Breaking the cycle of financial stress

It's up to us to help foster our children's financial wellbeing.

One of the great lessons of the COVID-19 pandemic has been realising the importance of wellbeing in a range of scenarios.

We know that poor financial wellbeing or reduced financial capacity can happen at any stage of life, especially when vulnerability and financial stress are involved.

Research released recently, by Bank of us’ industry body - the Customer Owned Banking Association (COBA) - found people who experience vulnerability rate significantly lower levels of financial wellbeing and financial capability and significantly worse on ratings of financial stress and financial outcomes.

This combination of vulnerability and financial stress can lead to a vicious cycle, as increased stress leads to poor decisions, leading to even more stress.

These days, thankfully, most Australian financial institutions recognise how critical good financial wellbeing and capability is, not just for their customers, but also for the community and the impacts it has on the wider economy.

The ways to support financial wellbeing vary across the industry. Some offer financial literacy education programs, designed to build an understanding of key financial concepts. Others have long engaged with programs like school banking.

In fact, school banking programs have been around since the late 1880s and by the early 1900s there was one in every state bank.

Yet, these programs have come under recent scrutiny with ASIC releasing findings to suggest that the good old school banking program may not be as beneficial to financial wellbeing as they are purported to be.

The academic research in ASIC’s review found that these programs are, at their core, a marketing exercise for those banks offering them, with the main objective being to acquire new customers.

The Commonwealth Bank’s school banking program was established in 1931. To get an idea of just how successful it has been at on boarding new customers, at the end of 30 June 2020, there were 3629 schools participating with more than 175,000 accounts registered in the program.

At Bank of us, we’ve dabbled in the school banking arena, providing a program to one of our local schools.

It operated on a similar basis of savings and reward and over the 10 or so years it was available and about 50 students participated. We reviewed it last year and made the decision, due to the low demand, to cease offering the program to new participants.

So, as a marketing exercise school banking programs may tick all the boxes for some providers but are there any real benefits for participating students?

Well, it seems that it depends on who you ask. In the ASIC report, a parent of current school banking participant, when asked about the program’s effectiveness, said: “It is what you make of it”. Maybe, therein lies the problem.

How beneficial it is for the child, is reliant on the support and guidance they are given along the way.

Of course, children are taught financial literacy as part of the Australian Schools Curriculum. Children from Year 1 are learning the basics of numeracy, yet, it has been recognised that it’s the even earlier learning experiences (pre-formal education) that are linked with later school achievement, and great emotional and social well-being.

What are we doing as parents or guardians to help teach our children the skills they need to be financially literate before they reach school age?

The value of things has never been more invisible, from online shopping to contactless payments – it’s easy to see how our children can be confused about money and its value.

To combat this confusion, it can be as simple as talking about money at home, when you’re buying the groceries, even while shopping online – to explain what money is and give it a value that children can understand.

Pocket money is one of the easiest ways to help children on their way to becoming financially literate. Earning money through chores and saving money seem simplistic but these are fundamental skills we build on throughout our lives.

Which brings us back to the school banking program. Children should be encouraged to start saving.

In fact, what better way for them to learn how to manage their own finances and introduce good money habits?

But as the ASIC research suggests and school banking programs don’t appear to improve savings behaviours, it’s up to all of us to help foster our children’s financial skills in other ways.

This should help reduce their chances of getting stuck in a vicious cycle of vulnerability and financial stress later in life.

Paul Ranson, CEO Bank of us