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
Total interest earned
Ziggy Kids Saver
Queensland Country Bank
Police Bank/Bank of Heritage Isle
Dynamo Kids Savings Account
Scoot's Super Saver
Smart Saver Account (Under 25)
Teachers Mutual Bank
Dollaroo Kids Account
Credit Union SA
Childrens Savings Account
YAS Young Achiever Savings Account (S50)
Illawarra Credit Union
Police Credit Union
Way Cool Saver
People's Choice Credit Union
Young Saver Account
Northern Inland Credit Union
Summerland Credit Union
Laboratories Credit Union
Young & Free Student Account
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.