Personal finance sector reform needed to benefit all Australians
Reform to Australia’s personal finance sector is vital for the future wellbeing of Australian society, according to a White Paper released by University of Melbourne academics today.
Titled FinFuture – The Future of Personal Finance in Australia, the paper calls for urgent action to address current and future financial challenges and to improve outcomes for all Australians.
The authors, comprising specialists from finance, law, computer science and service science, say the sector needs to regain the public’s trust by committing to a shared purpose: serving the community by improving individuals’ financial wellbeing.
Co-author from the Faculty of Business and Economics Carsten Murawski said many Australians had lost trust in financial institutions, which was holding them back from improving their financial situation.
“About two-thirds of Australians face some level of financial vulnerability and stress. Financial concerns are now the number one concern among young people,” Professor Murawski said.
A nationally representative study commissioned by the University in the wake of the Royal Commission found that more than half the population (54 per cent of Australians) had been negatively affected by misconduct and other issues with financial service providers over the previous five years, with total estimated losses to households of $201 billion.
The White Paper recommends the adoption of a National Financial Wellbeing Framework to define important financial wellbeing outcomes and set professional standards, as well as the establishment of a National Financial Wellbeing Agency responsible for whole-of-system coordination, including guidance on regulation.
Additionally, it recommends compulsory, evidenced-based financial literacy training be introduced in schools, TAFEs and universities to improve Australia’s low rates of financial literacy and capability.
Co-author and Melbourne Law School Director of Banking and Finance Law Andrew Godwin said regulation reform was a vital step in improving financial outcomes for Australians, echoing the recommendations of the Financial Services Royal Commission.
“We need to reduce the complexity of regulation and be clearer about the standards we expect from people working in the finance community by tying regulation more closely to outcomes,” Associate Professor Godwin said. “Financial service providers should be subject to a duty to consider financial wellbeing in performing their functions and services.”
The White Paper also underscores a need to reconsider the role of new technology and data in the financial sector. Co-author Chris Culnane from the Melbourne School of Engineering said work is needed to ensure advances in technology and data processing are harnessed for the benefit of individuals.
“We need to ensure these opportunities are used to improve the financial wellbeing of customers. This requires increased levels of transparency so decision making is fair and accountable, and customers know what data is being collected, how it’s being used, and on what basis decisions are being made,” Dr Culnane said.
The White Paper makes a number of propositions for sector reform in the following areas:
- Implementing a national financial wellbeing framework
- Building the financial capabilities of individuals and households
- Realigning the structure of the financial sector
- Strengthening laws and regulations
- Making technology safe and useful.
About the White Paper FinFuture – The Future of Personal Finance in Australia: The vision and roadmap presented in the White Paper were developed over the course of 18 months, for implementation envisaged over a 10-year period. The vision was informed by stakeholder consultations with industry leaders, regulators, consumer advocates, legal professionals, consultants and academics. Consumer research was also conducted, which included focus groups and a nationally representative survey.