MONEY TOO TIGHT TO MENTION?

By Jackie Pearson
A new report by The Australia Institute explains why Australians are in so much debt.
The report, entitled Evidence versus emotion: how do we really make financial decisions? says that a large proportion of the community "confesses to not even knowing what their mortgage interest rate is or who their electricity provider is."
The report labels these consumers "the oblivious". By contrast a much smaller group are described as "human calculators" ... "hyper-vigilant in ensuring that they do not pay credit card interest, they compare phone plans and seek out things they need when they are on sale".
According to the report, orthodox or noeclassical economics is based on the idea that people behave rationally, whereas behvarioral economics is based on how people really do behave.
Orthodox economics makes some pretty interesting assumptions about human behaviour, according to the report, such as that "consumers have access to complete information, collecting and analysing information is costless... suppliers have no market power, there are no spillover costs or benefits associated with consumption decisions... people are motivated solely by self-interest".
The report goes on to say that behavioural economics indicates that, in reality, consumer behaviour is completely at odds with the above description. Instead we are creatures of habit, concerned about the approval of others, bad at computation when making decisions, want our actions and behaviours to be in line with our convictions,..."
According to the study's results:

• 28% of the population are over-confident. They think they are better-than-average at making financial decisions but their actual behaviour suggests otherwise;
• 18% admit to being overwhelmed but think it's too difficult to take steps to get a better deal;
• 30% are playing catch-up: don't pay their credit card balance each month and continue to use it to pay for essentials;
• 41% are oblivious: unconcerned or unaware that they could, in fact, get a better deal on their banking, mortgage or phone plan;
• 44% of people who took out a mortgage recently are described as 'eternal optimists': they took out the loan without considering the possibility of losing their job or getting sick

The other three categories are compartmentalisers, spending hawks, and, of course, the human calculators. 
So which group do you fit into? Are you a human calculator or honestly oblivious when it comes to your finances, or somewhere in between?
Do you know, for example, how much money you owe on your credit cards and how long, if you stopped making new purchases on those cards today, it would take you to pay them down to a zero account balance?
Can you honestly answer whether you are beating the bank when it comes to paying off your mortgage or are you completely behind the eightball, making regular redraws and not quite sure how many more years it will take you to own your home outright.
Todays headlines are talking about the European sovereign debt crisis pushing to global economy into stage two of the Global Financial Crisis in 2011.
Many Australians are, unfortunately, having their own personal financial crises right this minute. Another interest rate increase, a job loss or illness and they could be pushed over the edge.
According to The Australia Institute 52% of the respondents who had experienced financial difficulties in the past year said they did not pay off their credit cards in full. Forty one percent of all respondents said if they were in financial difficulty they wouldn't talk to anyone about it but would attempt to sort it out themselves.
In recent years the Commonwealth Government and Australian Securities Commission have been pouring substantial funds into improving our financial literacy. The Australia Institute Study would seem to indicate that we still have a long way to go.
It also adds evidence to the argument that many people don't understand the increasingly complex nature of the financial transactions they enter into. I commend the study to you. You don't have to be a rocket scientist to understand it and it could be a helpful starting point for changing your attitudes to your own financial situation.

Beware bank service scam

By Jackie Pearson
I had a call on my home phone at lunch time today from a woman claiming to represent the Australian Bankers' Association.
She was asking me a series of questions about my satisfaction with my current financial institution.
I presumed she was carrying out genuine market research in the wake of the NAB payment system meltdown so I commenced answering her questions as sincerely as possible.
I am an NAB customer so, to be honest, she copped an absolute earful. I explained that I could not believe a highly-profitable financial institution with the brand-new customer-focussed slogan "Less take, more give" could have systems that would allow such chaos to ensue, leave customers stranded (not to mention customers from other instos) and then take out full-page newspaper ads to say gee I'm sorry before the problem was already fixed.
Anyway she only asked me two questions before hanging up. I can't quite figure out why the conversation didn't continue.
Then it occurred to me that maybe it wasn't the ABA calling at all. So I called them, as a consumer, not a journalist.
They told me the "research" call was definitely a scam. The ABA is not currently conducting phone-based market research to check on customer service satisfaction.
So if you get such a call, give no information, particularly your personal banking details, accounts, PINS etc.
We now know that even a bank as big as the NAB can "misplace" millions of payments and take five days to find them. However, we also know banks don't ever ask you for personal account details over the phone so never fall for the "market research" trick.

NAB PAYMENTS MELTDOWN MORE THAN A GLITCH

I cannot believe so many mainstream media outlets are continuing to refer to last week's meltdown of the National Australia Bank's payment system as a glitch. People were left stranded around the country with no cash.
The bank's solution was to offer "cash advances" of limited amounts if you could make it to a branch with proof of payment.
CHOICE has spoken out today (five days after the start of the problem) to say the payment systems our banks are relying on are out-of-date.
Surely this is a governance issue. As consumers we are essentially told to have our pay credited to our account automatically. That's the way the world works so I would think that puts a pretty strong onus on the institutions we entrust with our funds to ensure, even guarantee, access to those funds.
Perhaps it's time the banks used some of their enormous profits to actually build and provide the infrastructure and technology we supposedly pay all those fees to finance.
Or perhaps it's time consumers voted with their feets and, once restored and all funds make it into the accounts they should be in, we close our NAB accounts and find a more trustworthy keeper of our hard-earned money.

What you need to know about our new credit laws

The mainstream media doesn't seem to be having a very close look at the new national credit laws and there's a great deal about them that needs to be scrutinised.
The key concern of most consumer advocates is that they will fall short of providing borrowers with adequate protection.
They are based on disclosure and the idea that a lender cannot provide a loan to a borrower unless they are certain that loan contract is "not unsuitable".
NOT UNSUITABLE. How Yes Minister does that sound? This new "responsible lending" regime is supposed to ensure that consumers won't enter into loans they can't afford to repay.
Their main idadequacy is, as usual, that the consumer is supposed to read and understand the fine print.
Of course, lenders and brokers now have to be licensed and must comply with the legal conditions of their license.
The bottom line is that no borrower should be of the opinion that the system will now be foolproof. The onus is on you, no matter how hungry or desperate you are to get that loan, to check your lender really has made sure it's not unsuitable, that you really can afford it without hardship.
My next post will talk about how you can go about borrowing money SAFELY, without risking hardship.