Financial Literacy & Inclusion: The state of play in research and practice
description
Transcript of Financial Literacy & Inclusion: The state of play in research and practice
![Page 1: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/1.jpg)
Financial Literacy & Inclusion: The state of play in research
and practice
Guy MendelsonHead of Personal Loans
RMIT Conference – Financial Literacy, Banking and Identity
25 October 2006
![Page 2: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/2.jpg)
• Improved Financial Literacy and Inclusion can assist in responding to long-term strategic issues:
• Widespread staff support for financial literacy initiatives because of relevance to “what we do every day”
• Staff rated ‘Community involvement’ as our third highest current value in the 2006 Engagement survey
A more informed market place
lessens market failures which
prompt regulation
Empowered and confident
consumers more deeply engage with
financialinstitutions
Rebuilding ourreputation
Why is Financial Literacy and Inclusion important to ANZ?
![Page 3: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/3.jpg)
What are we doing?
1. Research
a) Causes of Financial Difficulty (2005)
2. Business operations
a) Responsible Lending commitmentsb) Progress Loans
3. Innovative community programs
a) Saver Plusb) MoneyMindedc) MoneyBusiness
![Page 4: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/4.jpg)
1. Research
2. Business operations
3. Innovative community programs
![Page 5: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/5.jpg)
1. ANZ’s research into financial difficulty
• Conducted qualitative research into the causes of financial difficulty in 2005
• Part of our updated quantitative research into the levels of financial literacy
• To respond to the growth in household debt in Australia and address questions about the marketing practices of lenders
• Qualitative research focused on the 2% of the population who:
– feel ‘out of control’ and– have borrowings of some type
• What are the core factors causing financial difficulty and what is the role of the lender?
![Page 6: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/6.jpg)
Three core factors
Lack of Skills Lack of Skills & Knowledge& Knowledge
Circumstances Out Circumstances Out of Individual’s of Individual’s
ControlControl
Unhealthy Unhealthy Financial Ways Financial Ways of Thinkingof Thinking
Over-Spending &/ Over-Spending &/ Over-CommitmentOver-Commitment
Decreased Income Decreased Income &/ Increased &/ Increased
ExpensesExpenses
Poor Financial Poor Financial Decision-MakingDecision-Making
![Page 7: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/7.jpg)
What does this tell us?• Financial difficulty most often due to behaviour and traits of the
individual or unexpected events (or a combination)
– lack of financial skills and knowledge is only a small factor
– many in difficulty had good financial literacy skills but they were over-ridden by unhealthy ways of thinking
• People particularly vulnerable where they do not have the capacity to deal with financial pressure when it arises
• Lenders can indirectly influence the path to financial difficulty
– CLI offers provide the ‘opportunity’ to access credit where customer has pre-existing ‘unhealthy ways of thinking’
– ‘it must be OK if the lender sent it to me’
• ANZ’s focus is to filter the most vulnerable customers from CLI offers
![Page 8: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/8.jpg)
1. Research
2. Business operations
3. Innovative community programs
![Page 9: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/9.jpg)
(a) Responsible Lending• The revised ANZ Customer Charter includes new ‘responsible
lending promises’ (introduced November 2005)
• Primarily aimed at credit limit increase offers
• ANZ will:
– not offer a CLI to those with poor recent credit performance or struggling to meet repayments
– not offer a CLI to customers whom we know are on a fixed income (eg. receiving a government benefit) and
– with any CLI offer, outline how much the minimum monthly repayment would increase if the offer was accepted
• ANZ’s performance on these promises is independently audited every 6 months
![Page 10: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/10.jpg)
How are we doing this?• Credit card customers go through an enhanced filtering process
- they will not receive a CLI offer if:
– they have been repeatedly overdue in the last six months
– they have made only minimum payments (or slightly above) for the last 6 consecutive months
– they have an ANZ deposit account receiving Centrelink, DSS or DVA benefits
– they have a deeming account or other ANZ account specifically designed to receive benefit payments
• Remaining customers go through a second filter based on behavioural scores:
– eliminates customers with unreliable credit behaviour over previous 12 months or those showing signs of struggling with repayments
![Page 11: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/11.jpg)
Why are we doing this?
• We have an obligation to lend only to those customers we believe can repay
• Consistent with running a sustainable business:
– to ensure acceptable level of debt losses– to meet community expectations that we lend responsibly
• Driven by our research into the causes of financial difficulty which tells us:
– lenders have a role in causing financial difficulty
– for the most part financial difficulty is not caused by a lack of knowledge or information
– excluding the most vulnerable is more likely to be effective than increasing disclosure or asking for more details
![Page 12: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/12.jpg)
Results so far• Pool of customers who would otherwise have received a CLI
offer reduced by around 11%
• Breaking this down:– 5% reduction due to exclusion of customer making late or
only minimum payments– a further 6% reduction due to exclusion of customers on
fixed incomes
• Improving data matching exercise
• Verifying Government benefit codes to identify eligible customers
![Page 13: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/13.jpg)
Next steps• ANZ’s promises is a first step
• Spotting customers in difficulty– proactive offer of assistance
• New products– repayment flexibility
• Transparency– online calculator
![Page 14: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/14.jpg)
(b) Progress Loans• Small loans program for people on low incomes (who would not
normally fit ANZ’s lending criteria)
• Developed in partnership with Brotherhood of St Laurence, recognising their expertise and proven track-record in microcredit
• Developed following research conducted for ANZ by Chant Link and Associates into levels of financial exclusion in Australia:
– Around 6% of adults have minimal financial access, owning only a transaction account
– Around 120,000 people, or 0.8% of the population, could be considered totally excluded with no financial products
• Launched in May 2006 and in 2007 ANZ and the Brotherhood plan to expand the partnership to other community organisations across Australia
![Page 15: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/15.jpg)
Objectives• Affordable and transparent: cost comparable to standard
personal products and mainstream consumer protections
• Sustainable: financially viable in the long term
• To build scale: effectively targeted to reach as many eligible consumers as possible – this also contributes to financial sustainability
• ‘Inclusive’: loans on normal commercial terms so participants can build a good repayment history, a sense of social inclusion and confidence to apply for future mainstream credit.
![Page 16: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/16.jpg)
Eligibility and features• To be eligible, individuals must:
– be on a low income with a Health Care or Pension Card– be up-to-date with their bills– have lived in their current residence for a minimum of six months
• Progress Loans features:
– between $500 and $3,000– loan term ranges from 6 months to 3 years– pilot interest rate of 12.70%– one-off approval fee of $40 applies
• Loan purpose
– household items (including whitegoods)– education or self-improvement– medical and dental purposes– motor vehicles (including registration and insurance)
![Page 17: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/17.jpg)
Roles of the partners• Brotherhood of St Laurence:
– Program promotion– Participant recruitment– Initial assessment of of applicant’s ability to make
repayments– Check of applicant’s ID and income– Explain product features and requirements to the applicant
• ANZ:
– Review the credit history and record of the applicant– Receive initial assessment from the Brotherhood and make
the formal credit decision based on modified credit approval criteria
– Provide the funding and training for dedicated loans assessors at the Brotherhood
– Loans advanced under the program are fully funded by ANZ
![Page 18: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/18.jpg)
Results so far• On track to meet December 2006 objective
• Loan purpose:
• Key reason for declinals – negative credit bureau record– Brotherhood encourage these customers to obtain the
bureau information and coach them in how to rectify this situation
Whitegoods 20%
Furniture25%
Car22%
Other18%
Computer6%
Car rego/ repairs
6%
![Page 19: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/19.jpg)
Results so far• Customers are more careful and considered with their personal
finances than mainstream customers– This has ensured that no delinquent portfolio activity has
occurred
• ANZ needs to employ a different approach when liasing with these customers – more education focused
![Page 20: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/20.jpg)
1. Research
2. Business operations
3. Innovative community programs
![Page 21: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/21.jpg)
Innovative Community Programs
• Saver Plus– Financial literacy and matched savings program– Helped 668 families together save $617,000 in 2003-05– Being expanded from four to 18 regions, with a goal to involve
5,400 people between 2006 – 2009– Delivered with Brotherhood of St Laurence, The Smith Family,
Berry Street Victoria and The Benevolent Society
• MoneyMinded– Adult financial education program delivered by financial
counsellors and community workers– 15,279 participants in past 12 months– Goal to reach 20,000 over next 12 months
• MoneyBusiness– Money management initiative in six remote Indigenous
communities in WA and NT– Delivered with the Dept Family, Community Services and
Indigenous Affairs
![Page 22: Financial Literacy & Inclusion: The state of play in research and practice](https://reader035.fdocuments.in/reader035/viewer/2022081603/56815a68550346895dc7b3cb/html5/thumbnails/22.jpg)
This is the last slide. Click here to return to slide 1