“Get ‘em while they’re young,” Spencer Dryden of Jefferson Airplane once famously quoted. Sure, he was talking about getting kids hooked on rock music, but the quote has become increasingly relevant to the financial services industry.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has held a spotlight to the industry behaviour and conduct, but if the financial literacy of consumers was adequate, would the results have been the same? Would consumers be blindly led to poor member outcomes? Financial literacy now forms part of the Australian education curriculum, but is this enough to equip younger people to ask the right questions and is it enough to motivate them to take their finances including their superannuation seriously? And what of the gap between first time workers and workers under the age of 30?
Let’s think about human instinct briefly. Humans are inclined to put less value on something the further away it is, but we are also inclined to do whatever we can to avoid loss.
Superannuation has the added challenge of being even less visible than other types of savings, because you don’t see the money being added or deducted or interest being accumulated on a daily basis in the same way you would a bank account. Perhaps a shift lies in the regular, not ambitious phrase “with this knowledge, you could have a little more”, to a more direct mantra of “without this knowledge, you will have less”.
Freshly minted students and graduates can grasp complex topics like Pythagoras’ Theorem, algebra, chemistry and more, so it stands to reason that the concepts of retirement and money management should resonate, if explained the right way. Imagine having an engaged member join and be retained for life in a superannuation fund straight out of school. It would lead to improved retirement savings outcomes for the member and would be a good outcome for the fund as well.
We know that more people under 30 are taking an increased interest in their superannuation, and funds have recently started targeting this membership demographic with varying degrees of success. A recent wave of start-up funds has attempted to target a younger audience in the way they advertise and invest.
The efforts of the likes of Grow Super, Ignite Super, Human Super, and Spaceship Super, suggest that this has been a previously-neglected market. But why is this? Why has it taken this long for funds to engage the under-30 age bracket? This tends to be the demographic that most require engagement as they attempt to establish, maintain and grow superannuation balances while establishing themselves in their chosen career.
And what of those who are younger? Already, teenagers under the age of 18 can earn superannuation, provided they are working more than 30 hours per week and earning more than $450 per month, per employer. As it stands, the $450 rule is in discussion to potentially be removed, meaning we will see even more low balances from under-informed, under-engaged, underage members.
Currently, a lack of education means many members are having superannuation accounts created and contributions remitted, without realising it, without knowing what it is and without knowing how it works. With the Royal Commission demonstrating that consumers must use caution with the guidance given by financial advisers, it is now more important than ever to help consumers understand what superannuation is and why we have it.
What if we do nothing?
The obvious implication is that consumers will continue to miss out and the associated erosion of trust in financial institutions will lead to continued disengagement, which can have further flow-on effects.
Consider, in June 2013, nearly 2.4 million people were receiving the Age Pension in Australia, equating to over 10 per cent of the population at the time. This may not seem like a lot, but it was still nearly 2.4 million people relying on the national savings of the country.
Could the superannuation industry help relieve pressure on this system by educating members from a younger age, and in doing so, increase the national savings? It seems feasible.
What can we do?
Our industry is really starting to trend in the right direction when it comes to engaging millennials. Think, tech-savvy and mobile-focused start-up funds, not to mention the emergence of the gig economy (hello Uber and Deliveroo), but there is no rule to say that as an industry we cannot aim higher.
You may recall the Commonwealth Bank (CBA) saving scheme for young Australians (Dollarmites) with the admirable intent of engaging children to regularly deposit money into a bank account and earn “Dollarmite” tokens which can then be redeemed for rewards. Better still, each dollar invested that you do not take out earns bonus interest. Money for nothing!
Looking deeper at the Dollarmite offering, not only do kids learn the benefit of saving while receiving bonus interest, there is also high-level gamification focusing on education and helping kids become familiar with financial terminology and (hopefully) the true value of money and saving. It would be remiss not to mention that the CBA had some pretty bad press in relation to staff opening their own account to gain performance bonuses, however, this does not make the product itself or the intent ineffective.
The theory still holds true. People, not just children, love a reward. Flybuys, Frequent Flyers, various credit card rewards programs all vying to get you to commit to a brand.
Why not superannuation?
A quick Google search of “superannuation rewards program” reveals some funds are already doing work in this space, which is a great start. Some offer discounts with retailers, discounts on skills training and of course discounts on aligned branded products like health insurance, loans and more.
Adopting the Dollarmite thinking could be an avenue to engage youth and even pre-working children into the mindset and (in an optimal outcome) brand alignment to a fund. Consider such rewards as:
- Bonus interest in the fund for new joiners under age 22;
- Redeemable rewards for members with children (think toys, Coles-style mini-collectible craze!); or
- Aligned (where possible) bank accounts for children with bonus interest (or rewards) for each voluntary contribution made.
Overlay these with a gamified focus on education and you have the commencement of grass roots engagement. Imagine your children begging you to make an additional contribution per month so they can get the next collectible! A great outcome for the member and a reward to go with it.
Changing the mindsets and fundamental education of consumers will not be easy and is not an overnight proposition. But it is a role that financial advisers should be playing a key part in, whether it is talking to clients about education strategies for their younger children, or even offering a tailored education service themselves for the teenage and young adult children of their clients.
Rewards for youngsters may not be the answer, but that doesn’t mean that we should not explore this further. To the contrary, we should be doing more to ensure that we can give future generations a head start in meeting the core objectives of superannuation, because if we don’t, we will all have to pay. Literally.
Daniel De Marinis is a lead consultant and David Mehmed is a senior consultant at superannuation consultancy, QMV.