Is this why banks got away with dodgy practices?

Most Australians are bombing when it comes to financial literacy.


1. If you put $100 into a no-fee savings account with a guaranteed interest rate of 2% per year, how much would you have in the account at the end of the first year, once the interest payment is made?

2. Imagine now that the interest rate on your savings account is 1% per year and inflation is 2% per year. After one year, would you be able to buy more than today, exactly the same as today, or less than today with the money in this account?

3. Is the following statement true or false? ‘Buying shares in a single company usually provides a safer return than buying shares in a number of different companies.’

4. Is this statement true or false? ‘An investment with a high return is likely to be high risk.’

5. Suppose that by the year 2020 your income has doubled, but the prices of all the things you buy have also doubled. In 2020, will you be able to buy more than today, exactly the same as today, or less than today with your income?

Those questions (answers below) were asked in a survey conducted by the Household, Income and Labour Dynamics in Australia (HILDA).

Just 24 per cent of respondents aged 15 to 24 answered all five questions correctly compared with 55 per cent for those aged 55 to 64.

Does that help to explain why banks could charge fees for no service for so long, as revealed by the banking royal commission?

The financial literacy of older Australian – as opposed to younger – is shown in YourLifeChoices’ Retirement Income and Financial Literacy Survey 2018. An overwhelming number of the 5000-plus respondents said they believed they didn’t need a financial planner, 86 per cent said they managed their own financial affairs and 65 per cent said they understood finances and investments either well or very well.

However, New South Wales Business School professor Pamela Hanrahan says too many Australians cannot make basic maths calculations.

“It's quite frightening really," she told ABC radio. “All the studies indicate that there's a significant portion of people who can't, for example, work out what 10 per cent of 100 is equal to.

“But the real difficulty is that because the system is complicated to navigate, because it involves lots of different parties who charge lots of different fees, people really rely on their advisers to give them appropriate guidance…

“That may go some way to explaining why [the practice of] fees for no service has existed for so long.”

Professor Hanrahan said financial advice clients had lost trust in a system where “you can be a car salesman one week and financial adviser the next”.

Also speaking on ABC Radio, Andrew Page, who runs online investment research platform Strawman, said he was not surprised at the banking inquiry revelations, in particular, the fees for no advice.

"It seems really bizarre, but the reason it can go on untracked is that it's not directly coming out of your wallet," Mr Page said.

"It's not directly being debited from your bank account.

"It's usually charged as an administration fee on your insurance product, or on your superannuation fund, as an annual fee.

"A lot of us will give that a sideways passing glance once a year and don't think about it, and as it is coming out at the royal commission, it's something that's become quite prolific."

Professor Hanrahan said one lesson to be learnt was that everyone should read their statements, make sure that they understood all the deductions, and to follow up if they had concerns.

The answers to the questions above are: 1. $102; 2. Less; 3. False; 4. True; 5. Exactly the same.

Do you always check your financial statements? Do you understand how to assess super fund fees? Are the fees properly explained on your statements?



    To make a comment, please register or login

    21st Aug 2018
    and the usual suspects will obviously say it’s the banks fault that those on the survey cant do basic math, have no common sense and are financially irresponsible
    21st Aug 2018
    The reason those without those skills employ others to handle their investments for them is because they don't have those basic skills, and are thus forced to rely on sound and reliable and honest advice.

    Those last three - sound, reliable and honest action by someone in the position of being a servant - are the issues here.

    Under Scottish Law theft as a servant - a very widely defined term - incurs double penalty.
    21st Aug 2018
    That'll be a huge fee for advice given.... at least it was given.....
    21st Aug 2018
    Oh gawd - that tiresome annoying got again
    Yawn !
    21st Aug 2018
    ... and that's MR Usual Suspect to your kind - for whom life is cheap....

    My - we are getting highly personal, olbie..... and to think I once suggested you were not as bad as Old Geezer, but had a little more sense at time.....
    21st Aug 2018
    Ah gawd… that tiresome annoying self-opinionated over-privileged narcissist olbaid again, bleating about how everything is always the fault of the victims of wrong. Yes, olbaid. It would be lovely world if everyone could do basic math and be financially responsible. And no, it's not the banks' fault that they are not. It's the education system and a government that is content to support a class-structured society in which many are deprived of opportunity. You should be grateful for your good fortune, and have some empathy for those who didn't have your advantages in early life and are struggling, now, with insufficient knowledge to manage their finances efficiently.
    21st Aug 2018
    You have no idea of my difficult childhood and poverty , struggles til my mid 30’s and funding myself through university as an adult
    I have no time for whingers who want to take from hard working people like me and others who struggled and worked hard to get where they are now
    Shame on you Trebor and especially you Rainey
    21st Aug 2018
    It seems that some here are advocating for a Caveat Illiterati or Caveat Innumerati standard....

    Why then do we have regulations, licencing for advisors, and legislation, along with supervisory bodies and even investigative bodies - if they are not intended to protect the Illiterati and Innumerati from being (ab) used and robbed?

    Nice to hear from The Real Usual Suspects that the banks are all criminals and a mafia in their own right....

    olbie - I sincerely doubt your story could be any worse than mine.... and it is you striking at those who've worked hard etc and are seeking to better themselves.

    It seems you learned nothing from your experience but bitterness - whereas I, for one, learned one simple truth - once you have seen the fires of hell it is not a thing of value to be cruel to anything.

    Nobody 'wants to take from you' - all that is happening is that a legally appointed Royal Commission has determined that certain organisation have operated illegally, and should be treated as criminals.

    How is anyone taking anything from you there - unless you are one of the criminals? You seem to think that you are entitled to do whatever you wish, consort financially with whomever you wish, but not bear any responsibility for their failures ....

    Methinks the olbie doth protest too much.
    21st Aug 2018
    Tell me olbaid if you needed heart surgery would you do it yourself or engage the services of a cardiologist, similarly with dental work or electrical or plumbing repairs. Most people rely on professionals to do what they are incapable or unqualified of doing themselves, No difference with financial affairs, many people rely on and pay those who claim to be financial professionals and expect ethical performance in return. Why do you think blaming the victim is a valid response. I have an engineering degree but I do find financial affairs difficult to understand, so I rely on my daughter who has a business management degree.
    23rd Aug 2018
    olbaid, once again you show your gross ignorance and arrogance. Funded yourself through university in your 30s. Lucky you to be able to. I didn't have a hope in hell, working to pay medical bills for a special needs child, robbed of years of income by a vile government, suffering major health issues due to early abuse and deprivation... you have no idea how PRIVILEGED you are. And SHAME ON YOU for even hinting that want to take from hard working people. You'd be hard pressed to find anyone who worked harder than I did, let alone anyone who suffered so much injustice and unfair deprivation. It's people like YOU who stole from people like me... not the other way around. Anyone who got through university got massive government help, no matter whether they paid fees or not. Uni education was always heavily subsidized. And NOBODY who endured the poverty and deprivation I did had a tinkers hope in hell of EVER getting into university. So stop your BS and learn to have some human decency and empathy.
    pedro the swift
    21st Aug 2018
    It certainly appears that the younger generation is dumbed down and doesn't have a good grasp of their financial future. I must admit that at a much younger age neither did I and if I had realised the future implications I would have invested much more wisely instead of in wine,women and song.
    That said the reason banks and other such institutions are able to get away with such cons is that they are playing the "Game of Mates". Refer to the book "Game of Mates by C.Murray. That will give you an insight into how we are being run. Ever wonder why so many pollies end up on a lot of company boards?
    21st Aug 2018
    "have invested much more wisely".....

    but with not nearly so much fun!
    21st Aug 2018
    Wrong Pedro.

    Much better to enjoy wasting it while you are capable of really enjoying it, than to save thinking you will be able to enjoy it when you are physically past it.

    I wish I had sewn more wild oats, while they were still fertile.
    21st Aug 2018
    Yes, many superannuation fund members should be more careful. But how does Janelle Ward manage to ignore all the current evidence that the bank’s ‘dodgy practices’ are actually criminal and – and without serious regulation and prosecution by government appointed agencies. Much of what investors have not noticed is very well hidden. Without such recognition, the effect of Janelle’s contribution is about victim blaming. How convenient for the banks / for-profit super funds. If members of the latter were more careful, the first thing to do is transfer to an industry fund.
    21st Aug 2018
    Janelle Ward's article was not about banks but about the fact that many, many Australians do not understand basic maths and therefore are unable to answer the five simple questions posed at the beginning of the article. That has nothing to do with banks or super funds.
    When I went to school math was a required subject not an elective as it seems to be now.
    If the kids are not taught to add up or multiply how can they possibly understand a financial statement?
    21st Aug 2018
    So Janelle Ward's article is also advocating for a Caveat Illiterati/Caveat Innumerati approach to business?

    Let the illiterate and the innumerate beware?
    21st Aug 2018
    I've discussed this elsewhere - buying shares is a Caveat Emptor situation - let the buyer beware ..... some here seem not to understand that simple reality.

    When a person places funds in trust - as a product investor and not a shareholder - should not the institution accepting that position of trust behave accordingly and according to law and regulation?

    This Royal Commission - and these are generally a conservative type of thing - seems to totally agree that a position of trust is a position of trust - and not one of let the product investor beware.

    It is one thing to not develop a return in the market - many super funds return rather small 'dividends' to their investors - it is another to deliberately take advantage of those investors and then claim no responsibility because they can't add up or read properly.
    Baby Huey
    21st Aug 2018
    Having learned basic maths by rote with pencil and paper and having good fortune to have a great teacher in year 7 who taught my class to use a slide rule I consider I have a reasonably good grasp of general maths. I am appalled at the general deterioration of basic maths skills in Australia over the last forty years. Forty years ago one without good maths skills could have some trust in the banks e.g. CBA to look after their money. Unfortunately, governments of all flavors have allowed their Gordon Gecko mates to infiltrate financial institutions and the regulators to take advantage of people who have been failed by the education system. It appears the old joke about why do Australians wear thongs rings true.
    21st Aug 2018
    The education system has been deskilled to the lowest denominator, i.e. poor numeracy and literacy skills. I saw this as an industrial training administrator. Many trainees and apprentices could not understand or do basic maths. Education and Industrial training is near the bottom of government priorities and that is one of the reasons for the demand for 457 immigrants. A short term solution that does not solve the problems. We need to change the agenda to ensure education and training have a top priority. We spend more supporting the war machines of other countries than on the welfare of Australians including the needed support for R&D of Australian initiatives.

    21st Aug 2018
    Back in the 50's, in February, on a hot dusty day, when walking past a primary school there was a buzzing sound. Not the sound of bees collecting pollen or the sound of the ubiquitous blowfly but the sound of pupils chanting their times tables. Numerous experts over the years have done away with learning by rote and replaced it by something that doesn't work as well, if at all. They have also done away with phonetics when teaching English and it's no surprise that students have little understanding of the language.

    It seems that financial groups are aware of this and send out letters with double negatives, big words and lots of them. It's easier to throw these away than bother to read them in a lot of cases. As mentioned yesterday, APRA is supposed to be our watchdog to protect us from all of this but has failed in its duty. Children will always push the boundaries with parents to see what they can get away with, sportspeople will always push the referees/umpires to see what they can get away with and, now, financial groups are pushing the envelope. The difference is that parents and sports administrators are enforcing the relevant rules but financial groups are allowed to continue their rorts.
    21st Aug 2018
    Correct..... politicians also seek to constantly, like children, see how far they can go before we pull them up short... only, like banks, and unlike children and sports people - our power to do so is limited by politics, with our only choice being an endless one of two equally unpalatable rides of the same kind of people.
    21st Aug 2018
    Yep, I learnt the tables by rote too. When I need to know the product of any 2 numbers up to 12 I don't have to think, pick up a calculator, or walk to a computer, the answer is there instantly in my head. It is simply something I know for life.

    I recently showed a 14 year old granddaughter & a couple of her mates how to do simultaneous equations. One of the friends looked at me in total wonder, saying, "gee, & you can do that without a computer".

    She was amazed when I told her that when I went to school, about 90% of kids in junior high school could do it with no difficulty.
    21st Aug 2018
    I am a paper nut. Filing all receipts, checking and re-checking my credit card statement, then will pay the whole amount out.
    Have managed to uncover a fraud case with the bank.
    Taken a large business to court and won.
    Ran a business for 25 years and received a glowing letter of commendation for the presentation of my books over those years.
    My super fund decided to change over to a private super fund, and I withdrew all my monies, because losing dollars, and I mean DOLLARS in fees and charges did not seem fair, for the return received.
    I learnt maths by rote, with pencil and paper and sheer perseverance.
    21st Aug 2018
    Well done!!
    22nd Aug 2018
    Yes following the Buffett rule. Good on you!

    Rule NO 1 Don't lose Capital.

    Rule No 2. Ensure you follow rule NO 1.

    My investment mistakes have always been losing capital. The returns in Superannuation after taxes and charges and fees isn't terribly terrific for most people. Superannuation was designed to minimise taxes before it was changed to charging taxes to return revenue to Treasury faster. As a tax minimisation scheme it leaves a lot to be desired now.

    Taxes have been cut so much it isn't really saving much and actually costs some people tax they wouldn't have had to pay at all. There is no ability to use Capital losses either like in the real world or to use negative gearing.

    Those who would never save themselves think it's great and the high income guys think it's great but most end up with enough money to live frugally for two or three or four years or have a good holiday and that is a real shame.
    21st Aug 2018
    It has far more to do with the poor outcomes of a basic education at school than anything the banks have or haven't done. If you can't do these basic mathematical questions then you sadly lack numeracy skills, not financial acumen. The fact that the 'oldies' did far better than the youngsters shows this. Time to forget about the ego massaging of kids and get back to what schools are for - R.'R.'& R.!
    21st Aug 2018
    Agreed. But the banks etc still had a duty of care and responsibility and even duty - to ensure that they themselves did not exploit people with low skills.
    21st Aug 2018
    Unfortuanately the above questions and the responses don’t take into account many other factors, q1 can only have one correct answer, q2 is not so straight forward, many things are cheaper today than they were 1 year ago, so it would depend on what you were buying, CPI might be higher but that wasn’t the question. Q3 putting all your eggs in one basket can be quite dangerous sharing the risk might be safer but generally speaking if the economy is going backwards, so will most of the shares, so if you are in an inflation proof business then the shares in that single company won’t be affected as much. Q4 while high returns don’t always have higher risks, they quite often do and the result can be disastrous, not so much with low return/low risk. To answer Q5 you only need to look at things like travel, I flew to the UK in 1972 the one way fare was $870, I flew to the UK 2 months ago with BA the cost was $1350 return. If you look at white goods, electrical goods and even some cars many of these things are cheaper than 5 or even 10 years ago. So things are not as they appear to be sometimes, what is it that they say about statistics and dammed statistics, you can quite often make statistics state what you want them to be.
    21st Aug 2018
    More like an element of too much trust and lack of time to actively pursue such things while carrying on normal life.
    21st Aug 2018
    Another thing that should be taken into account is that Centrelinks's Deeming rate is also higher than most term deposits rates, so pensioners are loosing their funds even quicker.

    21st Aug 2018
    Anyone see the Shark Tank episode recently on which 3 young men won an input of capital to expand a ''new kind of bank''? Their point of difference was that their system budgeted for millennials. Instead of relying on the customer to check their budget and decide if something is affordable, it actually warns them when they go to make the purchase that they don't have sufficient funds. It was fascinating listening to them explain the benefit they offer and how attractive it is to younger folk. I used envelopes when I was young. Divided cash between them so that there was always enough when the bills came in, and only kept a small amount for discretional spending. Apparently that - and many other tried and tested methods - is just too hard for today's young darlings!
    21st Aug 2018
    I hope they didn’t get funding for their stupid idea
    Most idiotic venture if there ever was one
    Use your common sense or if you haven’t got one - buy an app - plenty of those for dummies
    21st Aug 2018
    Bet you've got quite a few of those apps then Raphael???
    21st Aug 2018
    Micha - you follow me around like a puppy dog , calling me names and posting childishly rude comments
    Suit yourself - if you persist on hanging around me licking your tiny thingy and wagging your tail begging for treats , you will be ignored
    22nd Aug 2018
    Sounds good OGR. Apparently there are many Millennials whose families never use cash and never budget. The parents won't worry the kids by ever mentioning there isn't enough money so they think money just sort of happens. Which is exactly what it does as fiat but they don't understand the Paying back part of it all.

    Sometimes I don't understand that either. If the money can be "created" on a screen why can't the debt be "disappeared"?
    Obviously there is instability there somewhere beyond my understanding.

    The bankers and businesses are keen to fling debt at consumers. They get the paying back problem but as it isn't their debt why worry, be happy, spend up, tomorrow you might die.

    Only tomorrow the debt has to be paid and that's when the bankers and businesses start worrying especially when the Millennials are now going "whatever" and just continuing playing on the phones.
    23rd Aug 2018
    Not only did they get funding, olbaid, but they got it on their terms with no bargaining (and they were giving very little away for a very large sum!) and the Sharks were fighting over who would get a piece of the action and wildly excited by the proven track record of this business which has seen very rapid and impressive growth consistently since inception and has an astonishing take-up rate. The proprietors know their market and know how to tap it. Once again you demonstrate how arrogant, ignorant and out of touch you are!
    The pom
    21st Aug 2018
    I think the banks are lovely, having had lovely dividends for years fully franked as well as capital growth on my shares, dividends paid into my building society account.
    21st Aug 2018
    Now we have uncovered the truth! Today's kids are simply not taught basic maths. Everyone is given a calculator to do simple maths. If not a dedicated calculator, bring up the Iphone or Ipad calculator, it will do all the maths you need so the hype goes. It will add 2+2 and answer 4. Try your kids answering 10% of $4, and today's kids look at you in horror, and that's because today's kids simply can't reason and are not taught the basics.

    Why, because nobody explained what 10% means, now I think fractions are not taught in schools if at all. Simply, 10% = 10/100 (10 out of 100) or 1/10 of 100 units or = 10 units be they apples or donkeys, it doesn't matter. To explain further, 50% = 50/100=1/2, so 50% of the donkeys in the paddock is half the total number of donkeys. If in fact, there were 400 donkeys, then 50% = 1/2 of 400 = 200 donkeys. This could be expressed mathematically as 50/100 x 400 = 200. Mystery solved!

    I made little progress at school till it dawned on me in grade 6 that if you list 10 numbers sequentially from 1 to 10, these are automatically classed as "positive" numbers. What a breakthrough when I realized for every positive number, there was a negative one. Then adding 2 and 3 positive numbers gave me five. Wow, so if I took 3 positive numbers and took away 2 positive numbers I would get 1. Wow what's happened here! Please explain. Then I realized taking away a positive number from a positive number changes it (the number taken away) into a negative number.

    So why do kids today don't understand this basic maths? Because today's teachers don't know these basic maths themselves. Shame on the pompous and supposedly new teaching methods that don't explain the basics. That's what's wrong with our education system today.

    My kids were lagging behind in primary school, till I taught them basic maths. The eldest became Dux of a large secondary college in year twelve. I was Dux of my primary school. My eldest grandson became Dux of a prestigious College in Mentone, and so on for the other grandchildren. All my three children became engineers. They know far more maths than I could ever know.

    The basic premise of course was that the children liked maths and wanted to explore further. If your children have a bent to look at small things in the insect world , then biology might be the answer. Go out and buy them the best microscope you can afford. (I was lucky and came upon a University clearance sale and picked one up for $40). Other kids might want to know how the human body functions - medical thoughts looming perhaps? Then there are the star gazer. I went and bought a beautiful telescope just in case, but aside from my interest, the kids didn't follow this course. I still have it.

    The point of all this, as the kids grow up and start reasoning, listen to what they are saying. If they like computers, help them find a course to teach them the basics. If they like sports, they might wan't to follow a sports career. At least teach them basic maths and English, otherwise they become typical illiterate morons.

    It all boils down to teaching methods and approach to learning. Encourage your kids to pursue their interests, but always give them breathing space, to relax when they need to. I have seen some parents push their kids over the limit, like constant music lessons, till they grow up hating music. No one asked them if they liked music in the first place, so here is the problem, pushing a barrow the kids don't like, because the basics were never explained.
    Cheerio JOJOZEP!
    21st Aug 2018
    Let's try it this way, olbaid - do you have a single care or thought for those countless people who have been taken for a ride, according to this Royal Commission - by financial institutions?

    If you are not a shareholder in those institutions, then why would you have a single moment of concern over the possible punishment of those institutions for wrongdoing - and the cost to them and through them to their shareholders?

    Nobody ever guaranteed you an endless profit from shareholding.... some companies fold leaving many destitute - it's what happens - with large companies/corporations - when the management involves itself in malfeasance of one or several kinds - including making bad decisions on 'future direction', miscalculating the market, spreading their OWN investments across a range of ventures that fail to pan out, of when that organisation has a credo that it must exploit those who invest in its products (but not its shareholders - big difference) by literally robbing them - and then are caught out.

    It can also happen due to economic circumstances beyond their control - but the majority of major company/corporation collapses, which leave many heavily out of pocket - are due to mismanagement.

    So, once again - do you have a single thought for all those relatively small nest egg holders - who may rely heavily on these institutions for their retirement income - when such institutions literally rob them and are then found out and forced to repay?

    I'll say it again - the ONLY way YOU could be losing is if you are a shareholder - not a product investor - in those institutions - and you MAY stand to lose some of YOUR income as a result of the institution having to pay out - without claiming a tax concession for their criminal behaviour - a heap of money OWED to those investors.

    Unfortunately for shareholders - that's the way the poker machine rolls when you invest in shares and stocks.

    As I said - when you lie down with dogs, you get fleas.
    21st Aug 2018
    Well forgive me for stating the bleedin obvious - where in the article is schooling, learning or school children mentioned ?

    I may well have the wrong take on things - again - but still inclined to suggest that the thrust of the subject matter is aimed at mature dummies, the likes of which have very obviously shown their hand, if comment is indicative.

    One plus one can make whatever you want, simple math may not be the problem with bank/building society/credit union and super fund's derring-do: it's the gobbeldy gook, legalese that most folk fail to come to grips with. Maybe that's the way the institutions want it - 'keep the dumb-arses guessing and we've got em over a barrel'.
    They do.... and we've been had - to the tune of 'Roll out the Barrels'.
    22nd Aug 2018
    Yes MD and that "HAD' is sitting around in Pension Funds and Superannuation and 401K or whatever they call it while businesses increase share prices by buying their own shares instead of building the businesses and they are using debt to do it. OF course the payout is a bug fat bonus at years end because the share price went up. Whooppee doody!

    How can anyone understand that or how it's happened. The Chinese index is back to 2014 having lost all the gains. The ASX might hit 2007 in a few days if we are lucky. The DOW is rolling along on the buybacks.

    How to unravel without losing lo's of Capital will take some terrible cleverness that I'm failing to see anywhere.