The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Nick Sherry

Nick Sherry

Minister for Superannuation and Corporate Law

3 December 2007 - 8 June 2009

Speech of 08/10/2008

NO.029

Launch of ANZ Survey of
Adult Financial Literacy in Australia

Melbourne

8 October 2008

Good morning and thank you for that kind introduction.

I would like to acknowledge the Traditional Custodians of this Land the Wurundjeri (woy –wur – rung) people, their proud history and ongoing contribution to this area. I would also like to pay respect to the Elders both past and present of the Kulin (Koolin) Nation.

I am delighted to have the opportunity to help launch the third ANZ Survey of Adult Financial Literacy in Australia.

I would like to commend the ANZ for its work in this field. Your longstanding dedication and commitment to financial literacy through your surveys is impressive.

Everyone here today understands the importance of financial literacy — both in improving the lives of all Australians, and in helping our economy to operate more smoothly.

Whatever their age, income level or background all Australians need the skills… the knowledge… and the motivation to manage their money.

Financial literacy is an important skill that assists individuals and families to secure their financial futures.

Financial literacy is a critical component to improving financial capacity levels.

Competent, confident and engaged consumers who make sound financial decisions will not only be improving their own lives but also society as a whole.

Raising financial literacy levels will also improve household savings performance… reduce dependence on Government allowances… and help lower the level of problem debt.

More broadly, financially educated consumers can increase their economic participation… help increasingly complex financial markets to operate more efficiently… and drive competition by demanding products that are more responsive to their needs.

In short, financially literate consumers are a vital ingredient in future economic growth.

This is why the Australian Government has an ongoing commitment to improving the financial literacy levels of all Australians — particularly the more vulnerable members of our community.

As you might be aware, the Government recently decided to consolidate its financial literacy response by creating a new Office of Financial Literacy within the Australian Securities and Investment Commission.

As the industry regulator, ASIC promotes informed participation in the financial system. So, it is ideally positioned to take the lead in advancing financial literacy in Australia.

By bringing together the twin functions of financial literacy and consumer protection, the Government is strengthening the role of ASIC in safeguarding Australia's economic reputation and wellbeing.

Challenges ahead

We all recognise that, when it comes to financial literacy, there are no quick fixes.

This is why ASIC's approach to financial literacy will be designed to create and sustain long-term generational improvements in financial literacy.

To achieve this goal, we need to understand financial behaviour. ASIC's approach will be based on evidence… grounded in our understanding of financial capability levels in the community… and informed by research.

The research commissioned by ANZ is making an important contribution to our knowledge about financial literacy in the community, and how people behave in managing their money.

Government initiatives across different portfolios

As part of our comprehensive approach to financial literacy, the work of ASIC will be complemented by the programs ofother Australian Government agencies.

In this year's Budget, the Federal Government increased funding for financial counselling services by $20 million over four years. Specifically, we increased funding for the Commonwealth Financial Counselling program by $10 million, effectively doubling the size of the program.

Just last week, as part of this initiative, the Government announced $3.5 million in funding for 41 community and local government organisations that provide free counselling services to people who are experiencing personal financial difficulties.

The Government will shortly be calling for applications for up to 20 new financial counselling positions to be established in high needs areas.

The increased funding will ensure that services are more readily available and can be accessed when needed – at critical turning points and before small problems become large ones.

In addition, Centrelink offices across Australia provide clients with information and assistance on specific financial issues. This has been boosted by the Government's commitment of $10 million over four years to develop and distribute easy-to-understand material to help Australians to manage their money better.

Consumer protection initiatives

I am also delighted to talk about the Rudd Government's $71 million historic plan for single, standard national regulation of consumer credit, which will significantly boost consumer protections and cut red tape for business.

This two-phase action plan for Commonwealth regulation of consumer credit was agreed by the states at last week's COAG meeting.

This delivers on our commitment to modernise Australia's key financial services with the provision of single national regulation.

This reform is vital for our 21st century national economy, and for continuing consumer confidence in our fast-changing, increasingly complex financial services marketplace.

It is reform that has been badly neglected by previous governments but is all the more urgent in the face of turbulence on global financial markets.

The two-phase action plan follows the release of the Government's Financial Services and Credit Reform Green Paper in June and agreement at the March and July COAG meetings to transfer consumer credit regulation to the Commonwealth.

Under the first phase of the action plan, the Commonwealth will assume responsibility for key credit regulation, the Uniform Consumer Credit Code (UCCC), by enacting it as Commonwealth law.

As part of the transfer, the Commonwealth will enhance the UCCC with new measures designed to protect consumers.

The Government is moving to give consumers a new level of protection by including, for the first time, a requirement for lenders to lend responsibly, and for finance brokers, mortgage brokers and lenders to be licensed.

For the first time, borrowers will be able to appeal to an external dispute resolution body to which all licensed lenders will have to belong.

So called payday lenders will also be targeted, bringing them under a national licensing regime for the first time and forcing them to lend responsibly, including assessing borrowers' capacity to repay loans.

Also known as deferred deposit lenders, payday lenders charge extortionate fees and charges on small loans and cash advances to some of the most financially vulnerable people in the community – those who would not normally qualify for credit from a bank or other financial institution.

The UCCC will also be extended to cover mortgages for residential investment mortgages for the first time. By doing so, the Government is expanding safe regulation of mortgages which will assist in limiting overextended levels of mortgage debt.

Phase two of the action plan will look at possible further rules to stem predatory or undesirable lending practices - such as a review of credit card limit extension offers; an examination of state approaches to interest rate caps and possible regulation of reverse mortgages.

Including small business loans and instalment lending in the UCCC will also be explored, as will reform of mandatory loan comparison rates and default notices.

In short, consumers will be more informed… more empowered and better protected.

This truly national regime will also help to ensure that the Australian credit market remains active and competitive — both domestically and internationally.

The first phase changes will be dealt with in legislation by the end of the first half of 2009 – with a two-year transition period for affected businesses - while any second phase changes would become Commonwealth legislation by the first half of 2010.

Simplified product disclosure documents

I want to ensure that consumers are not faced with 50 to 100 pages of fine print they would need a finance (or a law) degree to understand.

This is why the Australian Government set up the Financial Services Working Group. The Working Group has already produced an easy-to-understand, four-page product disclosure document for the First Home Saver accounts. Its next projects are to develop simplified product disclosure documents for superannuation and managed investment products.

Fair contracts and advice

Another way we are benefiting consumers is by regulating unfair contract terms, being led by my colleague Chris Bowen.

Unfair contract terms can be used to harm and exploit consumers. They can also reduce competition by limiting consumer choice and the ability to exit detrimental consumer contracts.

The Government will include a provision in the new single, national consumer law to regulate unfair contract terms. This provision will apply to all sectors of the economy, including banking and financial services. It will provide redress options for consumers who incur unfair exit fees and help consumers to switch mortgage accounts.

Importance of partnerships

A coordinated national approach will leverage the considerable commitments that a range of agencies — Government, private, and not-for-profit — have already made - to promote financial literacy.

This is an ambitious agenda that aims to forge a new path of co-ordination and cooperation. Unfortunately, I don't have time this morning to outline the wealth of services and products provided by the large range of organisations.

But it would be remiss of me not to mention some of the valuable initiatives run by the ANZ, its financial education programs MoneyMinded and MoneyBusiness, its leading SaverPlus, developed in partnership with the Brotherhood of St Laurence, and the ground-breaking My Moola financial literacy package for indigenous Australians developed in conjunction with First Nations Foundation the local Shepparton community.

There are many others out there run by insurers, superannuation funds and industry associations.

There is also a range of services provided by not-for-profit organisations, some of which are represented here today — the Smith Family, the Benevolent Society, the Brotherhood of St Laurence, and Berry Street.

Conclusion

Ladies and gentlemen, it's clear that cooperation coordination and good research are essential to delivering the kind of financial literacy outcomes we all want.

By working together, I trust that we can create a more financially-capable Australia.

The research commissioned by the ANZ Bank is an important contribution. Once again, I would like to commend the ANZ for its commitment to this field.

Thank you.