21 June 2017
A combination of high confidence and low financial literacy is likely costing Aussie borrowers and depositors thousands.
According to a new ME survey of 1,500 Aussies, only 13% rated their banking knowledge as ‘below average’ but 60% failed1 a basic banking literacy quiz.
ME Head of Deposits and Transactional Banking, Nic Emery, said the findings indicate many banking customers may be making poor decisions when it comes to banking.
“Among the most worrying findings, 74% had no clue about home loan comparison rates, meaning they may not be aware of the fees they paying, while 61% mistakenly believe they’d lose money if their bank went under despite the government guarantee, which means they may be ignoring higher deposit rates at smaller banks.”
Key banking knowledge gaps:
• 74% don’t know what a comparison rate is
• 74% don’t know putting a car purchase on a lengthy home loan may cost more than a separate personal loan
• 73% don’t realise paying the minimum off their credit card would means decades to pay off it off
• 61% think they’d lose their money if their bank went under, despite the government guarantee
• 58% don’t understand the advantages of a personal loan over a home loan or credit card
• 42% don’t understand compounding interest – the benefit of being patient with savings
• 36% don’t know that reducing the length of a loan reduces the amount of interest paid
Emery said contributing to the problem was a lack of education, with 35% admitting they’d done nothing to educate themselves on banking products and services.
“Some Aussies fail to educate themselves because they find banking dull and complex and think they know best, while others find working with numbers difficult and put their head in the sand.
“But like it or not, banking is part our daily lives and understanding the basics is a life-skill, like being able to cook and catch public transport.
“My advice is to get informed. There are plenty of educational options like the Government’s MoneySmart website to ME’s engaging online school of money, ed. Alternatively, go see a completely independent advisor like an accountant or enroll in a course.
“A few good rules of thumb to start with are to review your banking products annually like you might an electricity or insurance contract, and be prepared to switch if you’re not getting a good deal. It’s easy once you know how.
“And banking choices are best made on facts – a hunch or a guess could lose you thousands.”
ME’s online survey was completed in June 2017 by 1,500 Australians.
1. A ‘pass’ means answering 50% of questions correctly.