I grew up in Quakers Hill, in Sydney’s western suburbs. My public school like most around us, had enrolled in the school banking program – Dollarmites. It is strange to think that any school would align itself with a corporate program. It is even stranger when it is a public school. Yet it did – and many others did too during the 90-year history of Dollarmites. Friends that grew up in Narrabeen, Port Macquarie, Warrnambool in Victoria and Naracoorte in country South Australia also had yellow chequebooks synonymous with the Commonwealth Banks’ ‘financial literacy’ program. It seems to be a near universal experience for Aussie children.

For those that are unfamiliar with the Dollarmites program, it was a savings program linked to the Commonwealth Bank of Australia CBA that was open to school students. One of the largest child-targeting marketing schemes in Australia involved cartoon characters on chequebooks, encouraging deposits. Every week the teacher or ‘banking coordinator’ would collect deposits from students that would be transferred to their Commonwealth Bank account.

On the school’s part, they would receive a share of the profits depending on the quantity of deposits received. It was a ritual that put uncomfortable pressure on children to participate so they did not feel left out. I certainly felt that way.

This ritual became so ingrained in school culture that it wasn’t openly questioned. It was just accepted as a strongly encouraged extracurricular.

Schools were incentivised to keep using the program and encourage children to contribute to these bank accounts. In 2018, the ABC revealed the Commonwealth Bank had paid almost $400,000 to Queensland state schools alone during 2017, to sign children up to its school banking program.

Choice found that these practices led to 46% of people getting their first bank account with Commonwealth Bank (2017). One third of these people still carried their Commonwealth Bank accounts in adulthood. Reji Eapen, an independent researcher, conducted analysis around how much Dollarmites has added to Commonwealth Banks’ value. He estimates $10 billion at the time of the program’s closure – which equated to 8% of the firm’s market capitalisation.

ASIC decided in 2021 to ban the program. They found that it provided little value for children and the largest outcome was that children were being exposed to ‘sophisticated’ marketing tactics.

Commonwealth Bank will maintain that this program was designed to increase financial literacy for children. The process of depositing, saving and understanding how interest accrues could be perceived as beneficial to a practical understanding of saving and investing. They maintained this implication of community goodwill even after it was revealed that sales staff opened thousands of Dollarmites accounts fraudulently in order to receive bonuses.

Realistically, the situation and outcomes were quite different to CBA’s declared intentions. I believe it is easy to see that the program did not translate to an improvement of financial literacy – we just need to look at the number of customers that CBA managed to keep for a lifetime from the program.

Here are some of the investor lessons that we can take from Dollarmites, even if it didn’t result in increasing our financial literacy as kids.

Walking the fine line between action bias and responsible management

Warren Buffett once famously said ‘Only buy something that you'd be perfectly happy to hold if that market shut down for 10 years.’ Investors are told ad nauseum that long-term investing increases the probability of success. It is the process of ignoring action bias.
Action bias is the tendency to want to take action. Even if those actions are to your long-term detriment. The impact is particularly pronounced in volatile markets. Sitting on your hands in the face of market swings feels wrong. You want to act – you want to do whatever you can to protect yourself and your financial goals when markets fall. When markets surge you want to do whatever you can to not miss out on the returns that others may be getting in the market.

However, long-term investing only really works when you’ve gotten the foundations right in the first place. This requires aligning your investments and structuring your portfolio to your long-term financial goals. It’s important to act when there is a misalignment between your financial goals and your securities and structure on your portfolio.

I left school with $116 in my Commonwealth bank account. I continued to bank with CBA because there was no reason for me to think about other options. There was nothing actively agitating me or pushing me to do the paperwork to switch banks. However, when I turned 18, they switched my account type to charge me a $4 fee per month.

That would mean that within two and a half years, my account balance would be $0. When I did research for this piece, I found countless individuals whose accounts had whittled down to $0 because of the same circumstances.

I took action early on to switch my bank to increase the interest I was receiving. This was only because I started my career in financial services and understood the importance of reducing fees, and of compounding.

For investors, it is a blurred line to walk between action bias and the responsible management of your portfolio.

An Investment Policy Statement can help. It stipulates what types of investments align with your goals. If you’re looking at securities outside of your investment criteria it may be a sign of speculation. In the same breath, it also outlines when you sell. This also limits poor decisions. Prematurely and unjustifiably selling assets can make it harder to achieve your goals. Understanding what you’re invested in and why you’re invested in it will build confidence and ensure your portfolio is aligned to your goals.

Switching costs benefit companies but not consumers

We’ve gone through the statistics that show that the first bank account you open often sticks with you for life, or for decades at least. JP Morgan estimates that Commonwealth Bank is the Main Financial Institution (MFI) for around 45% of Australians aged between 14 and 17 years old. It is likely that many of these children will not switch their banks in the near future.

This is because switching banks is a pain.

Some goods and services, like banks, require significant effort to switch. Once a company has captured significant market share, it is difficult to pry customers away since the effort involved in switching providers requires overwhelmingly better features or prices.

When it comes to your bank, high switching costs are a result from becoming entangled within their multiple products and services. You may have a bank account, but you may also have a credit card with the same bank. You may also have a mortgage. All your friends’ banking details, bills and direct debits are set up. People do not want to deal with the hassle of switching banks.

Each of the big 4 banks has received a wide moat rating from our analysts, partly due to their switching costs. A wide moat indicates our analyst believes the company can maintain a sustainable competitive advantage for at least the next 20 years. This article goes into why great investments have moats and is good indicator for the prospects of the company. Moats are great for investors.

However, this isn’t necessarily good for a consumer. It is unlikely that staying with one bank is the optimal decision over decades. It is unrealistic to change your bank account every time banks change their interest rates. It is, however, worth looking at whether the bank or the particular account you have makes efforts to compensate depositors, and consistently put the interests of their customers last.

Dollarmites was closed in 2021, and Kit was opened in 2022 by CBA for the same reason that was touted for Dollarmites – to improve financial literacy. It is undeniable that it is also a valuable funnel to gaining customers for life.

Governments and regulatory bodies can be slow to regulate, it is important to advocate for yourself

In many facets of life, it is folly to rely on government and regulatory bodies to regulate and legislate in your individual interest. Each of our circumstances are different and in theory, governments form policy that benefits the majority. It’s likely that many policies will not be maximising your best interests.

Dollarmites is a great example of where regulatory decisions were introduced too late to protect consumers. A company was able to influence and market to children which created substandard outcomes for many Australians.

It is a lesson in ensuring that you are advocating for yourself even when regulation may fail to do so. Financial literacy is crucial in creating and maintaining a comfortable life. In this instance, the government didn’t and doesn’t provide adequate measures for children to develop these skills. Instead, it was outsourced to a private company with a profit motive from the enacted program. However, self-advocacy is difficult when you do not have the skills or knowledge.

Investing is one of the best ways that you can advocate for yourself and provide a better life for yourself. It starts with investing in yourself through financial education. There are many free resources now, including Morningstar’s, that are looking to help with this gap.

We know most of us should contribute over and above the mandated employer super contributions to enjoy a comfortable retirement, especially those that are self-employed. We know that structuring and tax minimisation can increase your total return outcomes. We know that until legislation catches up, mandatory superannuation contributions during career breaks does not cover the average time that a person may take off work, needing proactive additional contributions. There are many examples that show that we, as consumers and investors, must not rest on our laurels and advocate for ourselves.

There are a few lessons that we can learn from Dollarmites. It was a hugely successful campaign that spanned just short of a century. It fed many customers into Commonwealth Bank’s funnel for a lifetime. The reluctance of consumers to switch banks resulted in good outcomes for the salespeople, the company and the shareholders. Investors won.

On the other side of the coin, it resulted in poor outcomes for consumers. As consumers, we need to advocate for ourselves and ensure that we are looking out for our best interests. Sometimes we cannot rely on government policy and regulation to maximise our outcomes.

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