Financial Literacy and Young Teens

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1 Report No. 1 April 2013 Financial literacy for kids and young teens is essential for their future prosperity. So what do our banks offer this specialised group of potential future customers? TEACHING THEM THE FINANCIAL FACTS OF LIFE Financial education that is interesting, relevant and informative goes a long way towards helping kids make wise financial choices down the track. With a strong link between the lessons learned in childhood and money habits as an adult, fostering good attitudes towards regular saving, responsible spending and the benefits of earning cannot happen too early. Parents, schools and institutions all have a part to play in this process. Research on behalf of the Commission for Financial Literacy and Retirement Income (CFLRI) finds that a person s upbringing will influence their attitudes towards money and that attitudes in turn affect both money behaviour and receptivity to learning about money management. As adults we know this instinctively; that in so many areas of life, our childhood lessons and observations will stay with us and influence our future behavior. Parents are the primary role models for their children, particularly in the years before peer group influence really starts to take hold, so it s a priceless opportunity to model some good budgeting, spending, goal-setting and debt management behaviours for children to hopefully absorb. Schools and other institutions also have an important role to play in shaping attitudes to money, with many of the CFLRI interview respondents recalling early school-based experiences with saving and particular school subjects that influenced their attitudes to money. For the currently-young generation, financial institutions and online learning will also have a significant influence on financial literacy. For this reason, a good-quality junior and youth banking education program, including supporting tools and material, was one of the important features that we looked for in our assessment of our inaugural youth banking and education award for the New Zealand market. Overall, we measured up how seven financial institutions cater to the banking and financial education needs for both under 12s and the 12 to 17 year age group. These two groups tend to be quite different in their banking needs. Under 12s predominantly need a savings account which uses routine banking to lay the foundation for future banking interaction. These youngsters also benefit from age-specific financial education, plus school banking and its associated rewards for participation. The year age group, on the other hand, already have a good grasp of the basics when it comes to banking and they need a more transaction-focussed package which gives them flexibility for spending and saving, as well as direct deposit facilities. We also took into account access points such as ATMs, branches and online banking. CANSTAR have researched all main products, tools, website education, information and programs on the market to pinpoint the most useful and comprehensive for parents and children. We looked at purposedesigned banking accounts, the quality of online education provided, the level of school banking or community programs each institution engages in and the financial literacy programs designed to help parents and children pave the way for financial literacy in those important formative years. A copy of our methodology is attached to this report. 1

2 PARENTS: WHAT TO TEACH THEM? When they re young Make money visible. Nowadays, it s easy to not use cash for a week or more at a time. Without the visibility of cash, young children may not be aware that what you buy costs money! Start pocket money early. The first year or two of starting school is a great time to start the routine of earning pocket money for chores. Start a savings habit. Encourage your child to deposit a portion of their weekly pocket money into a savings account. Allow them to make choices. Children learn very effectively by doing! Choosing how to spend their pocket money is a great way to teach them about the opportunity cost of money. As they get older Help them set savings goals. Whether it s long or short-term, having a particular item to save for really helps to give kids a good sense of budgeting. Introduce them to the concept of EFTPOS. While younger children need the visibility of cash, older children can begin to grasp the concept of EFTPOS, along with automatic debit and credit. Involve them in family budgeting decisions. Which extra-curricular activities are affordable? How much will a family holiday cost? Involving your kids in some family budgeting decisions is a great way to reinforce the opportunity cost message. Don t pick up the tab for overspending. This is perhaps the most important lesson of all: living within their means! So don t give in to pester power and pick up the tab for any overspending. Living within your means is a far better lesson to learn at this age while the stakes are low! When they become teens Give them more spending autonomy. Shopping for their own clothes, gadgets and accessories is something that all teenagers should be capable of doing. Now is the time to set a monthly budget to cover all these needs and put them in charge of managing that money. Encourage them to get a part-time job. Holding down a part-time job helps to reinforce the work=reward concept. It will also give them important workforce experience. Educate them about online security. Kids need to learn how to stay financially safe online. Netsafe ( has fantastic information and advice on keeping secure and avoiding scams. Leaving school and home Make them aware of debt traps. Car loans, interest free purchases and hire packages can all drain their cash. Encourage them to learn more on the CFLRI website. Share house tips and traps. Moving out is exciting and overwhelming but ensure that your kids don t get stuck with the communal bills! The government s Sorted website has excellent information and resources to help your kids (and you) through the financial hurdles of various life stages. Tax, superannuation and other fun stuff is also outlined clearly and easily on sorted.org.nz. Sit down and go through it all with them. For more tips, visit our website: Canstar.co.nz 2

3 TOP OF THE CLASS IS With their strong commitment to children and youth banking and financial literacy, ASB Bank NZ received top scores for education in both the junior (under 12 s) category and the youth (age 12 17) category. ASB Bank s financial literacy program, GetWise has education components for both younger and older children, covering everything from starting to save through to dealing with credit cards and paying tax. Through GetWise, ASB Bank work with schools to help teach financial literacy concepts to their students. ASB run workshops of 45 minutes to one hour duration, across the various school levels. ASB also provide a teacher resource kit including suggested lesson plans and ideas for further activities. Currently over 250,000 students have benefitted from the workshops and resources. ASB offer a school banking program, linked to an ASB Headstart account. Their Headstart account for both junior savers and youth scored well in our award; the account earns interest and there are no base and transaction fees. Children under 13 are not able to make withdrawals or transfer funds, however they can request account balances and information on transactions, order statements and make deposits. When children turn 13 they are able to operate their Headstart account alone, including use of an EFTPOS card. We congratulate ASB Bank on their achievement in winning our inaugural youth banking and education award. 3

4 O THER P ROVIDERS T O C ONSIDER ( SORTED ALPHABETICALLY ) ANZ provides a good range of child and youth banking products, with a top-scoring distribution network that includes phone, internet, ATMs, an EFTPOS card and Visa Debit Card (within age restrictions). Website: BNZ does not have a school banking program but they do offer seminars for children in schools. Their innovative YouMoney application will almost certainly be popular with older students. Website: Kiwibank offer a First Saver account for those under age 18 and while they have no presence in schools, they do offer some excellent junior and youth specific information via sorted.org.nz Website: Westpac provides a good online education program (Hector s World) for children 2-9 years of age. They also offer managing your money workshops and online tutorials for youth. Westpac have a good product range for both young children and older children, with a Junior Account for the under 12s and a Student Pac for older kids. Website: COPYRIGHT CANSTAR Pty Ltd ABN , The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR Pty Ltd ABN AFSL and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. 4

5 Youth Banking and Education REPORT DATE: APRIL 2013 We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. Company Junior Accounts Transaction Accounts Youth Accounts Saver Accounts School-based programs School Banking Program Workshops and Resources Specific Youth Website Online Educational Games and Tools for Youths Savings Calculator Games Financial Literacy Content for Kids ANZ Bank P P P P P O O O P ASB Bank P P P P P P O O P BNZ P P P O P O O O O Kiwibank P P P O O P P O O RaboDirect P P P O O O P O O SBS Bank P P P O O O O O O Westpac P P P P P P O O P your guide to product excellence Report Date: 4/04/2013, All information is correct as at March Youth Banking Award page 1

6 METHODOLOGY 1. Methodology Product Product Score Junior Saver Score Junior Under 12s Education & School Banking 40% Education 75% School Banking 25% Distribution 10% Branch 90% ATM 10% Youth Years Product Education 30% Distribution 20% Product Score Youth Transaction Score 80% Linked Savings Account Rate 20% Online Banking 25% Branch 10% ATM 65%

7 2. Product Profiles Scoring To compare the product on offer in the market we use 2 profiles which allow for the change in the child s needs as they mature and start working. Table 1 below shows how the product scoring is calculated. As with all CANSTAR star ratings, the value of the product is determined by using a combination of price and feature scoring. The pricing and feature weightings are outlined in Table 1. Pricing is further broken down into rates and scenarios, while Features include both product features and branch accessibility (coverage). These weightings are also outlined in the table below. 2.1 Product Pricing Product Price/Feature weightings Profile Pricing Features Junior Saver 80% 20% Youth Transactor 75% 25% Profile Rates Scenario Product Features Coverage Junior Saver 80% 20% 70% 30% Youth Transactor 30% 70% 70% 30% Table 2 shows the transaction behaviour used in scenario scoring, for the two profiles, and the percentage of transactions allocated to each transaction type. Transaction Scenarios for pricing calculation Junior Saver Youth Transactor Average no. of transactions ATM withdrawal own network % Branch cash withdrawal 100% 5% EFTPOS transaction Internet transaction 15%

8 CANSTAR s methodology accounts for the tiered interest rate structure of deposit accounts. The table below outlines how the tiers for historical rate calculations are applied: Balance Tiers for Junior Saver and Youth Transactor Tier 1 Tier 2 Tier 3 Junior Saver $250 $500 $1,000 Youth Transactor $100 $250 $500 Balance Tiers for Linked Savings Account Tier 1 Tier 2 Tier 3 Linked Savings $1,000 $2,000 $5, Product Features FEATURES consist of the following sections: 1) Access takes into account the proportion of the population with access to a branch and/or ATM 2) Product features takes into account over 100 product features with weights given to each relevant area. Examples include minimum opening deposit, minimum withdrawal, ATM facilities Category Description Junior Saver Transactor Account Facilities 35% Specific Conditions 45% 20% Exception Fees 5% Exemptions From Fees & Charges 5% 5% Account Design Options 5% 5% Online/Mobile Banking and Security 10% 15% Total 100% 100%

9 3. Education and School Banking 3.1 Junior Saver Education A key feature of providing a junior/youth banking program is the supporting tools and material. For the award we looked at website resources as well as parent and curriculum resources for use by parents and teachers. Category Category Description Weight Tools Junior Website, Youth Website, Savings Calculators, Budget Calculators, Games, Updated Games Workshops Community and School Workshops, Facilitators 35% Curriculum Resources and Facilitators 15% School Banking Branch access and school banking are excellent tools to help children learn to save. In school banking we look at the quality of the banking program being offered to schools. Category Category Description Weight Distribution Operate Program, Frequency of Collection 20% Services Open Account, Deposits, Rewards 60% Benefits Commissions and Grants 20%

10 3.2 Youth Transactor In the youth transactor profile, emphasis is given only on education. The reasoning is that the children of this age group will have the skill to go into a branch to make transactions and not have to rely on a school banking program Education Category Category Description Weight Tools Junior Website, Youth Website, Savings Calculators, Budget Calculators, Games, Updated Games Workshops Community and School Workshops, Facilitators 35% Curriculum Resources and Facilitators 15% 4. Distribution Branch access and school banking are excellent tools to help children learn to save. Easy access to branches and ATMs are rewarded based on the CANSTAR distribution analysis, while for school banking we look at the quality of the banking program being offered to schools. Category Weights Category Category Description Junior Youth Branch Ratio of Branches to population 90% 10% ATM Ratio of ATM s to Population 10% 65% Online Banking Availability of Online Banking 0% 25%