ASIC slams school banking programs

The finding comes in a new report from the Australian Securities and Investments Commission (ASIC), which sought to determine the benefits and risks of school banking programs. 

School banking programs have long facilitated the establishment of bank accounts for students, with 60 per cent of primary school students participating.

These programs are designed to support arrangements for students to make ongoing deposits into those accounts at school. 

ASIC conducted qualitative and quantitative consumer and academic research to identify why banks, schools and students engage with these programs, understand whether banks assess the impact of their programs on students’ savings habits, and analyse the long-term impact on children of marketing through these programs.

School banking programs don’t change savings behaviour: ASIC

According to Report 676, the schemes offered by the banking providers do not improve children’s savings behaviour.

ASIC also found that payments to schools for these programs – which totalled nearly $2.2 million in the financial year ending 30 June 2019 (but dropped to $1.3 million in FY20 due to the school closures resulting from the COVID-19 pandemic) – incentivise schools to encourage greater participation.

Additionally, the review found that school banking providers fail to effectively disclose that a strategic objective of these programs is customer acquisition, with ASIC warning that young children are vulnerable consumers. 

Scrutiny by ASIC of the long-term impact of marketing these programs on children, which was initiated in September 2020, found that young children are vulnerable consumers and are susceptible to marketing tactics due to “limited cognitive capacity”.

The regulator outlined that young children may lack the ability to “effectively understand” the connection between school banking programs and customer acquisition; the persuasive impact of implicit tactics such as competitions, rewards and prizes; and that “content formatted as a game or entertainment is advertising”. 

The quantitative research – which included a survey of 1,349 Australian residents aged 18 years or over – revealed that 84 per cent of parents with children participating in school banking programs were satisfied with the program.

Many parents also said they believed school banking programs were beneficial because they teach kids to save and, if not offered, children would not learn about money.

However, 68 per cent of this group were concerned about banks marketing to primary school children and 61 per cent considered that these programs were just a way for banks to get future customers.

Overall, ASIC’s review found that:

• participation in a school banking program does not appear to improve the savings behaviour of account holders, either in the short or long term (compared with account-holders who do not participate in a school banking program);
• classroom activities and families are generally regarded as more effective for teaching students about saving money and developing financial capability; and
• parents, peers, schools and teachers most significantly influence a student’s attitude to savings behaviour.

Banks take action following review

According to ASIC, since the key findings of the review were made available to the banks, and given the “changed school environment as result of the COVID-19 pandemic”, several lenders have since told the regulator that they would be terminating their school banking programs.

Bendigo, IMB, Northern Inland and South West Credit have said they would be terminating their school banking programs, while CBA, Heritage, Hume and LLL Australia advised that they would be reviewing and modifying their school banking programs considering the findings of this review. 

CBA reportedly wrote to ASIC earlier this month advising it is modifying its program to: 

• enhance the financial education, measurement and evaluation of its program; 
• remove statements from digital and printed program materials about program objectives that cannot be substantiated; 
• not distribute program materials to students; and
• ensure greater visibility of program payments.

Recommendations for school communities

Based on findings from the review, ASIC has developed a set of questions that school communities could utilise to assess the appropriateness of school banking programs in the future. 

These cover:

• Understanding the objectives of school banking programs; 
• Considering potential harms and benefits of school banking programs;
• Understanding incentives associated with school banking programs;
• Considering the impact of marketing to children in the school environment;
• Understanding and disclosing commercial interests related to school banking programs;
• Establishing a monitoring and evaluation plan; and
• Testing whether the programs are aligned to community expectations.

[Related: ASIC opens consultation on school banking schemes]