New report identifies eight broad categories of financial behaviour
Sydney, 1 December 2010: Launched in conjunction with the Citi-FT Financial Education Summit which begins in Sydney today, Citi has released a report that shows Australians' overconfidence in their financial ability, along with the way they make their financial decisions, are the major causes of financial stress.
Titled Evidence versus emotion: how do we really make financial decisions, Citi's report draws on the emerging field of behavioural economics using research conducted by The Australia Institute. Citi's report identifies eight categories that can help predict why people make the financial decisions they do. The report concluded that income is not a key factor in determining which category people fit into.
Consumer type
Definition
Percentage of the population
Overconfident
People who say they are better than average at making good financial decisions but whose self-reported behaviour suggests otherwise (eg carry a credit card debt)
28%
Overwhelmed
People who admit to being below average when it comes to coping with their finances or who say that it's too hard to figure out whether they are getting good value out of items such as their mobile phone plan.
18%
Playing catch-up
People who don't pay their credit card off in full each month and who say they still use their credit card to pay essential bills each month.
30%
Oblivious
People who are unconcerned or unaware about things such as whether they could get a better deal on their mortgage, phone plan or pay lower banking fees.
41%
Eternal optimists
People who took out a home loan without considering the possibility of losing their job or getting sick.
44% people who took out a mortgage recently)
Compartmentalisers
People who have a credit-card debt and simultaneously hold money in a savings or redraw facility.
14%
Spending hawks
People who have a budget and entirely stick to it.
6%
Human calculators
People described by economists as 'rational'. They seek out relevant information, know that they are paying low prices for their utilities and mortgage and are not compartmentalisers.
22%
Note: people may fit into one or more categories
Citi's report also reveals that around one in three (30 per cent) of Australians are regularly putting one or more everyday bills like utilities, car rego and groceries on their credit card but not paying the balance off in full each month. Categorised as 'playing catch-up', these people face higher rates of interest on household bills, due to lack of cash flow.
Louise Martin Head of Community Relations at Citi Australia said the report provided an insight into the way ordinary Australians behaved. "Our lives are becoming increasingly busy and complex so it's not surprising that people are making decisions in many different ways - some of them good, some not so good. Procrastination and indecision are perfectly reasonable responses to the overwhelming choice and complexity we are faced with."
Dr Richard Denniss Executive Director at The Australia Institute said one of the most interesting findings from the research showed household income was not a main determinant in terms of which behavior category people fit into.
"Rational behaviour, at least the way economists define it, is a pretty rare thing. What our research shows is that there are highly educated high-income people who appear to make some very bad financial decisions and there are low-income people with poor education who make good financial decisions.
"Earning more money might give people more options but it certainly doesn't guarantee they'll make good decisions."
Louise continued: "We see the true value of our research as providing insights for those who work in this field and who see these problems and behaviours on a frequent or everyday basis. If we have a better idea of how people will behave, we can be better equipped to help them."
Other key findings show:
•
15% of high-income earners have been in financial difficulty in the last 12 months
•
56% of people don't know what interest rate they are earning on their savings
•
14% of people are 'renting' the idea of a positive balance in their savings account by not paying off their credit card in full (ie. they focus on positive savings balance and ignore offsetting their debts)
•
33% of people believe they are below average when it comes to saving for retirement - this is the area people are least confident
•
31% of men classified as 'overconfident' compared to 26% of women
•
41% of people would try and deal with financial difficulty by themselves
The Citi-FT Financial Education Summit is a two-day conference that has become the most established annual, international forum on financial literacy. It is organised by the Citi Foundation, the Pearson Foundation and the Financial Times and sponsored by IFC, a member of the World Bank Group, Visa, AIA and Prudential. The theme of the 2010 Summit is Mind Over Money: Influencing Positive Financial Behaviour.
More information about the Citi-FT Financial Education Summit, including the full program can be found at www.financialeducationsummit.org. Citi's report can be found at http://www.facebook.com/citibankaustralia or http://twitter.com/citibankaus.
-Ends-
Notes to editors:
1. The Australia Institute conducted an online survey of 1,180 adult Australians in October 2010. Respondents were sourced from a reputable online panel provider, and quotas were applied to ensure a representative sample of the broader Australian population by gender, age and household income. Respondents were provided with a small incentive ($1.50 each) so as to encourage participation but not attract 'professional' respondents.
Media enquiries:
Leila Dean T: (02) 8225 1223 M: 0404 509 894 Leila.dean@citi.com
Kristen Kaus: T: (02) 8225 1631 M: 0421 380 773 kristen.kaus@citi.com
Serena Rogers: M: 0421 759 262 serena@tai.org.au
About Citi
Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Citi's major brand names include Citibank, CitiFinancial, Primerica, Banamex, and Nikko. Additional information may be found at www.citigroup.com or www.citi.com.au
Citi Foundation
The Citi Foundation is committed to the economic empowerment and financial inclusion of individuals and families, particularly those in need, in the communities where we work so that they can improve their standard of living. Globally, the Citi Foundation targets its strategic giving to priority focus areas: Microfinance, Enterprise Development, Youth Education and Livelihoods, and Financial Capability and Asset Building. The Citi Foundation works with its partners in Microfinance and Enterprise Development to support environmental programs and innovations. Additional information can be found at www.citifoundation.com.
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