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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

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? research and practice

  • 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
What are we doing? research and practice

  • Research

    • Causes of Financial Difficulty (2005)

  • Business operations

    • Responsible Lending commitments

    • Progress Loans

  • Innovative community programs

    • Saver Plus

    • MoneyMinded

    • MoneyBusiness

  • Research research and practice

  • Business operations

  • Innovative community programs

1 anz s research into financial difficulty
1. ANZ’s research into financial difficulty research and practice

  • 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?

Three core factors

Decreased Income &/ Increased Expenses research and practice

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
What does this tell us? research and practice

  • 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 research and practice

  • Business operations

  • Innovative community programs

A responsible lending
(a) Responsible Lending research and practice

  • 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
How are we doing this? research and practice

  • 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
Why are we doing this? research and practice

  • 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
Results so far research and practice

  • 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
Next steps research and practice

  • 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
(b) Progress Loans research and practice

  • 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

Objectives research and practice

  • 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
Eligibility and features research and practice

  • 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
Roles of the partners research and practice

  • 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

Results so far1

Other research and practice18%

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 far2
Results so far research and practice

  • 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 research and practice

  • Business operations

  • Innovative community programs

Innovative community programs
Innovative Community Programs research and practice

  • 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