The majority of consumers have poor understanding of basic financial concepts but are overconfident in their ability to handle their money, as trust in the finance sector has plummeted, a survey has found.
The Financial Services Institute of Australasia (FINSIA) reported that more than three-quarters of respondents in its consumer study failed to fully grasp fundamental financial concepts, yet almost two-thirds of total respondents were over confident in their understanding.
The research showed 94 per cent of consumers who said they were confident in their financial literacy skills had poor financial habits or a misunderstanding of concepts.
In addition, the level of trust in banking and financial service professionals has roughly halved in the past 12 months, now at 19 per cent, from 46 per cent previously.
“It really does show that customers are caught between a rock and a hard place – the fact that they don’t trust their banks or have the financial capability to manage their own money puts them in a vulnerable and susceptible position,” Chris Whitehead, chief executive of FINSIA, said.
“It is clear consumers overestimate their ability to understand their finances, which means it is imperative for financial practitioners to be professional and ethical, demonstrating the highest standards of behaviour.
“Now more than ever, it is crucial that bankers have the ability to make competent ethical decisions when helping to manage a customer’s financial security, especially as one-third of those surveyed rely on banks for sound financial advice.”
Mr Whitehead added that most consumers surveyed believed the changes brought about by the royal commission would not last, saying banks will revert to their old ways.
Australians were found to be more likely to trust a bank with high professional standards, especially if they were young consumers. The study said 81 per cent of respondents believe it is important to have a professional body overseeing industry standards.
Three-quarters of new customers aged under 24 said they want their bank to have professional standards for all staff. The percentage of Millennials that would swap banks to deal with more professionally qualified staff has risen from 19 per cent to 24 per cent in the past 12 months (an increase of almost a quarter).
For consumers up to the age of 44, the number who said they would swap banks was higher than the prior year at 30 per cent.
“FINSIA believes industry-wide professional standards of conduct are now more paramount than ever to drive good behaviour and reverse the consumer trust deficit,” Mr Whitehead said.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].