WRITERS: Dr Braam Lowies, Dr Rob Whait, Professor Christine Helliar and Professor Kurt Lushington
As people age, the complexity of their financial decisions increases. Unfortunately, for many people, these decisions are often made in times of stress which, unsurprisingly, can lead to poor decisions with potentially disastrous consequences. So, what can we do to help people make better financial decisions?
Age-unfriendly and overly complex practices in the banking, finance and aged care services sectors are stifling the financial capabilities and confidence of older Australians. Now, more than 50 per cent of older people say they're anxious about their finances in retirement.
Shortcomings across the aged care, and banking and finance sectors must be addressed by upskilling staff, simplifying communications, and improving service, regulation and governance.
The short answer is better financial capability. Financial capability is all about having the knowledge, skills, attitudes, confidence and motivations to make sound financial decisions that will improve your financial wellbeing.
In Australia, 2018 Australian Securities and Investment Commission (ASIC) and ANZ data shows that while three in five people are confident about managing their finances, more than one in three people find the experience stressful and overwhelming. Furthermore, more than 50 per cent of people feel anxious when they think about their financial situation in retirement.
Building financial capability is a lifelong activity. Whether you have a little money or a lot, being able to understand the financial products and services with which you interact is essential.
The current environment
In a report prepared for Financial Literacy Australia – and in Australia’s royal commissions into the banking and finance industry, and the aged care sector – older Australians are expressing a sense of confusion and disillusionment about their financial security and wellbeing.
Clearly, there are significant gaps in the financial capabilities of older Australians and the complexity of the financial decisions that they are required to make. But to find solutions for this growing issue, we need to look at it further. Recently, we explored financial capability for older people in two areas: choosing financial products generally, and more
Complicated home care packages
The management of home care packages is rapidly moving up the policy agenda of the Federal Government. As a high-demand government-funded service, home care packages help older people remain in their own homes for longer and can be regarded as a type of financial product.
Home care packages have four different tiers of care available, from basic to high-level care, and can offer anything from daily grocery assistance to complex nursing support.
The expansion of Consumer Directive Care (CDC) in February 2017, as well as policy shifts towards a more market-based aged care system, have transferred more responsibility to older people to choose and fund the care and support services that they need to live independently. Before this, older people could access support from both the South Australian and federal governments, as well as third party financial assistance.
In a greater effort to help older people, the Federal Government recently increased its aged care spending by $553 million and released an additional 10,000 home care packages, with the intention of providing greater flexibility and autonomy for older people about how their finances are spent. Importantly, older people are not totally entrusted with their home care package funds; instead, they’re paid to a home care package provider who essentially acts as custodian of the funds and pays the various suppliers and carers.
The challenge is, however, that the environment in which home care packages are now provided is so complicated that many older Australians are unsure of which options best suit their personal situation, and this causes enormous stress. specifically, managing home care packages.
One of our interviewees said that while the agency was telling him all the right things, the process was extraordinarily difficult.
“All these agencies were telling me ‘we will look after you’. They made promises about what they could provide, but as I had about six agencies coming to visit me, and soon became so distressed about the whole process and trying to choose the right thing, that I ended up having to phone Lifeline – and I’m literate and a retired financial counsellor.”
What’s going wrong?
While older people often feel underequipped and ill-informed to manage a home care package to their best advantage, many partially attribute this to their own lack of knowledge and confidence.
The knowledge gaps are heightened by the fact that many industry bodies have overly complicated and age-unfriendly communication channels and administrative systems. These create barriers for older people that hinder their ability to appropriately engage and understand financial materials.
Home care service providers also have a high turnover of itinerant staff that visit homes, as well as many who are inadequately qualified. Add to this the inconsistencies in package administration, complex fee structures and even inaccurate billing processes, and it’s not surprising that people are confused.
When industry factors are stifling financial capability in older people who want to proactively manage their package or fail to provide motivation to improve financial capability in those that do not want to manage their package, we’re left with a major issue that needs addressing by both government and the aged care industry.
Choosing financial products: a case for mistrust
Our research focused on a range of banking products and services, and again, older people felt overwhelmed by the variety of products available. Part of the difficulty lies in fact that there is no real ability to undertake a cost-benefit analysis for each of these offerings, so much so that an overwhelming number of older people have completely disengaged with the banking and financial services industry. A general lack of personal attention, reduced face-to-face contact with banking personnel, limited bank branch opening hours and complex communications all lessen a person’s potential to build their financial capability.
Appallingly, the research also found that many older people felt they had been treated poorly and discriminated by inexperienced call centre staff.
The way forward
Without doubt, there are many shortcomings across the aged care, and banking and finance sectors. In aged care services, older people need further education to help build their financial capability. At the same time, improved training for service provider staff will help address the confusing home care package landscape and ensure older Australians are treated with greater respect and understanding.
In the finance industry, the serious lack of trust across the sector needs to be addressed, while concurrently, the provision of clearer communications without jargon or legalese must also be rectified. Increasing face-to-face services will help with this process as older people are far more confident in talking about their finances with a real person as opposed to a voice across the phone or online.
In its capacity as Australia’s corporate regulator, ASIC has responded by emphasising that their focus will be on behaviour and the role of culture within the Australian financial services sector. In enforcing a positive corporate culture environment, ASIC aims to improve professionalism and conduct in the banking and financial services sector.
Furthermore, the Australian Prudential Regulation Authority (APRA), as prudential regulator of the financial services industry, released their new Enforcement Approach as part of an Enforcement Review that was partly informed by the outcomes of the royal commission. Strengthening governance, increasing resources and improving cooperation with ASIC are all steps that will be enforced to ensure a more stable financial system. More attention will also be given to the culture within the financial services industry.
The serious financial concerns of older Australians are an issue that cannot be ignored. Now, the aged care services industry, financial institutions and the government must start to address these, so that older Australians have the financial capability that they deserve and need in order to live well.