion to consumers.

Given that there is no centralised or coordinated approach to consumer and financial education in Australia, the possibility for even further duplication certainly exists.

As can be seen later in this chapter, other countries have coordinating bodies which try and shape information delivery in ways that are effective to the consumer and efficient to the provider. This can include the provision of services such as clearinghouse websites which collect all available consumer information resources in a central location. Such sites can often be instrumental in reducing duplication and fostering best practice as they allow information providers, consumer intermediaries and consumers to see the range and quality of resources on offer against certain topics.

In Australia, successful clearinghouses exist in other sectors. These include:

• Australian Clearinghouse for Youth Studies (ACYS) — provides access to information products and services, such as books on contemporary youth issues and other resources, for those working in the youth field and for anyone interested in youth. Users can search for topical resources, produced by ACYS or other providers, as well as access databases which contain summaries of published information and article abstracts. ACYS also provides links to youth peak bodies across Australia. ACYS is funded by the Department of Family and Community Services.

Australian Consumers and Money

Page 56

• Australian Disability Clearinghouse on Education and Training (ADCET) — provides access to post-secondary education and training for people with disabilities by:

– Gathering, evaluating and disseminating research and other information for disability practitioners and students with disabilities, relating to teaching, assessment and learning strategies and support services etc

– Facilitating and promoting professional development, information sharing and research

– Promoting partnerships with other organisations

: ADCET is hosted by the University of Tasmania and funded by the Commonwealth Department of Education, Science and Training (DEST).

• Clearinghouse for National Literacy and Numeracy Research — provides public access to research projects funded by DEST Grants for National Literacy and Numeracy Strategies and Projects Program. Most reports can be accessed online from the website, and reports are also available in hardcopy on a cost recovery basis. The clearinghouse is managed by Griffith University.

Why is Australian consumer and financial literacy not as good as it could be?

It is clear that if we are to be more effective in promoting and achieving higher levels of consumer and financial literacy, we need a coordinated response, with government leading the way.

This means getting public, private and community sectors to work together towards common goals that are informed by proper research. It also means having a central repository for knowledge and expertise which can be developed over time to ensure programs are more strategic and consistent with best practice principles.

At the same time, it is clear that information providers need to look beyond their own particular information to the consumer’s broader experience in relation to

3 The information provider

Page 57

that information. Consumers are increasingly time-poor and are frustrated to receive different pieces of information from government and businesses on a single issue. Also, as time-poor consumers increasingly rely on professional intermediaries to act on their behalf, it is essential that the quality of advice and service provided by these professionals is reliable, trustworthy, current and accurate.

Finally, consumer education programs often need to be targeted in a more meaningful way that resonates with the consumer and ‘speaks their language’. Much of the challenge facing information providers is getting the consumer to engage at all with the topic.

The next section looks at how other countries have addressed these problems. A number of proposed solutions to these problems are then framed in Chapter 4.

Feedback The extent to which Australians’ needs are met by the currently available consumer and financial education programs needs to take account of a number of factors including the following:

• The availability of information — Are there some topic areas where there is insufficient information?

• Awareness of the available information and information sources — Do consumers (or teachers and other intermediaries) know what is available?

• Access to the available information — Do consumers know how to access information? Are all consumers able to access information?

• The quality of the information provided — Is the available information clear and consistent?

• Efficient allocation of resources — Is consumer education delivered efficiently?

Australian Consumers and Money

Page 58

3.3 OVERSEAS EXPERIENCE

Consumer education and financial literacy is on the policy agenda in many countries.

This has been driven by many factors, most of which have parallels with the Australian experience.

Like Australia, many countries have seen an increase in the complexity of markets and market regulation which has seen consumers left behind in their knowledge and capacity to derive benefits from the changes.

Most developed countries are experiencing, to some degree, an ageing population and governments are faced with the challenges of funding citizens’ retirement. While in the developing world, the priorities remain the need for economic growth and development.

While overseas governments and organisations have approached consumer education and financial literacy in numerous ways, there are a number of recurring themes:

• a shift from general programs to more targeted programs

• a focus on young people, particularly those of school age

• the emergence of nationally-coordinated approaches to developing and delivering programs, often through a coordinating body.

Some overseas strategies and programs that might inform future developments in Australia are discussed below.

3.4 THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The Organisation for Economic Co-operation and Development (OECD) has identified a number of changing economic conditions in member countries and an associated need for increased consumer and financial literacy. For example, with the scaling back of benefits of state-supported social security programs, increasing numbers of workers will have to rely on personal savings and private

3 The information provider

Page 59

pensions to fund their retirement. A large number of people in these countries will need to develop the skills necessary to plan and support their retirement.

This led the OECD to recently establish a Financial Education Project on consumer and financial education programs in OECD member countries and some non-member countries.

The overall objective of the OECD project is to develop a framework that will be used across countries to determine the levels of financial literacy and to ascertain what resources will be needed to educate consumers to base competency levels. This will then be used to appraise the effectiveness of existing and future programs in this area.

The first phase of the project will include a stocktake of existing programs and the development of a methodology for policymakers to compare strategies and (private and public sector) programs. The second phase will be a survey of the financial literacy of consumers in selected countries.

Preliminary results from the first phase of the project suggest that key areas where consumer information and education will be required would probably include the following:

• pensions and how to invest savings for retirement

• new financial products and services

• risk and return and how to deal with credit and debt

• the need for, and importance of, insurance and the rights of insurance policyholders.

Likely obstacles to the provision of financial education include:

• financial or budgetary obstacles

• lack of consumer awareness of the benefits of financial education

• difficulties associated with information provision

• ability to target appropriate population groups.

Australian Consumers and Money

Page 60

3.5 THE UNITED STATES OF AMERICA

The United States (US) has addressed consumer and financial literacy extensively via legislation, with a national policy on financial literacy and the establishment of a central peak body that coordinates research and program delivery.

Consumer and financial literacy programs are delivered via the education system, Government bodies, the Federal Reserve of America and private sector organisations. Details of selected key programs and providers are outlined below.

Legislation

The rise in abusive lending practices, a lack of personal finance skills among youth and declining confidence in corporate pension and retirement funds have driven a number of legislative changes in the US including the following:

• The No Child Left Behind Act of 2001 authorises the use of funds by educational agencies to teach basic personal finance to school-age children. The sum of US$385 million was allocated to educational bodies for this purpose.

• The TANF Financial Education Promotion Act of 2003 which requires states to promote financial education under the Temporary Assistance to Needy Families program and to allow financial education to count as a qualifying work activity.

• The Education for Retirement Security Act of 2003 created a US$100 million competitive grant program to provide resources for state agencies and non-government organisations to provide financial education to individuals of 45 years and older.

• Some states have legislation requiring personal finance to be taught in public schools.

• The Community Reinvestment Act of 1977 which focuses on the credit needs of low and moderate income individuals and community development programs.

3 The information provider

Page 61

• Other legislation is aimed at providing financial education to mid-life and older Americans.

Policy and peak body

The Financial Literacy and Education Commission was established by the US Government to develop a national strategy to improve consumer education and financial literacy. The Commission encourages and coordinates government and private sector consumer and financial literacy programs and provides a toll-free telephone helpline and website for consumers who are seeking information.

Other Government bodies

A number of other US Government bodies, at both the federal and state level, are involved in consumer education and financial literacy. For example, the Office of Financial Education, under the Department of the Treasury, is responsible for guiding and coordinating the Department’s financial education policymaking.

Federal Reserve of America

Financial education has traditionally been part of the mandate of the US Federal Reserve. This is underpinned by the view that financial literacy results in more stable communities, a stronger and safer banking system and a higher standard of living. Examples of programs undertaken by the Federal Reserve include:

• The Federal Reserve Bank of Chicago, Consumer and Economic Development Research and Information Center, which researches and disseminates consumer information in areas such as access to credit, affordable housing and reinvestment. It also provides online resources including a research repository of studies related to financial education and a listing of major financial education programs throughout the US.

• The Federal Reserve Bank of San Francisco has developed a model of consumer education and financial literacy that looks at financial literacy in four areas (early intervention, basic literacy, credit rehabilitation and long term planning or asset building). Programs are then developed for different population segments, using tailored information approaches developed with appropriate partners.

Australian Consumers and Money

Page 62

• The Federal Reserve Bank of New York conducts various educational outreach programs that focus on everyday issues such as compound interest, investment strategies, risk assessment, insurance and other basics of money management.

The Federal Reserve reports that most Americans acquire their financial knowledge haphazardly by trial and error. Numerous surveys reveal that most people growing up do not learn any principles of personal finance systematically from their parents. Instead they pick up bits and pieces in school, from the media and through their business dealings with financial service providers. Often the information they acquire is misleading or fraught with errors.

US private sector providers

Examples of private sector initiatives in the US include:

• Campusbank Card by US Bank, Minneapolis: This key card product allows students on campus to pay for point-of-sale purchases on campus and to access their US Bank account. Like a debit card, charges to the Campusbank Card are drawn out of an account maintained by the student and/or the student’s parents. The program aims to teach students how to use credit cards without running up debt.

• Financial Wellness Program by US Bank: This program consists of student seminars on the essentials of good money and credit management.

• Various state bank programs include public awareness campaigns on financial literacy, statewide literacy programs and lobbying policymakers for the integration of personal finance in public schools.

• The Don’t Swim with the Sharks campaign by the Oklahoma Bankers Association, on predatory lenders. Other campaigns and ‘toolkits’ target consumer privacy rights and identity theft.

Partnerships

The US has several independent bodies which promote financial literacy, including the National Institute for Consumer Education (est. 1973), which acts as a clearinghouse for consumer education initiatives across the US, the National

3 The information provider

Page 63

Consumer Education Foundation (est. 1995), the Jump$tart Coalition and the National Council on Economic Education.

All of these bodies act as clearinghouses and central hubs for the provision of a broad range of resources and materials across sectors.

3.6 THE UNITED KINGDOM

The United Kingdom (UK) has also been very active in promoting financial literacy and education among consumers.

The Financial Services Authority (FSA), the UK financial regulator, is responsible for promoting public understanding of the financial system. The FSA has two policy objectives in this regard:

• Financial capability, which involves providing individuals with the knowledge, aptitude and skills base necessary to become questioning and informed consumers and to manage their finances effectively.

• Consumer information and advice, which involves providing impartial and generic advice to help enable consumers to plan their finances and make informed choices.

The FSA view is that meeting these objectives will promote competition and thus lead to innovation, better quality products and services and value for money.

A recently established UK initiative is Consumer Direct, a consumer telephone and online service that will give consumers access to advice and information related to shopping, scams and consumer rights. This program was created after research showed that half of all consumers do not pursue complaints, half do not know where to look for advice and information and two-thirds lack confidence in dealing with consumer issues. There has been an allocation of £30 million to fund the program to the 2005-06 financial year.

The Personal Finance Education Group (pfeg) is another organisation active in promoting financial literacy in the UK. Pfeg is an education charity whose mission is for all young people to leave school with the confidence, skills and knowledge they need in financial matters so that they can participate fully in

Australian Consumers and Money

Page 64

society. This is primarily done through a clearinghouse website which includes details of where to obtain resources, their cost and the financial topics addressed.

Pfeg is funded and supported by education, business and government. Pfeg provides and accredits a range of teaching resources for school use.

Pfeg’s flagship project, Excellence and Access, aims to raise the confidence and competence of teachers involved in teaching personal finance education. The project has developed good practice guides, case studies, support material, seminars and events.

3.7 CANADA

Canada too has a wide range of consumer and financial education programs. Most of these programs are focussed on consumer education in the broadest sense with a drive to build a national, consistent consumer framework.

The Financial Consumer Agency of Canada (FCAC) was established in 2001 as an independent federal regulatory agency formed to strengthen oversight of consumer issues and expand consumer education in the financial sector. It is currently working with stakeholder groups to develop a cross-sectoral framework for consumer protection and consumer education.

The Canadian Consumer Information Gateway is a government online initiative that includes over 35 federal government departments and agencies and over 250 provincial and territorial partners. The goal of the partnership is to coordinate consumer assistance services through a central portal for consumers.

The Canadian Bankers Association is also very active in improving financial literacy. In 1998 Canada’s banks launched a comprehensive information program called Building a Better Understanding, aimed at individual Canadians. The program was based on the results of intensive consumer research which was conducted, called Survey of Canadians’ Economic and Financial Understanding, which revealed that people wanted more information from their banks and on the changes occurring in the broader economy, to help them make more informed decisions.

Since the program began, the Canadian Bankers Association has undertaken a series of initiatives, most notably, the There’s Something About Money youth

3 The information provider

Page 65

website and teacher resources. The Canadian Bankers Association is also active in providing staff to attend high school classes to present seminars based on these resources.

3.8 NEW ZEALAND

The New Zealand Financial Literacy Programme has been developed by the Enterprise New Zealand Trust in cooperation with schools and businesses. This program aims to instil a ‘can do’ attitude or philosophy in young New Zealanders. Rather than focusing on skills acquisition or information provision, the program is designed to foster an enterprise mentality that will foster an entrepreneurial approach to financial issues.

The program focuses on the consumer’s individual circumstances, acceptance of personal responsibility, establishing, monitoring and re-adjusting financial goals, financial decision-making and consequences, building up personal equity and personal financial security.

3.9 OTHER COUNTRIES AND ORGANISATIONS

Various other overseas countries and organisations are tackling consumer and financial literacy. Some of those reviewed in developing this paper include:

• Hong Kong

• Singapore

• the Council of Securities Regulators of the Americas

• the International Organisation of Securities Commissions

• the World Bank.

Common consumer and financial literacy issues around the world

In summary, the common issues associated with consumer and financial literacy around the world include:

Australian Consumers and Money

Page 66

• the increasing need for integrated, coordinated and joint program delivery from the government, private sector and community provider sectors

• the need to target and tailor solutions for disadvantaged groups

• the need to address inadequate savings and investment plans by consumers, particularly to encourage personal responsibility for retirement funding

• the importance of equipping young people (the future adult generation) with good consumer and finance skills

• low use of available information (associated with the belief that the information is not needed or will not improve outcomes)

• poorly regulated and non-transparent markets in some countries which has deterred consumers from engaging in some financial activities that might otherwise meet their requirements (for example, information about risk and return and information included in prospectuses).

At the same time, the common elements of countries which are progressively and successfully addressing consumer and financial literacy include:

• the development of a national policy on consumer and financial literacy

• the establishment of a peak body that appraises consumer needs and behaviour, coordinates service provision and acts as a central point of information

• legislation in key consumer education and financial areas

• the use of tailored education programs for different consumer segments (skill building and motivation as well as information provision)

• cooperative activities by government, private sector and community-based organisations.

Feedback What elements from overseas approaches should the Taskforce recommend in the context of the current Australian environment?

Page 67

4 AN INTEGRATED SOLUTION

4.1 THE WAY FORWARD

In Chapter 2, we saw the complexity of consumer decision making and the need to take a multi-disciplinary approach to problems. This is where the Taskforce put forward the Consumer Behaviour Model as a synthesis of the best approaches to these problems drawn from a wide range of disciplines.

In Chapter 3, we saw the disjointed nature of current consumer and financial education provision in Australia as well as the way in which other countries are tackling these issues through coordinated bodies or frameworks.

It is therefore the Taskforce’s conclusion that Australia is lacking both an effective framework for understanding consumer and financial literacy and an effective structure for improving information provision across sectors.

To solve the first part of this problem, the Taskforce proposes that the Consumer Behaviour Model be developed to serve as a framework for improving consumer and financial literacy. It is proposed that this development occur in a collaborative way across sectors in order for it to be properly ‘owned’ and supported by information providers.

This poses the problem of who would actually maintain the model or help facilitate this process. There is also the remaining problem of how cross-sectoral cooperation could be facilitated without any national structures or coordinating bodies.

To address this, the Taskforce proposes that the Consumer Behaviour Model be operationalised and maintained by a central coordinating body that has representation from all sectors. This body would have the objective of promoting

Australian Consumers and Money

Page 68

and facilitating a coordinated and targeted approach to consumer and financial information in Australia.

The body would be a central location where disparate information could be brought together for access by consumers, intermediaries and providers alike through functions such as a clearinghouse website (where users could search for current information available on a topic — for example, everything available on superannuation).

It would also conduct ongoing research of consumer needs and the effectiveness of current information provision in meeting those needs. In economic terms, it would be a home for ‘demand’ side research on key consumer issues where education solutions are being targeted. This research would ensure effectiveness as well as efficiency (where it identifies programs that don’t work or those which duplicate other work). This would see it develop as a repository for best practice advice on how to target different groups within the community.

Finally, it would also have a focus on schools education and work with educators to raise the level of consumer and financial education taught in schools.

While establishing a dedicated body might seem like a natural element of any national strategy on consumer and financial literacy, the decision to recommend a body was not taken lightly by the Taskforce.

It would have been far easier for the Taskforce to propose a number of awareness campaigns around topical issues such as retirement savings and youth debt. However, the Taskforce was already aware of a large number of information campaigns already in place which were having varying degrees of success in addressing these issues. However, many of these programs were ad hoc in nature and short term in provision. It was in looking at these campaigns and similar campaigns before them that the Taskforce felt the need to take a more strategic and long term approach to consumer and financial literacy.

The Taskforce recognises that there are monetary costs associated with establishing and running a body. If the body is to be successful, it has to demonstrate real benefits to consumers, both in effectiveness of information provision and cost savings (through reduced duplication and partnering). It also must be able to wield influence without actually managing the activities of individual organisations.

4 An integrated solution

Page 69

These aspects are addressed in the body that is proposed by the Taskforce and are discussed in detail in this chapter. The operation of the Taskforce’s proposed body is perhaps best illustrated through Figures 4.1 and 4.2 which show the current landscape for information provision and the new landscape proposed by the Taskforce.

Figure 4.1 shows the current landscape which is characterised by:

• gaps in understanding current consumer needs

• gaps in understanding the factors behind consumer behaviour

• differing levels of effectiveness in information provision

• differing levels of information-sharing and cooperation between organisations

• differing linkages between formal information providers and the informal sources (family, friends, media) that consumers use for information.

Figure 4.2 shows how the establishment of a central coordinating body can improve the linkages between formal, informal and intermediary information providers as well as provide research on consumer needs and behaviour to ensure the effectiveness of campaigns by providers.

Figure 4.3 gives an overview of the functions of the coordinating body, both to consumers and information providers.

Australian Consumers and Money

Page 70

Figure 4.1

4 An integrated solution

Page 71

Figure 4.2

Australian Consumers and Money

Page 72

Figure 4.3

4 An integrated solution

Page 73

4.2 PUTTING THE CONSUMER BEHAVIOUR MODEL INTO ACTION THROUGH A CENTRAL COORDINATING BODY

The role of the Consumer Behaviour Model

As has been shown, the current landscape in consumer and financial literacy is more of a ‘patchwork’ than a framework. As seen in Figure 4.1, in many cases, there is a significant mismatch between consumer needs and programs designed to meet those needs.

The purpose of the Consumer Behaviour Model is to act as a tool for building an effective and efficient match between the information program and the consumer problem. It is also a tool for determining whether information alone is sufficient in solving this need.

The role of the proposed coordinating body would be to facilitate this matching process. This would be done through an appreciation of the myriad of factors that lead to consumers making decisions in the marketplace. It would also be done in partnership with the diverse range of information providers who interact with consumers.

The harnessing of the Consumer Behaviour Model to a central coordinating body also recognises the need to approach these issues in a way which builds knowledge and effectiveness over time. The body gives the Model a home where it can be rigorously developed and measured in action across all sectors. It allows for the development of best practice approaches to key consumer issues through cross-sectoral input and multi-disciplinary approaches. It is a home for building knowledge and turning that knowledge into action.

While there may be numerous organisations, both public and private, which have expertise in one or a few disciplines related to consumer and financial literacy, there is currently no organisation which embraces a multitude of these disciplines. The Taskforce believes that future success in raising levels of consumer and financial literacy in Australia is highly dependent on having a permanent body which represents this all-embracing approach.

Australian Consumers and Money

Page 74

Figure 4.4: The Consumer Behaviour Model in action — strategy implications from George's Story

4 An integrated solution

Page 75

Australian Consumers and Money

Page 76

The Consumer Behaviour Model would be operationalised by a coordinating body in a number of different ways but is probably best illustrated through the example in Figure 4.4. This reintroduces the example of George, first seen in Chapter 2, and shows how the insights gained through the Model can be used by information providers to develop a strategy to target the many ‘Georges’ in the community.

Of course there may well be other strategies that could be more effective in addressing this particular consumer problem. The example above however is sufficient to illustrate that simply providing more information is not always the most effective solution to addressing consumer problems. Strategies need to be aimed at the right target audience (not necessarily the consumer, but perhaps also advisors, sales people, and so on), be delivered via appropriate channels, clearly communicate the intended message and be timely. This example also shows that business and government regulators have a role to play in delivering information to George at the point-of-sale.

Another way of seeing the Model in action is through its proposed role of coordinating national approaches to key consumer issues. For example, a national approach to scams education grouping together the work of government departments and regulators (Treasury, Department of Family and Community Services, state and territory fair trading offices, Australian Competition and Consumer Commission, Australian Securities and Investments Commission (ASIC)), community sector organisations (particularly those with elderly clients who are often most vulnerable to scams), relevant industry sectors (everything from the finance sector to the real estate industry) and the media. In this example, the Model could show the common elements that underpin most scams and how a consistent approach to education within each sector will ensure consumers understand the hallmarks of all scams, regardless of their current guise.

The structure

The Taskforce has proposed a possible structure, objectives and functions for the coordinating body. These are illustrated in Figures 4.2 and 4.3.

It is envisaged that the body would have a modest staffing level to perform its functions and be constituted at an executive level by representatives from the public, private, community, education and media sectors. This could be in the

4 An integrated solution

Page 77

form of a board who would meet on a regular basis to make recommendations on key decisions that the body is facing in relation to its functions.

The Taskforce proposes that the body operate to a charter which would be outcomes focussed and which would provide guidance on how the body achieves those outcomes.

The Taskforce has not settled on a recommendation for the ownership of the body or of its funding but would envisage that the body have some level of baseline funding from the Government and receive contributions from the private sector for industry-specific initiatives.

It is also important that the body have proper governance procedures and be subject to a review process to ensure it is properly performing its functions and meeting its objectives.

Objectives and functions

The objective of the body would be to improve the effectiveness of consumer and financial information and education in Australia.

To achieve this objective, the body would have the following functions:

• develop and facilitate the take-up of the Consumer Behaviour Model as a framework for all information providers

• conduct research on levels of consumer and financial literacy using the Model

• provide a clearinghouse for consumer and financial literacy information; that would maintain an up-to-date stocktake of consumer and financial literacy activities and provide a quick reference guide to assist both consumers and providers to be better informed about the services that are available

• provide an accreditation service for consumer and financial literacy information to be used in schools

• conduct community awareness campaigns on important consumer issues

Australian Consumers and Money

Page 78

• provide a modest grants program (approximately $500,000 in total) to build the capacity of activities that demonstrate a strong ability to improve consumer and financial literacy

• encourage private sector participation in consumer and financial literacy activities, particularly by partnering within community and public sector service providers

• through all of the above functions, promote a coordinated and targeted approach to consumer and financial information and education.

All of these functions would be the ongoing responsibility of the body. This is a major factor behind the Taskforce’s view that a new coordinating body should be established and given the responsibility for delivering on these functions over the longer term.

However, the Taskforce also recognises that should a strong framework develop between information providers that no longer requires the coordination of a body, then that body may no longer be necessary.

As these functions require the support of a broad range of stakeholders across the public, private and community sectors, it is the Taskforce’s view that the body needs to be properly representative of the broad range of stakeholders, and not driven by any one sector or organisation.

This is also important in engendering consumer trust. It has been noted that consumers tend to gravitate to information sources they consider to be independent and trustworthy.

This is also true for those who assist consumers such as community workers and teachers. As is noted in the Curriculum Corporation report into ‘Consumer and Financial Education in Australian Schools’ (Curriculum Corporation Report) (Appendix 4), there is already some resistance from teachers to using education resources from individual corporations or industry sectors due to issues (and perceptions) relating to trust.

The remainder of this chapter provides more detailed information on key functions of the body including:

• Developing the Consumer Behaviour Model

4 An integrated solution

Page 79

• Measuring and benchmarking improvement in consumer behaviour

• Providing a clearinghouse website for consumer and financial information

• School education

• Conducting consumer awareness campaigns

• Building capacity amongst community information providers

• Facilitating partnerships.

Development of the Consumer Behaviour Model

The Consumer Behaviour Model brings an innovative and dynamic perspective to understanding the factors that influence consumer and financial literacy.

It is a generally accepted, but often overlooked fact, that consumer decisions are influenced by much more than a consumer’s ability to read and understand information.

If information is to be effective in bringing about positive behavioural changes, there has to be a number of motivating factors built into the information.

Similarly, if our goal as information providers is to assist consumers to achieve a level of financial competence, then we need to be aware of what it takes to be a financially competent consumer. The Consumer Behaviour Model takes this approach a step further by recognising that the decisions consumers make, and therefore the skills they require, vary according to stage of life.

At this stage the Model is illustrative only and needs to be further developed if it is to become a useful tool for information providers.

The coordinating body would be well placed to develop a conceptual model and framework into a working best practice guide for information providers. An important part of this process is seeking the views of information providers in the field and testing the Model with a representative cross-section of consumers. In that regard, a key role would be to link the Model to information providers in an ongoing way.

Australian Consumers and Money

Page 80

Measuring and benchmarking improvement in consumer behaviour

While there is a diverse range of quantitative and qualitative data on consumer and financial literacy, there is a need for a nationally consistent and comparable data set to support the development of the Consumer Behaviour Model.

In turn, this would enable the body to raise public awareness about levels of consumer and financial literacy, as well as assist information providers to identify priority areas.

It is expected that the measurement model would need to draw on a number of data sources to reach an assessment. A useful starting point for this work is the ongoing ANZ Bank financial literacy survey. This survey could potentially be expanded to include consumer literacy more generally, and to include school children and young people under the age of 18.

Providing a clearinghouse website for consumer and financial information

One key function of any body established to provide a strategic framework to the promotion and distribution of consumer and financial literacy resources would be to operate a clearinghouse or centralised repository for education or information resources.

As a starting point, the clearinghouse would develop and maintain the stocktake of consumer and financial information which was presented in the discussion paper and publish, by website and in hardcopy, a quick reference guide to assist consumers to more easily navigate to the consumer or financial information or service they require.

The clearinghouse website would also enable consumers to quickly find information relevant to their needs through a tailored search engine which could access information based on a person’s age, interests, needs or preferred format.

The advantages of a clearinghouse would be:

• increased public awareness about, and ease of access to, consumer and financial information

4 An integrated solution

Page 81

• a greater ability for resource developers to see where there are gaps or overlaps in the provision of consumer and financial literacy resources

• a centralised point for those who assist consumers (educators, trainers, consumer advisors) to locate materials for delivering consumer education.

The idea of a clearinghouse website is not new. As has been seen in Chapter 3, it has been adopted successfully in a number of overseas countries and within different sectors in Australia.

School education

The Curriculum Corporation Report (Appendix 4) provides the body with an excellent basis for facilitating consumer and financial literacy into Australian schools. Curriculum Corporation is an independent company owned by Commonwealth and state and territory Ministers of Education.

This report builds on the work of ASIC, who, in their Financial Literacy in Schools discussion paper, showed the need to better integrate the teaching of financial literacy in the school system.

The Curriculum Corporation Report includes both a comprehensive mapping of opportunities for including consumer and financial education into existing subjects, as well as a list of best practice approaches to assist organisations preparing material for use in school curricula.

While the Taskforce supports consumer and financial literacy as a subject in its own right, it recognises that the school curriculum is already overcrowded, and in light of the amount of time required to change current curricula, a more practical approach is to facilitate consumer and financial education through existing subjects.

In order to do this, the body would need to consider a number of issues including which subjects would best accommodate consumer and financial literacy strands, the level at which it should be taught, the type of teacher training and support, the best medium for delivery (for example, print, Internet), alternative modes of learning (such as enterprise education), and evaluation of educational materials.

Australian Consumers and Money

Page 82

The Statements of Learning which are currently being developed for the Ministerial Council on Education, Employment, Training and Youth Affairs’ National Consistency of Curriculum Outcomes Project, are another vehicle within which the financial literacy focus could be integrated. A useful guide is the work and methodology developed by the Personal Finance Education Group (pfeg) in the United Kingdom (UK), which seeks to work with teachers in developing materials and building their capability to teach children about money issues.

It is proposed that the body also take on a role similar to that taken on by pfeg in accrediting third party material for use in the school system. As has been seen in the UK, this has resulted in a greater trust and thus take-up by teachers of materials developed by the finance sector.

Conducting consumer awareness campaigns

A modest part of the body’s budget (possibly $1-2 million per annum) could be used to support or initiate innovative community awareness campaigns that draw on the research conducted into key consumer priorities.

For example, if a priority was found in the area of retirement savings, a campaign could be undertaken to promote better engagement by consumers. This would be discussed with relevant stakeholder organisations and agreement would be sought to promote key messages across sectors. Also, while the campaign may have base funding by the body it would be open to others, particularly those from the private sector and government, to build on its resourcing.

In addition, the creation of the body itself would be expected to elevate consumer and financial literacy as an important issue in the community.

Building capacity amongst small information providers

The Taskforce has recognised the importance of widening the scope of smaller consumer and financial literacy initiatives that are clearly demonstrating a positive effect in the community.

The body, through a modest grants program (approximately $500,000) could look to target those who are providing positive role models for disadvantaged consumer groups in the community as well as for those who have taken

4 An integrated solution

Page 83

successful innovative approaches that, with financial assistance, could have application at a national level.

The provision of capacity-building grants is based on the Taskforce’s strong belief that it is inspiring individuals who often make a difference in people’s lives. This can be anything from a rural school teacher who has a passion for improving financial literacy amongst her students to a community worker who has hit upon a new way of encouraging low income families to better manage their money.

Facilitating partnerships

The Taskforce has found broad support from all sectors for a more collaborative approach. The number of information providers and activities identified by the stocktake alone suggests that this is an area that could benefit from partnerships.

As well as identifying potential partnerships, the body could be an independent arbiter that could deal with concerns that may arise, especially in partnerships between business and the community and education sectors. In a similar way, the school accreditation service provided by the body could be expected to promote private sector funding and production of consumer and financial information for use in schools.

Feedback The Taskforce is proposing that a coordinating body be established to promote and facilitate a coordinated and targeted approach to consumer and financial information in Australia.

The body could aim to achieve this through the development of the Consumer Behaviour Model into a tool that can be used by service providers. The body could also be given a number of other functions to do with consumer and financial literacy that are currently not implemented in a comprehensive and coordinated manner. These include: research, a clearinghouse, an accreditation service to enable consumer and financial literacy to be incorporated into the school curriculum, an ongoing awareness campaign, a capacity-building grants program, and a partnerships program.

Is a coordinating body necessary? Should it be Government or industry funded? What functions should it perform?

Page 85

FEEDBACK

The Taskforce is keen to receive feedback on the issues and proposals in this discussion paper and would encourage all organisations or individuals with an interest in improving consumer and financial literacy to respond with a submission.

How to make a submission Throughout the paper, a series of questions are posed which are repeated here in full. These questions provide a structure through which the Taskforce can develop their final recommendations to Government.

It is not necessary to respond to all questions, but we would appreciate it if you could structure your submission as a series of answers to the questions which have relevance to you.

Submissions should be sent:

• by fax to 02 6263 2830 or

• by post to CFL Taskforce Secretariat SCGSD Department of the Treasury Langton Crescent PARKES ACT 2600

• or by email to cflsub@treasury.gov.au

Confidentiality

It will be assumed that submissions are not confidential and may be made publicly available. If you want your submission, or any part of it, to be treated as ‘confidential’, please indicate this clearly. A request made under the Freedom of Information Act 1982 (Cth) for a submission marked confidential to be made available will be determined in accordance with the Act.

Closing date for Submissions — 31 July 2004

Australian Consumers and Money

Page 86

Chapter 2 The consumer

Question 2.1

Economic forces and government intervention can both improve and constrict a consumer’s ability to understand and act on information. As such, information providers must make assessments about the extent to which information alone can change consumer behaviour.

Are economic and government factors sufficiently understood in information provision to consumers?

Question 2.2

Where we come from and our socio-economic status in life are key determinants in how we access and use information. As such, it is important for information providers to recognise the particular disadvantages that some consumers face in both accessing and acting on information.

Are socio-economic and demographic factors that important? How should they be factored into what information providers produce?

Question 2.3

Understanding the different personal characteristics that lead to consumer problems helps information providers decide whether they need to target behaviour rather than product knowledge in any information campaign.

Is a broader understanding of human behaviour useful in addressing consumer and financial literacy? How do we best discern the different personal characteristics of people in the community?

Question 2.4

Understanding and appreciating the differences between consumer wants and aspirations helps information providers better prioritise information while recognising that many consumers take an aspirational outlook to issues that face them.

Is an appreciation of needs and aspirations useful?

Feedback

Page 87

Question 2.5

Understanding the life event triggers behind the big decisions that consumers make, assists information providers in targeting information at the times and places in people’s lives when they most need it.

Does this help? How can the Taskforce’s understanding of life events be enhanced?

Question 2.6

Learning consumer and financial skills is all about building our capacity to make better decisions throughout our lives.

What skills are important to consumers? Do the consumer and financial skills presented in this section capture all relevant skills? How can we benchmark these skills over time?

Question 2.7

Understanding consumers’ preferences for information allows information providers to properly target their messages and maximise their reach.

What information sources do consumers trust? Are consumers confused by different information on the same issue? Is information tailored to the learning style of the target audience?

How important are intermediaries such as financial advisors in delivering outcomes for consumers?

Chapter 3 The information provider

Question 3.1

The extent to which Australians’ needs are met by the currently available consumer and financial education programs needs to take account of a number of factors including the following:

• The availability of information — Are there some topic areas where there is insufficient information?

• Awareness of the available information and information sources — Do consumers (or teachers and other intermediaries) know what is available?

• Access to the available information — Do consumers know how to access information? Are all consumers able to access information?

Australian Consumers and Money

Page 88

• The quality of the information provided — Is the available information clear and consistent?

• Efficient allocation of resources — Is consumer education delivered efficiently?

Question 3.2

What elements from overseas approaches should the Taskforce recommend in the context of the current Australian environment?

Chapter 4 An integrated solution

Question 4.1

The Taskforce is proposing that a coordinating body be established to promote and facilitate a coordinated and targeted approach to consumer and financial information in Australia.

The body would aim to achieve this through the development of the Consumer Behaviour Model into a tool that can be used by service providers. The body would also be given a number of other functions to do with consumer and financial literacy that are currently not implemented in a comprehensive and coordinated manner. These include: research, a clearinghouse, an accreditation service to enable consumer and financial literacy to be incorporated into the school curriculum, an ongoing awareness campaign, a capacity-building grants program and a partnerships program.

Is a coordinating body necessary? Should it be Government or industry funded? What functions should it perform?

Page 89

APPENDIX 1 MEMBERSHIP OF THE CONSUMER AND FINANCIAL LITERACY TASKFORCE

• Paul Clitheroe, Chair. Executive (founding) Director, ipac securities limited

• Berna Collier, Commissioner, Australian Securities and Investments Commission (ASIC)

• David Deans, Chief Executive, COTA National Seniors Partnership

• Craig Dunn, Managing Director, AMP Australian Financial Services

• Michael Hawker, Chief Executive Officer and Man Director, Insurance Australia Group Limited (formerly NRMA Insurance Group Limited)

• Elaine Henry, Chief Executive Officer, The Smith Family

• Rosanne Hunt, Coordinator, Finance First, YWCA of Sydney

• Peter Kell, Chief Executive Officer, Australian Consumers’ Association

• Kerrie Kelly, Chief Executive Officer, Financial Planning Association of Australia Limited

• John Keniry, Chairman, Ridley Corporation

• Andre Lewis, Director, Industry Support, Australian National Training Authority (ANTA)

• John McFarlane, Chairman Australian Bankers’ Association since 1999; Chief Executive Officer, Australia and New Zealand Banking Group Limited, since 1997

• Norman Owens, Chairman and founder, Australian Business Week

• Christine Ross, Coordinator, National Indigenous Consumer Strategy

• Ken Smith, Director-General, Queensland Department of Education and the Arts.

Page 90

CLITHEROE Paul

Occupation: Executive (founding) Director, ipac securities limited since 1983 Chairman and Chief Commentator, ‘Money’ Magazine since 2000 Presenter, ‘Money’ segments, since 2002 Host ‘Talking Money’ syndicated radio segments, since 1996 Weekly ‘Money’ newspaper columns appear nationally Co-Chairman, The Clitheroe Foundation, since 2002

Career: Host ‘Money’ program, 1993-2001 Vice Pres, Financial Planning Assocn, 1992 Pres, Financial Planning Assocn, 1993

Publications: Making Money, 10 Key Steps to Wealth, How To Be Debt Free, Investing In Property Investing in Shares 10 Steps to Financial Success Savings and Investment Financial Snakes and Ladders

Education: BA, UniNSW FSIA, Securities Institute CFP, Financial Planning Association

Awards: Fellow, Securities Institute of Australia Outstanding Achievement Award, Financial Planning Assocn IFA Award, Excellence in Journalism, 1995, 1996, 1997.

COLLIER Berna

Occupation: Commissioner, Australian Securities and Investments Commission (ASIC), since 2001 Member, ASIXX Advisory Board, since 2001

Career: Prof. Comm. Law, Fac. of Law QUT Dir Centre for Comm. and Property Law Consult. Clayton Utz former Snr Lectr Dept Bus. Law RMIT w. Minter Ellison Solrs 1988-92, Blake Dawson Waldron Solrs 1986-92 Dir Aust. Prudential Regulation Auth. (APRA) 2001-03

Education: BA, LLB (Qld), LLM (Melb)

Awards: Centenary of Federation Medal, 2003

Page 91

DEANS David

Occupation: David Deans is Chief Executive of National Seniors Association Ltd, Joint Chief Executive of COTA National Seniors Partnership and Chief Executive Elect of the planned merger between the COTAs and National Seniors. David is a Director of Later Years Ltd (the forerunner of National Seniors), National Seniors Foundation and National Seniors Productive Ageing Centre. Prior to 1991, when David was appointed to his current position, he held senior roles in the property industry including membership of the federal government’s Indicative Planning Council for the Housing Industry. Currently David is a member of many private and public committees focussing on issues related to seniors, such as employment, superannuation, retirement income, housing, health and aged care.

DUNN Craig

Occupation: Managing Director, AMP Australian Financial Services since 2002 Board Member IFSA, Chair Economics, Savings and Tax Committee

Career: Man Dir AMP Banking AMP Ltd, Hd Corp. Strategy AMP Ltd 2000-01, CEO EONCMG Life (Malaysia) Hd Grp Planning Strategy Colonial Ltd Gen. Mgr Grp Fin., Fin. Projects Mgr, former w. KPMG

Education: BCom, CA

HAWKER Michael

Occupation: Chief Executive Officer and Man Director, Insurance Australia Group Limited (formerly NRMA Insurance Group Limited), since 2001

Career: Grp Exec — Bus. Consumer Banking Aust, NZ and Pac Islands, Westpac Banking Corp. 2001 Grp Exec — Bus. And Consumer Banking Australia, Westpac, 1997-2001 Global Head Financial Markets Westpac, 1995-97 Ex Dir, Citibank Internation plc (London), 1992-95 Dep Man Dir, Citibank Limited (Australia), 1990-92 Various roles in Financial Markets with Citibank, 1984-1990 Secondary school mathematics teacher, 1983

Education: BSc (Syd.)

Page 92

Awards: Insurance CEO of the Year (Australian Banking-Finance mag) 2003 Millennium Banker of the Year (Australian Banking — Finance mag) 2000 Australian Sports medal, 2000

Associations: Dep Pres Insurance Council of Australia Member, Business Council of Australia Fellow of Institute of Company Directors Senior Assoc, Australian Institute of Banking and Finance Assoc, Securities Institute of Australia former Chairman, Australian Financial markets Association

HENRY Elaine

Occupation: Chief Executive Officer, The Smith Family since 1998

Career: Dir AXA Trustees Ltd (formerly Nat. Mutual Trustees Ltd) 1998-2001, Exec. Dir NSW Cancer Cl 1985-97, Cl Sec. 1981-85, Lectr Oxf. Brookes Univ. 1980-81; Memb. Mgmt Cttee NHMRC Nat. Breast Cancer Centre 1994-98, Cl Aust. Cancer Cl 1988-96; Trustee Nat. Breast Cancer Foundn since 1994, Memb. Bd Aust. Prostate Cancer Res. Foundn 1995-98; Inaug. Chrmn Not For Profit Cl Aust. since 2003, Chair Stronger Families and Communities Ptnrship Cwealth Govt since 2001, Memb. Consultative Forum for Welfare Reform since 2001; Adv. Bd Memb. Children’s Educ. and Res. Centre Univ. Newcastle (Ourimbah Campus) since 2002, Bd Memb. Soc. Ventures Aust. Since 2002, Aust. Res. Alliance for Children and Youth since 2000

Education: BSc (Hons) (UK)

Awards: OAM 1994

HUNT Rosanne

Occupation: Coordinator, Finance First, YWCA NSW Finance First is an education project designed to provide financial literacy education in a family context and the first to develop curriculum based material for primary school children. The project is being piloted in three NSW schools and was developed by YWCA NSW in partnership with Citigroup with support from the NSW Department of Education and Training.

Career: Extensive experience in public relations, marketing and community education. Consultant to variety of community and corporate projects.

Education: BA Communications, Charles Sturt Univ

Page 93

KELL Peter

Occupation: Chief Executive Officer, Australian Consumers’ Association

Career: Executive Director, Consumer Protection, Australian Securities & Investment Commission (ASIC) Wide range of consumer and industry organisations in the financial sector

KELLY Kerrie

Occupation: Chief Executive Officer, Financial Planning Association of Australia Limited

Career: Executive, Corporate Actions, ASX Perpetual Registrars, 2001-2003 Nat. Dir Trustee Corps Assn of Aust. 1997-2001 Dir Nat. Fin. Ind. Training Adv. Bd 1997-99 Chair NSW Govt Rd Traffic Noise Cttee 1996-97 Dir NSW Roads and Traffic Auth. 1995-97 Strategy Mgr 1993-95 Dir K&D Thompson Pty Ltd 1992 Snr Mgr Retail Banking ANZ Banking Grp Ltd 1990-92 Gen. Mgr ANZ Executor and Trustee Co. Ltd 1989-90 Gen. Counsel 1987-89 Solr M John Kelly & Sons 1983-87, Rigby & Fielding 1979-80

KENIRY John

Occupation: Chairman, Ridley Corporation since 1994

Career: Chairman, Unisearch Ltd Chairman First Wine Fund Ltd Director Mikoh Corporation Ltd Chairman, Sugar Australia Ltd Dep Chairman, Gardner Smith Pty Ltd Director, Woolstock Australia Ltd Exec Director, Goodman Fielder Chairman, Sydney Markets Chairman, WoolPoll 2003 Working Party President, Australian Camber of Commerce and Industry Chairman, Australian Wine and Brandy Corporation Director, Australia and New Zealand Food Authority

Education: UNSW, Cambridge Univ

Awards: Centenary Medal, 2003 Award of Merit, Australian Institute of Food Science and Technology, 1999

Page 94

LEWIS Andre

Occupation: Director, Industry Support, Australian National Training Authority (ANTA)

Career: 1991 General Manager of the National Training Board Background in tourism management and marketing

Education: Bachelor and Masters Educational Administration Univ Qld Bach Tourism Management, Europe

McFARLANE John

Occupation: Chairman Australian Bankers’ Association since 1999; Chief Executive Officer, Australia and New Zealand Banking Group Limited, since 1997

Career: V-Pres. Internat. Monetary Conf Exec. Dir Standard Chartered plc 1993-97 Citicorp 1975-93 (Hd Citibank UK 1990-93) Ford Motor Co. 1969-74 Non-Exec. Dir Capital Radio plc 1995-98 The Lon Stock Exchange 1989-91 Auditing Pracs Bd 1991-97 Fin. Law Panel 1994-99 The Securities Assn 1989-90 Cranfield Sch. Mgmt 1992-96 Dir Bus. Cl Aust Pres. A’asian Inst. Banking Fin

Education: Dumfries Academy, Univ. Edin. (Scotland), Cranfield Sch. Mgmt

Awards: recipient Centenary of Federation Medal 2003 Dist. Alumnus Award Cranfield Sch. Mgmt 2003 Order of British Empire, 1995

OWENS Norman

Occupation: Chairman and founder, Australian Business Week since 1993

Career: Man Dir and founder Accounts Receivable Management Services 1975-2001 Nat Pres, Institute of Mercantile Agents, 1987-90

Education: BA Applied Psychology, Univ NSW MBA Macquarie Univ currently studying MPhil, Univ Sydney

Awards: Medal of the Order of Australia (OAM), 2002 Business Person of the Year, 1999, Parramatta City Chamber of Commerce & Industry Inaugural recipient of Macq Univ Grad School of Managt Alumni Award 1999 Churchill Fellowship 1994

Page 95

ROSS Christine

Occupation: Coordinator, National Indigenous Consumer Strategy

Career: Lecturer in Education, Murdoch Univ Manager, NT Dept Education’s Aboriginal and Torres Strait Islander Educators Support Unit General Manager Central Australian Aboriginal Media Association

Education: BEd S.Aust., Dip T South Australian College of Arts and Education

Awards: Centenary of Federation Medal, 2003

SMITH Ken

Occupation: Director-General, Queensland Department of Education and the Arts, since 2002

Career: Dir-Gen. Dept of Employment and Training 2001-02, Dept of Families Youth and Community Care, Qld 1998-2001, Dir-Gen Disability Svces Qld 1998-2001, Divisional Mgr Community and Econ. Dev. Brisb. City Cl 1997-98, Gen. Mgr Blue Nursing Svce 1996-97, Dir-Gen. Dept Local Govt and Planning Qld 1996, Dir-Gen. Dept Housing Local Govt and Planning 1994-96, Gen. Mgr Housing Svces 1990-94, Dir Min. Health Aboriginal Affairs & Multicultural Affairs Tas. Premier’s Dept 1989-90, Dir Asset Mgmt NSW Dept Health 1989, Div. Mgr Housing Svces Dev. NSW Dept Housing 1986-89, Mgr Emergency Accommodation Unit Housing Commsn NSW 1984-86, Reg. Consult. Community Tenancy Scheme NSW Dept Youth & Community Svces 1983-84, Community Soc. Worker 1980-83, concurrent part-time tchg Univ. Syd., UTS, UNSW and Syd. Tech. Coll. 1980-89, Exec. Asst to Chrmn NT Housing Commsn 1979-80, Soc. Worker NT Dept Community Dev. 1979, Nat. Co-ordinator Student Initiatives in Community Health Aust. Med. Students Assn 1977-78

Awards: Centenary Medal 2003 Adjunct Prof. of Soc. Education. Policy Univ. Qld

Education: BSW (Hons), MSW — University of New South Wales

Committees: Member University of Queensland Senate, Chair Australian Information and Communication Technology Educational Council, Chair, performance Management Review Taskforce, Member, Australian Education Systems Officers Committee, Memb. Nat. Cl of Vocational Educ. and Res., Chair Aviation Aust. Pty Ltd, Chair Nat. Training Statistics Cttee, Memb Qld Studies Auth., Memb. QUT Cl, Memb Qld Educ. and Training Export Bd, Memb. Aust. Bldg Codes Bd, Rental Bond Auth., Chrmn Monte Carlos Pty Ltd, var. State and Nat. Adv. and Working Parties in Housing, Urban Planning, Soc. Welfare and Disability Svces; Memb. Prime Minr’s Youth Taskforce, Chair. Standing Cttee of Community Svces and Soc. Security Admors

Page 97

APPENDIX 2 TASKFORCE TERMS OF REFERENCE

1 The 15 member Taskforce will be Chaired by Paul Clitheroe and includes people who are leaders in their field and who can bring a broad perspective to the Taskforce, while balancing the interests of industry, government, consumer and community groups.

2 The Taskforce will release a Discussion Paper for public consultation by May 2004 that maps and evaluates existing consumer and financial literacy information and programs in Australia and the services provided by the public, private and community sector.

3 The Taskforce will consult relevant stakeholders and have regard to suggested approaches to consumer and financial information provision already published in policy papers, research reports, investigative articles and public statements.

4 The Taskforce’s final report is to be delivered by August 2004 and will make recommendations for a National Strategy for Consumer and Financial Literacy. The National Strategy objectives are outlined in Attachment A.

5 In evaluating current consumer and financial literacy programs and services, the Taskforce will consider:

• The current availability and adequacy of financial education and information in schools;

• The availability of financial information in the broader community, especially the capacity of Australians to understand and manage credit risk;

• The availability of financial information and education to maximise superannuation and retirement savings;

• The extent to which the foundation skills of current low-skilled adults and the mature-aged can be improved;

• Enhancing awareness of the importance of saving and better communicating the need for a focus on retirement savings;

Appendix 3

Page 98

• Any gaps or overlap in the current provision of financial literacy and consumer education programs by public, private and community sector organisations;

• The linkages between public, private and community sector organisations in providing financial information and products and the contribution of key financial stakeholders;

• The variety of multi-media and traditional communication tools used to disseminate messages and information about consumer and financial literacy;

• The level of interest and motivation from consumers to seek out information about consumer and financial literacy.

6 In addition to these responsibilities, the Taskforce may consider any immediate actions to streamline, improve, or augment current consumer and financial education initiatives where these actions have received widespread support from key stakeholders and where these actions can be fully met within existing organisational funds.

Better help for Australian Consumers

Page 99

Attachment A

National Strategy Objectives

• To clarify the roles and responsibilities of the various public, private and community sector organisations delivering consumer and financial information and education. The National Strategy should provide an assessment of the current availability and effectiveness of suitable programs.

• To facilitate a national approach to the provision of consumer and financial literacy programs and information. The National Strategy should establish the means for organisations involved in consumer and financial information provision to work together on joint or individual initiatives in nationally consistent ways.

• Foster best practice. The National Strategy should identify best practice principles for consumer and financial information and education provision based on successful domestic and international approaches.

• Identify areas of priority. The National Strategy should provide focus for organisations involved in consumer and financial literacy and dissemination of consumer and financial information by identifying areas of priority.

• Ensure effective implementation. The National Strategy should ensure any recommendations have ongoing support (both in a policy and financial sense) from key stakeholders. The National Strategy should engender ownership by appropriate stakeholders and ensure appropriate targets are met.

Page 101

APPENDIX 3 THE CONSUMER AND FINANCIAL LITERACY INFORMATION STOCKTAKE

This appendix is available online at http://cfltaskforce.treasury.gov.au

Page 103

APPENDIX 4 CONSUMER AND FINANCIAL EDUCATION IN AUSTRALIAN SCHOOLS: A REPORT BY THE CURRICULUM CORPORATION

This appendix is available online at http://cfltaskforce.treasury.gov.au