How banks buy your children's souls
Ever wondered why your child’s place of education bothers to offer school banking?
Surely they’re busy enough with reading, writing, arithmetic… and all the other disciplines educators have to find time to teach our children.
Yes, they say. But banks pay.
Under the guise of schooling our young and impressionable children in financial literacy, some institutions effectively buy both brand exposure and official endorsement of that brand via a series of kickbacks and commissions to cash-strapped schools and Parents & Citizens associations.
It’s well worth it for those banks if capturing your child’s first savings dollar turns them into an interest-overpaying customer for life.
Make no mistake, it’s your kid who ultimately pays. And how much will shock you.
The latest reading of the Interest Integrity Index I created six years ago to catch our Big Four banks at over-charging reveals that lifetime loyalty now costs an average $150,346 – almost double what it was in 2013.
And Choice research shows just how ‘sticky’ are customers who first ‘join’ a bank in childhood.
Commonwealth Bank Dollarmites Club
By far the biggest school banking player is the institution started by the government more than a hundred years ago but that is now a fully privatised, commercial venture: the Commonwealth Bank.
Choice says 46 percent of Aussies open their first bank account with CBA… and 34 percent still have that account.
What’s more, the bank is also the largest issuer of (too expensive) mortgages in the country.
To CBA’s impressive market dominance, school banking is instrumental.
To our children, it’s highly detrimental.
So for this lucrative access to our children, what does the original and best brand-brainwasher pay schools that are often desperate for funds to buy crucial things like air-conditioning?
What CBA pays schools (and how its interest stacks up)
Progress Saver (Kids)
$10/month deposit, no withdrawals
For deposits up to $50,000. One deposit/month, no withdrawals
One deposit/month, no withdrawals
One deposit/month, no withdrawals
Mozo Experts Choice Winners 2020
Scoots Super Saver
For deposits up to $50,000
Coastline Credit Union
Cubs Access Account
For deposits up to $10,000
Dynamo Kids Savings Account
$20 deposit/month and no withdrawals
Sydney Mutual Bank
Young Saver Account
For deposits up to $5,000
Source: Mozo.com.au compared 49 kids savings accounts from 43 providers in our database on 22 January 2020.
You can see that CBA’s interest rates for its young savers are higher than its Big Four rivals, but by no means the best on offer.
Yet the bank has plenty of them because it offers a payment of $5 for every 10 deposits made by students, $100 for every 100 students who sign up and – straight up – $200 a year for schools for taking part in school banking.
Indeed, an ABC freedom of information application revealed that in 2017 the institution paid nearly $400,000 in incentives to hundreds of Queensland schools alone.
It says this is to compensate schools for time spent on administration. It is also careful not to hook the payments to schools to the size of the deposits students make, but just to accounts opened and the number of deposits made.
A bank spokesperson said: “Commonwealth Bank has a strong and respected track record of providing quality financial education programs in Australia and we are always looking at ways we can improve our financial education programs.
“There are around 3800 Australian schools who voluntarily participate in our school banking program, which has been running in Australian schools for more than 85 years, and has been widely commended and supported by participants, parents, School Principals and educators.”
But if you need proof that this is not aimed at educating children but securing new sources of future revenue, CBA’s Dollarmites ‘financial literacy’ program featured a cartoon character named ‘Cred’ for a while there, before a public backlash saw it recognise that, this time, it had gone too far.
In any case, the customer-acquisition funnel that is school banking is so powerful that other institutions have more recently jumped on board. Logically, their pockets are not so deep and so the CBA stranglehold intact.
The alternatives on offer
Exclusive research by Mozo for Yahoo Finance found not just attractive accounts from smaller institutions (in the Mozo Experts Choice table above), but even educational offerings.
For example, Bendigo and Adelaide Bank is accredited in Queensland for the government school banking program, for which it also pays. However, just $10 is ‘donated’ to Queensland schools for each account opened.
A bank spokesperson confirmed to Yahoo Finance and Mozo: “Since 2015, an average of $240 per participating school has been provided through the program.”
In the rest of the country, any education it offers to schools is locally based and initiated by the community’s bank.
“Our purpose is to feed into community prosperity, not off it and our engagement with schools strictly adheres to this philosophy,” the spokesperson said.
Indeed Bendigo chief executive Marnie Baker told the parliamentary standing committee on economics late last year: “I think school banking is really important, as long as it's actually about literacy, awareness and building the skill within our young people to understand their financial affairs and their financial wellbeing.
“I think it is an essential service to provide.”
However, she confirmed the bottom-line benefit to the bank: longer-term loyalty.
“A lot of customers who came to us as young people have continued to remain customers and continued to increase their financial wellbeing,” she said.
The Mutual Bank’s Bank@School program also delivers a notable service to participating schools, providing financial literacy resources and staff at no cost and with no kickback.
“The Mutual Bank does not have a commission/payment structure for Bank@School, as schools are not incentivised to participate,” a spokesman said.
Time to break the CBA stranglehold
“It’s deeply concerning that the Commonwealth Bank is paying Australians schools commissions to gain unfettered access to impressionable primary school kids,” said Patrick Veyret, policy & campaigns adviser at Choice.
”These kickbacks entrench school loyalty to the Commonwealth Bank. The Dollarmites program provides an immediate commercial benefit to the bank and, more importantly, a long-term benefit, as many people keep their first account.”
The corporate watchdog ASIC is currently conducting an inquiry into school banking and its outcomes and efficacy, with the outcome expected in coming months.
Preliminary findings were that school banking does little to establish a lasting savings habit in its participants.
Further, those findings back up that school banking “increases the chances of a participating student remaining with the ADI [authorised deposit-taking institution] that provided the program after they finish high school and progress into adulthood”.
Choice has long urged parents and schools to “ditch Dollarmites” and stop CBA using schools as a marketing channel to push products to suggestible children.
Our kids should certainly not be sold into a scheme simply because it’s the highest bidder.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.