Is this why banks got away with dodgy practices?

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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?

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Written by Janelle Ward


Total Comments: 41
  1. 0

    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

    • 0

      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.

    • 0

      That’ll be a huge fee for advice given…. at least it was given…..

    • 0

      Oh gawd – that tiresome annoying got again
      Yawn !

    • 0

      … 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…..

    • 0

      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.

    • 0

      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

    • 0

      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.

    • 0

      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.

    • 0

      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.

  2. 0

    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?

    • 0

      “have invested much more wisely”…..

      but with not nearly so much fun!

    • 0

      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.

  3. 0

    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.

    • 0

      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?

    • 0

      So Janelle Ward’s article is also advocating for a Caveat Illiterati/Caveat Innumerati approach to business?

      Let the illiterate and the innumerate beware?

    • 0

      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.

  4. 0

    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.

  5. 0

    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.

  6. 0

    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.

    • 0

      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.

    • 0

      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.

  7. 0

    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.

    • 0

      Well done!!

    • 0

      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.

  8. 0

    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.!

    • 0

      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.

  9. 0

    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.

  10. 0

    More like an element of too much trust and lack of time to actively pursue such things while carrying on normal life.

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