FinFuture Motivation

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Australia is a prosperous country. We enjoy some of the highest living standards in the world. Yet, many Australians face major financial challenges. Australia has one of the highest levels of household indebtedness among OECD countries. The level of household debt is considered to be one of the major threats to financial stability in Australia, making Australia one of the most financially vulnerable countries in the world. It has been estimated that 95% of Australian families are currently underinsured while facing many existing and emerging financial risks, such as risks related to climate change. Australia has the highest old-age poverty rate among OECD countries, about twice as high as the OECD average. Most working Australians are considered to have inadequate retirement savings and many have inadequate savings to deal with financial shocks.Moreover, a significant proportion of Australians are fully or partially excluded from basic financial services, particularly basic forms of credit and insurance—preventing them from full participation in the economy and exposing them to exploitation and financial distress—and many are ‘under-banked’.

Financial challenges are also prominent in people’s minds. In Australia, financial concerns are the number one concern among young people, and are the second biggest concern after climate change among older Australians. A person’s financial situation is a significant determinant of overall wellbeing, including physical wellbeing, mental health, relationships and job performance. Financial stress is associated with low immunity and insomnia as well as depression, anxiety and suicide. In addition, financial stress has been named the most common reason for relationship breakdowns in Australia, and has established links with domestic violence. Overall, the influence of perceived financial wellbeing on overall wellbeing is similar in magnitude to the combined effect of other life domains.

At the same time, the Australian financial sector faces a number of institutional challenges. Notably, the sector has been plagued by widespread, systemic misconduct, as reported by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission). In addition to misconduct issues, previous inquiries have also reported that the Australian financial system suffers from other inefficiencies. These include high fees for payments, high costs associated with the management of superannuation accounts and often low quality of financial advice. An even bigger concern is the allocation of certain major financial risks in the Australian economy. For example, Australian households effectively do not have access to long-term (5+ years) fixed-rate mortgages. Similarly, most Australians no longer have access to defined-benefit retirement savings products. This means that many major financial risks are being borne by individuals and households, the entities in the economy likely to be least capable of managing such risks.

A new approach is needed

This white paper argues that in order to improve outcomes for Australians, the sector needs to rediscover its purpose—serving the community. The white paper is premised on the claim that the core objective of the sector as it relates to personal finance should be the improvement of individual financial wellbeing.

In this white paper, we propose a preliminary road map with a number of propositions and key steps that are necessary to get the sector to best fulfil its purpose, given the challenges it faces and the environment in which it operates. It is outcome-focused and institution-agnostic; that is, agnostic with regards to the particular institutions that will deliver those outcomes. It was developed with a ten-year horizon in mind.

The vision was informed by stakeholder consultations with industry leaders, regulators, consumer advocates, legal and other professionals, consultants and academics. Consumer research was also conducted, which included focus groups and a nationally representative survey. We hope this white paper will generate lively debate and inspire action. Given that the sector encompasses many people and institutions, we take a whole-of-systems approach, which leads us to a whole-of-systems solution. One action or institution alone will not succeed in changing the course of the sector. Government, industry, regulators and everyday Australians will need to work together if we are to improve financial wellbeing and secure long-term prosperity for the sector and for the Australian people.