What you need to know from the Senate credit card inquiry

Information verified correct on October 22nd, 2016

Finance commentators have fired shots at banks during the Senate inquiry and many suggestions have been made to resolve the current credit card crisis. Here are some of the more important lessons you can take away from the inquiry.

Banks and credit card providers have recently come under fire at the Senate inquiry in to credit card interest rates. A number of finance commentators and professionals have slammed providers for alleged irresponsible lending practices that have resulted in a record accumulation of nationwide debt.

Scott Pape, Australian finance expert and Barefoot Investor, spent his time in front of the Senate advocating the need to teach children the dangers of credit cards to squash the bad spending habits at an early age. Pape raised many ideas during his speech; here are some of the highlights and how you can apply them to your spending habits.

You can’t teach an old dog new tricks

From the get go, Pape pointed out that it is incredibly difficult to get adults to change their habits – a fact that the banks know and frequently take advantage of. Pape argued that this was demonstrated after banks were forced to include a “minimum repayment warning table” on statements stating: “A $5,000 credit card debt will take you 33 years to pay, at which time you’d have paid $17,181”. While this was a shocking figure, our current $51 billion credit card problem demonstrates that it didn’t have too much of an impact on Aussie cardholders.

Knowledge and behaviour are key

Pape believes that the key to successfully managing your funds is 20% knowledge and 80% behaviour. With these factors in mind, he argued that teaching the next generation of consumers (that is, young people) smart spending habits is the only permanent solution to curbing bad financial decisions.

Pape argues that while children are taught many life lessons at school, their financial knowledge is limited. “They’re taught that smoking is bad for them because it can cause heart disease and lung cancer. Yet they’re not taught about the dangers of credit cards, and how they can cause ‘financial cancer’,” Pape pointed out. He believes that getting this message across as early as possible could lead to smarter financial decisions in adulthood.

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Credit cards are not a luxury

As part of this credit card education, Pape believes that we need to debunk the idea of credit cards as a financial tool that’s only used to buy luxuries. He argues that we can achieve this by providing more opportunities for children to learn about credit cards at school.

He points out that, up until a few years ago, the only major provider of financial education in schools was conducted by Commonwealth Bank’s Dollarmites student banking program. With 273,000 students currently enrolled, Pape argued that having Australia’s largest credit card provider teaching kids about money is like “having Ronald McDonald teach your kids about nutrition”. As well as targeting schools, Commonwealth Bank CEO Ian Narev has based the bank’s future growth strategy around young people. Pape points out that CommBank has identified the potential of our kids, so it’s about time we did too.

What’s the solution?

Independent and unbiased financial education is key. Pape believes that ASIC’s MoneySmart Teaching program (which he is involved in) is one way that children can learn the importance of smart financial choices without the influence of a bank’s agenda. However, this isn’t the only option for future cardholders.

While Pape argues that Aussies are better off ditching credit cards altogether, this is unlikely to happen in the near future. So while credit cards remain a major source of financial support for Australians, we recommend that Aussies compare their options in order to make more informed decisions when choosing a credit card. There is no such thing as the one premium credit card, so it’s ideal to do some research to discover what type of credit card you need to compliment your lifestyle, spending habits and financial situation.

At finder.com.au, one of the major issues our first-time users have is that they simply don’t know where to start. Making financial decisions can be an overwhelming experience, so there’s no shame in seeking a little help. Using resources such as finder will help you make better informed decisions based on comparisons in the market and your own individual needs.

Although credit card debt is taking its toll on Aussie cardholders, chucking out your credit card may not be the only solution. If banks opt for more responsible lending practices, as suggested in the Senate inquiry, and you compare your options, you’re well on your way to making more informed financial decisions.

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Sally McMullen

Sally McMullen is a journalist at finder.com.au who is a credit cards and travel money expert by day and music maven by night.

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