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The $1.3m annual bribe banks have paid to access our children

Nicole Pedersen-McKinnon
·Contributor
·6-min read
Two school children running out the school gate at the end of the day.
Image: Getty

No longer do you have to believe me: our national corporate watchdog has spoken… and school banking is bad.

Yes, an extensive review of the programs offered by 10 banks to our often-youngest students, has found they are of little educational help to children and expose them to sophisticated advertising and marketing targeting.

Yet the operating banks do not disclose that customer acquisition is a strategic objective.

The key problems for kids

Far from establishing a lifelong savings habit, there is evidence that the information given to children via school banking fosters complacency about interest rates. And you can bet that any bank delivering financial literacy intel is not going to mention the magic money mantra: shop around.

CHOICE research backs this up. Almost half of all Australians’ first bank account was a Dollarmite account with the largest school-banking operator Commonwealth Bank.

One-third of those Aussies then kept that account into adulthood.

And the rates don’t get any better. CBA’s Youth Saver account offers just 0.8 percent, which ranks it a pitiful 22nd on rate, compared to the competition, says RateCity research.

How kids bank accounts compare

Rank by interest earned

Bank

Account

Max Rate

Total interest earned

1

CUA

Youth eSaver

2.75%

$375

2

Auswide Bank

Ziggy Kids Saver

2.01%

$269

3

Australian Unity

Kids Saver

2.00%

$268

4

Queensland Country Bank

Star Saver

1.90%

$254

4

Police Bank/Bank of Heritage Isle

Dynamo Kids Savings Account

1.80%

$239

6

BCU

Scoot's Super Saver

1.75%

$233

7

Newcastle Permanent

Smart Saver Account (Under 25)

1.55%

$205

7

Teachers Mutual Bank

Mighty Saver

1.55%

$205

9

IMB Bank

Zoo

1.50%

$199

10

Gateway Bank

Dollaroo Kids Account

1.50%

$198

11

Credit Union SA

Childrens Savings Account

1.40%

$185

12

Greater Bank

Life Saver

1.40%

$185

13

Geelong Bank

YAS Young Achiever Savings Account (S50)

1.30%

$171

14

Illawarra Credit Union

Wildlife Saver

1.70%

$164

15

Police Credit Union

Beans

1.20%

$158

16

The Mutual

Mighty Mutual

1.05%

$152

17

P&N Bank

Way Cool Saver

1.10%

$144

17

People's Choice Credit Union

Young Saver Account

1.10%

$144

19

Northern Inland Credit Union

Super Saver

1.09%

$142

20

Summerland Credit Union

SuperSaver

1.25%

$134

21

Westpac

Bump

0.80%

$104

21

CBA

Youth Saver

0.80%

$104

23

NAB

Reward Saver

0.55%

$71

24

ANZ

Progress Saver

0.50%

$65

25

Laboratories Credit Union

Young & Free Student Account

3.50%

$1

Source: RateCity.com.au

Meanwhile I do my own modelling each year on the longevity impact of sticking with a Big 4 bank for your debt products. My Interest Integrity Index tracks how much extra you’ll overpay if you stay, rather than switch to the most competitive institution.

For one average mortgage, personal loan, and credit card, it’s more than $150,000. Which subsidises an awful lot of the customer acquisition funnel that is school banking.

For anyone nostalgic about school banking and their old money box, remember that when the Commonwealth Bank launched its program in 1931, it was government-owned and independent.

Now, as one parent commented to the ASIC review: “I feel like it [school banking] is just a way for the banks to get my child’s information and as soon as they turn 18, send them a credit card offer.”

And ASIC commented in the report: “Young children are vulnerable consumers and are exposed to sophisticated advertising and marketing tactics by school banking program providers.”

“Providers make use of persuasive advertising strategies to deeply engage participants with their brand. Little consideration is given to the participants’ abilities to filter marketing messages.”

What else the review found

The other big concern is the hidden ‘kickbacks’. That banks usually pay cash-strapped schools for access incentivises principals to make the decision on financial rather than educational merit.

In the financial year 2020, $1.3million was paid to schools, by CBA, Bendigo, Hume, IMB, Northern Inland and LLL Australia. But don’t miss that this was less this year, because it was COVID-affected.

In the financial year 2018, the figure was $2.5million.

Such payments comprehensively bias the “yes” or “no” to school banking.

Then, the said successful bank receives tacit endorsement from the school and what ASIC called a “trust halo”.

Note there is also only ever one banking program offered.

This all makes it far more likely that brand loyalty will be established and the banks will win a customer for life.

And this is significant given that mid-this year, 4000 schools or 63 per cent of primary schools offered school banking. About 8 per cent of students hold 180,000 accounts.

Is it any wonder that CBA is our country’s biggest bank?

How will kids learn financial literacy now?

Seeing the writing on the watchdog’s wall, several institutions have already withdrawn from school banking - these are Bendigo, IMB, Northern Inland and South West Credit.

That leaves six other banks, including CBA with Dollarmites, in the field. CBA is one of four providers that has told ASIC it will review and modify its program.

Having said that, in late November, Victoria became the first state to ban school banking, in anticipation of this review.

But what you need to realise is that financial literacy is taught officially in schools. Since 2004, the Australian Government Financial Literacy Board, under the steerage of the wonderful Paul Clitheroe, has been working to make it so.

Your child will never come home and say: “Hey, we studied financial literacy in school today.” But real-life money lessons are embedded in subjects you would expect, and those as unlikely as Science and English.

For any teacher who doesn’t know, there are free lesson plans available at moneysmart.gov.au.

Even so, as parents, it’s vital to complete the financial success-circle.

Model appropriate money behaviour. Explain that when you’re flashing the plastic, you have to repay that money. Preferably explain the money is already earned and sitting on the card.

Manage your goals and spending, and speak often to your children about both.

But probably key is to teach your kid, from a very early age, the ability to delay gratification. After all, saving first for everything you buy – so you don’t pay a cent extra in interest – is the ticket to financial freedom.

What is the future of school banking? For now, ASIC has developed a set of questions to consider to aid schools in assessing the appropriateness of a program.

But I wouldn’t be surprised if more states follow Victoria’s suit and ban it altogether.

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.