A damning report by the corporate regulator has found school banking programs are providing little benefit to students and are a marketing ploy to attract kids to open bank accounts.
The Australian Securities and Investments Commission’s report into school finance programs offered by banks found they were providing little to no long-term education in teaching children responsible saving habits.
Academic research included in the report highlighted concerning behaviour that the programs were being used as a marketing tactic to build brand loyalty with vulnerable younger customers under the age of 18.
“Young children are vulnerable consumers and are exposed to sophisticated advertising and marketing tactics by school banking program providers,” ASIC said in its findings.
“School banking program providers fail to effectively disclose that a strategic objective of these programs is customer acquisition.”
It also found schools were incentivised by banks by additional funding if the respective primary or high school offered the bank’s savings program.
According to the regulator, schools received $1.3 million in commission payments for using school banking programs.
Commonwealth Bank has the most influential banking program known as Dollarmites, which has been implemented across schools nationally. Bendigo and Adelaide Bank, and Hume and Heritage banks have also had similar programs in place.
The corporate watchdog’s survey found 68 per cent of parents were concerned about banks creating marketing material that targeted children.
It also showed 61 per cent of respondents believed it was just a tactic for the bank to attract new customers.
ASIC’s report found 63 per cent of schools in Australia offered banking programs, with more than 90 per cent of those signed up to CBA’s Dollarmites program.
A child under 12 with a Youthsaver account automatically joins the Dollarmites Club.
RateCity research director Sally Tindall said the findings should prompt the education sector to remove programs from schools that were targeting kids with advertising and marketing promotions.
“School should be a safe environment where kids aren’t exposed to financial marketing and advertising,” Ms Tindall said.
“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There must be a better way to teach our kids about money that doesn’t involve kickbacks.”
Victoria is the only state that has implemented financial literacy lessons within the education curriculum.
Despite the negative findings, ASIC’s survey noted the programs remained popular among parents, with 61 per cent of respondents saying they would be furious if school banking programs stopped.
According to RateCity, CBA’s Youthsaver has the fourth lowest savings rates on kids’ bank accounts. The highest on offer is CUA at 2.75 per cent.
“CBA’s Youthsaver is offering a rate of just 0.80 per cent – parents can teach their kids to do better than this by shopping around,” Ms Tindall said.
CBA has rejected ASIC’s claims, saying the findings are not “entirely consistent” with other international research or the bank’s internal assessment of school banking programs.
The bank said programs were highly regarded by schools, students and parents, with ASIC’s own research showing 84 per cent of parents were satisfied with the bank’s offering.
“Our school banking program reinforces the importance of regular savings, equips students with the knowledge of how to access and use a bank account and provides structure for parents to support their children to save regularly,” CBA executive Mark Jones said.
CBA internal research found more than 80 per cent of parents believed the bank’s banking program was valuable for school students.