Barefoot Investor: Financial intelligence begins in childhood

THE Commonwealth Bank has the youth of Australia in its sights, with its latest advertising campaign targeting young people to sign up for a “low-interest” Essentials credit card. This is how the game begins, so parents and teachers beware, writes the Barefoot Investor.

CAN you remember when you got your first credit card?

Mine was automatically bundled into my NAB student banking package when I went to university. At the time NAB said it was a smart idea for students to have access to a “low-rate credit card” for “emergencies” (like bar night).

That card allowed NAB to begin building a marketing profile on me. Through the positioning of minimum repayments on my statements and online banking, they trained me to see their credit limit as my money.

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Then they began bumping up my credit limit.

That’s how the game works.

Commbank is doing this right now with their latest advertising campaign, which targets young people to sign up for their “low-interest” Essentials credit card … instead of going through the hassle of borrowing money from their parents.

One CBA billboard says: “Because the Bank of Mum and Dad will probably give you a lecture, and you had enough of those at uni.”

Their TV ads show millennial kids having to suck up to their parents ‒ listening to their dad’s jokes, eating their mother’s terrible cooking just so they can borrow some money.

CBA’s tagline at the end of the ad says: “For when you’ve outgrown the bank of Mum and Dad”.

A spokesperson for CBA said their ads aren’t manipulative in the slightest.

In fact, they’re in it to help young people:

“We believe it’s really important to help young adults develop good financial habits, such as budgeting and managing their money wisely. As they move into full-time employment, their spending and payment habits change, and this includes using credit cards.”

That’s the corporate spin, though there’s no way they actually believe it.

It’s all just part of the game.

(To be fair, the vast majority of CBA employees are hardworking, diligent professionals who care deeply about their customers. It’s just the top brass that are knobs.)

Tread Your Own Path!

A bank talking to eight-year-olds about credit cards is kind of shocking.

NARELLE ASKS: I am a teacher and I just got an email which made me angry, and I have you to blame ... or should I say thank?

You see, our children are attending a compulsory “StartSmart” lesson once a week hosted by the Commonwealth Bank. I looked at the program for year 3, and what is the very first concept they mention?

You guessed it, credit cards! I will be attending the session with my students and I can already feel the rage inside.

BAREFOOT REPLIES: They’re talking to eight-year-olds about credit cards?

That’s kind of … shocking.

And the concept of compulsory corporate-branded education reminds me of “Hamburglar University”.

However, you’re a teacher, which means you can be a force for good. You can stand up and fight for your kids. If I were in your shoes, I’d talk to your principal about kicking the CBA out of your school ... and use it as a financial lesson for the kids.

Here’s how you can explain it to your students:

“The CBA has spent millions of dollars of their shareholders’ money buying their way into classrooms.

“Their motivation is to make that money back by signing you up to be their customer.

“One of the bank’s most profitable products is a credit card, and when you turn 18 they’ll likely send you one.

“The bank brings mascots to assemblies, like ‘Cred’, which make credit cards sound normal.

“However, the truth is that you should avoid them.

“This week ASIC released a report that showed that one in six people are caught in what they call a credit card ‘debt trap’. Worse, they found that young people’s credit card debts were ‘of particular concern’, and that they ‘were more likely to be in delinquency, and multiple cards were over-represented’. The CBA will never tell you that they’re ‘debt traps’, because it’s how they make their money.

“However, that’s not independent education; it’s really just another form of marketing. And that’s the reason we decided to kick the CBA out of our school.”

Now that would be a fantastic financial lesson!

There aren’t too many people who’ve saved up $90,000 on their own steam. Fewer still who have achieved it at age 21,

YOU ARE AMAZING

ANNA ASKS: I am a 21-year-old single female. For as long as I can remember I have wanted to buy a house, because my family rented and we did not have financial security growing up. I have been conservative with my spending, worked two jobs and managed to save $90,000, but house prices are skyrocketing.

This is not even enough for a deposit on an entry-level unit in far outer-east Melbourne.

I feel absolutely defeated.

Maybe it is better to invest money in ETFs (Exchange Traded Funds) and just rent for life?

BAREFOOT REPLIES: You need someone to sit you down and show you just how amazing you are, and that person is me.

You should be really proud of yourself. There aren’t too many people who’ve saved up $90,000 on their own steam. Fewer still who have achieved it at age 21, by scrimping, saving and working two jobs.

There’s absolutely no reason to feel defeated. On the contrary, I’m here to tell you that you’ve already won.

See, financial security doesn’t come from a dollar figure, or buying a house.

It comes from behaviour.

It’s the grit to work hard, sacrifice and save, and you’ve got that by the bucketload.

So, after years of doing this, let me make a few predictions:

First, to answer your question, you will buy a house ‒ when the time’s right.

Second, you’ve already changed your family tree ‒ you will never be financially insecure.

Financial security doesn’t come from a dollar figure, or buying a house. It comes from behaviour.

READ THE FINE PRINT

TAMMY ASKS: Our tenant burnt our investment property down (has been charged with arson).

The property has landlord insurance for $500,000. The insurance company has offered us $309,000, or to rebuild it themselves.

They’re also being a bit suss on paying us for lost rental income.

Our mortgage is about $380,000, but the block will also need to be cleared. Is there any way we can get the $500,000 we are owed, or close to it?

BAREFOOT REPLIES: You may be insured for $500,000, but the fine print in your policy may say that all the insurer is required to do is reinstate you to the same condition you were in before the fire. And if they can get away with paying out $309,000 instead of $500,000, that’s what they’ll do. You’ll need to read your policy carefully to see what it says.

Remember, though, your policy was written by the insurance company lawyers, with the aim of giving them maximum wriggle room.

That doesn’t mean you shouldn’t challenge them — especially on the loss of rental income. You have nothing to lose, and everything to gain.

Let your insurer know that if don’t get a satisfactory outcome, you’ll register your complaint with the Financial Ombudsman Service (1800 367 287). After than your insurer then has 45 days to resolve your complaint.

Racking up a lot of debt at a young age is a worrying sign.

DON’T PAY HER DEBT

MATT ASKS: I am 24 and earn a good income.

My partner and I are getting serious, but she owes $12,000 ($10,000 car loan, $2000 credit card) and this is annoying me as I have no debt.

I am looking to use $10,000 from my savings ($70,000 in total) plus $2000 from her next pay cheque to pay off the debt.

I see this as the best option so we are able to save her entire income and increase our savings for our first home.

But I am also worried that, even though she says she has learnt her lesson, she will not lose those bad habits. What would you do?

BAREFOOT REPLIES: You’re certainly getting serious … 12 grand of serious!

Look, there’s absolutely no way I would pay off her debt.

As in none. No way. Uh-uh. Talk to the hand.

First, because what happens if you guys break up?

That’d just be awkward.

Second, because it would rob her of the opportunity to prove how serious she is about buckling down and paying off her debts herself.

If she makes a go of it, that’s a good sign. And if she doesn’t, that’s probably a good sign too.

Good luck! 

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The Barefoot Investor holds an Australian Financial Services Licence (302081).
This is general advice only. It should not replace individual, independent, personal financial advice.

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Originally published as Barefoot Investor: Financial intelligence begins in childhood