The Australian Securities and Investments Commission (ASIC) said while school banking programs claim to help children develop long-term savings habits, providers were "unable" to demonstrate that these programs help improve savings behaviour.
The report also said schools take payments to implement the school banking programs, and are incentivised to encourage greater participation in the programs.
ASIC found as of 30 June 2020, 63% of Australian primary schools (4,000 schools) took part in the programs, with 180,000 accounts held by students (8% of primary school students).
The regulator identified 10 school banking programs (listed below) - 'South West Slopes' had 10 participating schools on its program, yet only six students signed up.
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| Bank | Savings Account | Base Interest Rate | Max Interest Rate | Total Interest Earned | Introductory Term | Minimum Amount | Maximum Amount | Linked Account Required | Minimum Monthly Deposit | Minimum Opening Deposit | Account Keeping Fee | ATM Access | Joint Application | Tags | Features | Link | Compare |
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ASIC also undertook quantitative research of 1,349 Australian residents aged 18 and over.
Eighty four per cent of parents with children participating in school banking are satisfied with the program, yet 61% of the surveyed group said these programs are "just a way for banks to get future customers".
A large portion of parents surveyed "expressed concerns" about low interest rates - CommBank's 'Youthsaver' account, for example offers a 0.80% total interest rate if bonus criteria is met.
The regulator's academic research found a large part in the reason for signing up was due to peer pressure, and that banks "work via a process of socialisation", where using school banking can help students feel like they 'fit in'.
It also found it is "uncommon" for schools to offer more than one school banking program, which "leads to a lack of competition between providers".
ASIC's report comes after the Victorian Government announced in late November it would ban school banking in 2021.
CommBank's response said the bank was "surprised and disappointed with the decision".
"In Victoria, this decision will mean the loss of around $4 million in financial literacy programs and school contributions, provided by School Banking and Start Smart – our curriculum-aligned financial capability program," CommBank's response said.
"We understand the ban only impacts Victorian Government schools, and we will continue to engage with other state and territory governments and offer our programs in other states."
School banking programs compared
CommBank has by far the biggest school banking program, known as 'Dollarmites', with 3,629 schools signed up, and more than 175,000 accounts.
It also paid the most in commission to schools and P&C organisations, collectively paying nearly $1.3 million in the 2020 financial year (98.5% of all commission paid).
However, this is down from the previous two years, paying more than $2.4 million, and $2.1 million in 2018 and 2019 respectively.
CommBank pays a school $200 when the first school banking deposit is processed, then pays a yearly contribution to schools up to $600, as well as a $5 'regular savers contribution' for every 10 school banking deposits per student.
The ten school banking program providers include:
- CommBank
- Bendigo Bank
- Heritage Bank
- Hume Bank
- IMB
- The Mutual
- Northern Inland Credit Union
- South West Slopes
- South West Credit
- LLL (Lutheran Laypeoples' League) Australia
In July 2020, Bendigo Bank, IMB, and South West Credit announced they would be terminating their school banking programs.
IMB's was wound up on 31 August, Bendigo's on 30 September, and Northern Inland also advised ASIC on 2 December that it would also wind up its program.
School banking programs originated in New South Wales in the late 1800s, and were initially run by the Government.
The Queensland Government Education Department is the only one to use a tender process, with successful providers required to make commission payments to schools.
Amendments
In response to ASIC's findings, CommBank has made "significant changes" to its program, including reviewing and updating all material in the program in-line with feedback from the regulator, parents, schools and community groups.
“Our School Banking program reinforces the importance of regular savings, equips students with the knowledge of how to access and use a bank account, and provides structure for parents to support their children to save regularly. We are proud of the program and the positive impact it delivers," said Mark Jones, CommBank's Executive General Manager Customer Service Network.
The full details can be found here.
Image Source: CommBank
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