THIS WEEK'S NEWS YOU CAN USE

What's been happening in consumer financial services in the past seven days? Here are some stories, events, items and issues you may not have noticed.

• Small super funds doing better than big: the Financial Standard reported that all super fund returns have recovered to an average of 6.6% for the year ending October 2010 but the big funds are still "failing to fire". How does your fund's return compare with the industry average? We're very removed from our super in Australia but it is worth keeping an eye on, at least quarterly and talking to your fund if you're not happy with the bottom line. It's also worth checking your employer is paying what they should and that you have adequate insurance.
• The Tax Office will take a look at 10,000 self-managed super funds: one area that seems to be bringing SMSF trustees undone is the offering of financial support to fund members and their relatives. Unless such arrangements can be proven to be loans they are deemed to be early access to your super, which is illegal unless provided under very strict circumstances. If you're an SMSF trustee make sure you have a regular look at the ATO website, it has excellent SMSF information.
• All eyes on Asia: according to a report from Cerulli Associates: global emerging market funds domiciled in Europe are set to double between now and 2014 as more institutional investors take advantage of the rapid economic expansion of the Asian region. Stay tuned for future Truepenny posts on how to build safe exposure to the Asian boom.
• Early victories for Climate Advocacy Fund: Australian Ethical's Climate Advocacy Fund has scored some early victories since its launch earlier this year. Two resource companies, Aquila and Paladin have agreed to greater disclosure around their carbon emissions as a result of lobbying from the new fund, along with the Climate Institute. Stay tuned for more information about the Climate Advocacy Fund and other responsible investment opportunities.
• Rates on hold? The Reserve Bank is expected to keep interest rates on hold at its December board meeting although more rate rises are expected early in 2011. This is the bank's last opportunity to adjust rates before its February board meeting. So at least mortgagees have two months of certainty.

MOVE TO A MUTUAL

By Jackie Pearson

Abacus Australian Mutuals has today declared that the best way to improve competition in the Australian banking sector is to "empower consumers" and provide building societies and credit unions with fairer access to funding.
In terms of empowering consumers, yes, it is important that the current Senate Inquiry into banking competition does look at the impediments and complexities created by the big banks to make it extremely difficult for consumer to switch.
In particular it needs to take a hard look at mortgage exit penalties and the "bundling" of mortgages with an array of other products.
Abacus CEO Louise Petscher said the group's submission to the Senate Inquiry recommended the continuation of the government guarantee on deposits up to $1 million and the reinstatement of a flat fee wholesale guarantee to help non-banks compete with the big mortgage providers.
Meanwhile there is one definite way that we can all cement the position of credit unions and building societies as the fifth pillar of Australian banking.
We can take a serious look at the service, interest, fees and deals being offered by our local credit unions. We can compare those deals, closely, with the ones currently provided by the big four. In most instances (there are some inferior credit unions) you'll find the mutual down the road has more to offer than any of the big four.
So why not open an account with a mutual and gradually switch over all your direct credits and debits until you're at a point where you can tell your bank what you really think of it. And end the conversation with "goodbye".

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.