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Financial Literacy & Inclusion: The state of play in research and practice. Guy Mendelson Head of Personal Loans RMIT Conference – Financial Literacy, Banking and Identity 25 October 2006. Why is Financial Literacy and Inclusion important to ANZ?.

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Financial Literacy & Inclusion: The state of play in research and practice

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Financial Literacy & Inclusion: The state of play in research and practice

Guy Mendelson

Head of Personal Loans

RMIT Conference – Financial Literacy, Banking and Identity

25 October 2006

Why is Financial Literacy and Inclusion important to ANZ?

  • 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 confidentconsumers more deeply engage with financialinstitutions

Rebuilding ourreputation

What are we doing?

  • Research

    • Causes of Financial Difficulty (2005)

  • Business operations

    • Responsible Lending commitments

    • Progress Loans

  • Innovative community programs

    • Saver Plus

    • MoneyMinded

    • MoneyBusiness

  • Research

  • Business operations

  • Innovative community programs

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?

Decreased Income &/ Increased Expenses

Poor Financial Decision-Making

Three core factors

Over-Spending &/ Over-Commitment

Unhealthy Financial Ways of Thinking

Circumstances Out of Individual’s Control

Lack of Skills & Knowledge

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

  • Research

  • Business operations

  • Innovative community programs

(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

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

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

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

Next steps

  • ANZ’s promises is a first step

  • Spotting customers in difficulty

    • proactive offer of assistance

  • New products

    • repayment flexibility

  • Transparency

    • online calculator

(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


  • 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.

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)

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


Whitegoods 20%


Car rego/ repairs6%



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

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

  • Research

  • Business operations

  • Innovative community programs

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

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