Personal Finance

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Australia’s financial inequality gap has narrowed for the first time in seven years, with most households feeling better about their finances, according to ME Bank’s 15th bi-annual Household Financial Comfort Report.
The report found this to be the case despite significant falls in residential property and share markets.
Consulting Economist for ME, Jeff Oughton, said “The comfort gap between property owners and renters, as well as between very high income earners and other income brackets, has narrowed."
“We’ve seen a correction for wealthier, older property-owning Australians who’ve been riding the hot property and bull share markets for much of the past seven years, while middle and lower-income households have begun to benefit from an easing in living cost pressures and income gains."
“Cooling housing and share markets haven’t yet dented the financial outlook of most Australian households, and many residential property owners remain positive: only 13% of home owners and 11% of investors expect the value of their properties to fall in 2019,” he concluded
The report found, "financial comfort of renters, while still significantly lower than other tenures, was up 8% to 4.78 out of 10, its highest in four years, reflecting improving rent conditions, while the overall financial comfort of households who own a home mortgage-free fell 3% to 6.27 out of 10, its lowest point since the survey began."
Financial Comfort
<ul>
<li>Those earning over $200,000 pa fell by 6% to 6.79.</li>
<li>Those earning $75,000-$100,000 pa increased by 7% to 5.87</li>
<li>Those earning under $40,000 pa increased 2% to 4.52</li>
</ul>
In the six months to December 2018, the report’s overall Household Financial Comfort Index increased by 2% to 5.56 out of 10, the highest in the past 5 surveys (30 months).
Slightly above the historical average of 5.45 out of 10 since the survey began in October 2011.
 ‘Changes to my income’ was also the most common reason cited for improvements to one’s financial situation.
Another contributing factor to the overall increase in household financial comfort was an improvement in how households felt about their ‘ability to pay regular expenses’, which increased 3% to 6.60 out of 10 – albeit the cost of necessities remains the ‘biggest worry’ about their household finances.
Mr Oughton said, “we’re still seeing some geopolitical effects, with households concerned about the world economy up two points to 29%, and combined with domestic property and share market corrections, many Australians are beginning to tighten their belts to build financial resiliency."
“If above average cash savings and reduced spending behaviour continues during 2019 it could significantly slow economic growth and in turn may lead to smaller job and income gains.”
Increased savings has flowed through to greater financial resilience with an improvement in households’ ability to handle a financial emergency (up 1% to 4.83, the second highest level since the report began).
Almost half of households with a mortgage (49%) continue to pay above the minimum in repayments. 
The report found a decline in households being unable to meet debt servicing commitments in the last year, with just 12% unable to meet a personal loan or credit card repayment.
Furthermore, only 7% missed a mortgage payment due to lack of funds in this time. 
Financial comfort in Queensland jumped markedly to a record level in December 2018 – up 8% to 5.68, the highest across Australia.
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Australia’s financial inequality gap narrows for the first time in seven years: ME Bank

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GUEST OBSERVATION
Financial well-being isn’t always where you expect to find it, in part it depends on attitude. 
Financial well-being is hard to get a handle on.
That’s because it’s a mix of how people feel and how they objectively are.
And it’s multifaceted, including things such as spending, saving, investing, borrowing, and insuring, and competing goals that involve trade-offs, such as whether to spend or save.
To help, the Melbourne Institute and the Commonwealth Bank have pulled the dimensions together in a collection of measures we think are the first of their kind: the <a href="https://fbe.unimelb.edu.au/newsroom/cba-melbourne-institute-financial-wellbeing-scales" target="_blank">Reported and Observed Financial Well-being Scales</a>.
The results released this week show most Australians are doing OK. They report no difficulty paying necessary expenses, can cover unexpected expenses, and feel on track to provide for their financial futures. However, a substantial minority struggle.
As expected, people’s income, assets, and home ownership play big roles in their financial well-being. But their attitudes, capabilities, and behaviour are probably even more important, meaning good financial well-being is possible even at modest levels of income and wealth.
Two ways of examining well-being
Adapting definitions that have been proposed for Australia and elsewhere, we define financial well-being as the extent to which people both perceive and have
<ul>
<li>
financial outcomes in which they meet their financial obligations
</li>
<li>
financial freedom to make choices that allow them to enjoy life
</li>
<li>
control of their finances, and
</li>
<li>
financial security
</li>
</ul>
now, in the future, and under possible adverse circumstances.
To construct the scales, we sieved through 33 self-reported survey measures and 17 bank-record measures that captured different elements of our definition. Formal analyis resulted in our two distinct but related scales.
The first, which we call the CBA-MI Reported Financial Well-being Scale, uses people’s answers to 10 survey questions about how they feel; about things such as dealing with their expenses, building up savings, and control over their finances.
The second, which we call the CBA-MI Observed Financial Well-being Scale, uses data from people’s bank records about their balances, payment problems, and ability to cover unexpected expenses.
The two scales move together. People with high levels of financial well-being on one scale tend to have high levels on the other.
However, the two scales are distinct and capture different aspects of well-being, complementing each other and jointly providing a fuller picture than either could alone.
<a href="https://images.theconversation.com/files/254272/original/file-20190117-24622-8qacip.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/254272/original/file-20190117-24622-8qacip.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
(Source: <a class="source" href="https://fbe.unimelb.edu.au/newsroom/cba-melbourne-institute-financial-wellbeing-scales" target="_blank">Melbourne Institute - Commonwealth Bank</a>)
What do the measures tell us?
On average, Australians enjoy moderate to high levels of financial well-being, but many experience problems. About a quarter of people report difficulty meeting their necessary expenses, and more than a third report not being able to handle a major unexpected expense or not having enough money for future financial needs.
When it came to characteristics associated with financial well-being, we find that people who earn more and own more assets enjoy higher well-being on average. Home-owners, healthier people, and married couples also tend to have a higher financial wellbeing. But within these categories financial well-being can vary.
Both measures of well-being are higher for people who balance their spending and savings, have strong savings habits, always pay their credit card balances, sacrifice for the future, and actively plan and budget.
And there are surprises.
Retirees and older people tend to enjoy higher financial well-being than younger people, contrasting with the view that retirement is accompanied by financial distress.
People with high mortgage debt and large housing costs also experience higher levels of well-being, although this may be associated with the wealth that is associated with their homes.
The strong agreement between the two scales reassures us that they are indeed measuring financial well-being. However, the scales sometimes diverge, particularly when measuring the financial well-being of people with complex financial situations, including immigrants and business owners.
Improving financial well-being
The low levels of financial well-being experienced by some Australians are a cause for concern. Our measures can help identify these people and their circumstances.
More importantly, they tell us that people in similar circumstances can experience very different levels of financial well-being, telling us there is considerable scope for improving outcomes.
And the strong associations of well-being with financial attitudes, capabilities, and behaviours — all characteristics that can be changed — point to promising avenues for interventions.<img src="https://counter.theconversation.com/content/103431/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/david-c-ribar-411239" target="_blank">David C. Ribar</a>, Professorial Research Fellow, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</a> and <a href="https://theconversation.com/profiles/nicolas-salamanca-565981" target="_blank">Nicolás Salamanca</a>, Research Fellow, <a href="http://theconversation.com/institutions/university-of-melbourne-722" target="_blank">University of Melbourne</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-financially-well-off-defy-the-stereotypes-they-include-retirees-and-mortgagees-103431" target="_blank">original article</a>.
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The financially well-off defy the stereotypes.They include retirees, and mortgagees

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GUEST OBSERVER
One worrying takeaway from the first week of the Financial Services Royal Commission is how many elderly people are being adversely affected by irresponsible lending.
Such lending is often the result of an agreement with a family member, for example an adult child, to help that person financially by entering into a joint loan. These loans are secured against the older person’s home, which is a huge risk if the loan defaults and the older person cannot service the debt.
To ensure that older people contemplating joint loans are aware of the downside of transactions, there needs to be greater access to legal and financial advice prior to the transaction and better training for bank employees and loan officers about responsible lending obligations and the potential “unsuitabilty” of such loans.
Consideration should also be given to larger penalties for banks that provide unsuitable loans to older people.
Other examples we have seen this week include an elderly woman who has been paying off the same A$1,000 since the 1990s, and a 72-year-old nurse who was permitted to borrow more than A$3 million to buy 11 investment properties.
On the face of it, there are laws that should safeguard elderly consumers from “getting in over their head”.
When a consumer applies for credit, the National Consumer Credit Protection Act obliges a credit provider to make reasonable inquiries about the consumer’s financial situation and their requirements and objectives.
In so doing, the credit provider must take reasonable steps to verify the consumer’s financial situation. This means that payments must be able to be made without substantial hardship to the consumer.
However, the Consumer Action Law Centre says that “it is common that these steps are not adequately followed by lenders”.
Even if these steps are followed, the legislation does not define “substantial hardship”. There is a presumption that if a consumer must sell their principal residence to pay back a loan, this demonstrates substantial hardship.
Emotional lending
Of particular concern is when an older person is persuaded to enter into a joint loan with a third party, such as their son or daughter. These loans are invariably secured by the older person’s property, with the younger person agreeing to pay off the debt.
If the adult child does not pay off the debt, the older person – who is often asset-rich but income-poor – may be unable to service the loan. The older person’s property will be repossessed by the lender, forcing them to relocate, enter the rental market, or even become homeless.
The loans may arise simply because the older person wants to help their adult child through a difficult financial period. It is understandable that a parent would want to help if a business is failing or a child is at risk of losing their house.
But such loans often arise within an atmosphere of crisis (real or exaggerated), in which the adult child pressures the older person into entering into the loan.
In extreme cases, older people have been told that they will be unable to see their grandchildren if they do not enter into loans.
It is not always that the older person is vulnerable per se, but that they are “situationally vulnerable” because of concern for the well-being of a child, or the desire to maintain relationships.
The reality is that it is often difficult for the older person to refuse.
Karen Cox of the Financial Rights Legal Centre noted at the Royal Commission that these loans are: "outright exploitative … elderly persons [are] left in dire circumstances as a result of a loan for which they’ve seen absolutely no benefit."
Similar comments apply to other financial transactions made for the benefit of a third party such as entering into a “reverse mortgage”. This is where the older person takes out a loan against the equity built up in a home (or other asset), with the money given to a child to buy a house or prop up their business.
What could be done?
Advocates are rightly concerned about the financial consequences for older people who enter into such loans. However, the property does belong to the older person and they are entitled to make whatever decisions they want, including risky ones.
Elderly people should be fully informed of their obligations and the potential consequences, should a transaction goes wrong. Banks could lead the way with this.
One initiative would be for the banks to contribute to legal and financial advice for older people, or subsidise the provision of such advice at community legal centres.
Loan assessors and brokers must also be made aware of the risks of such transactions.
The Australian Bankers Association is introducing enhanced measures to address elder financial abuse and the risks associated with such loans should be emphasised.
<img src="https://counter.theconversation.com/content/93359/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">Finally, the government should consider tougher penalties against credit providers who disregard responsible lending obligations. Presently, if a bank is found to have lent irresponsibly they will simply compensate the consumer for the loss. Meaningful penalties that deter reckless lending should be considered.
Eileen Webb, Professor, Curtin Law School, Curtin University
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/the-financial-services-royal-commission-highlights-the-vulnerability-of-many-older-australians-93359" target="_blank">original article</a>.
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The Financial Services Royal Commission highlights the vulnerability of many older Australians: Eileen Webb

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ASIC has released a consultation paper proposing to remake three class orders relating to time sharing schemes, which are due to expire (‘sunset’) as at 1 April 2017 or 1 October 2017.
They are seeking feedback from the time-sharing industry, consumers, consumer advocates and other interested parties on our proposals, including whether any additional protections are required to assist consumers.
As marketing of time-sharing schemes is an area which can involve pressure selling tactics, they have requested feedback on whether amendments are required to current requirements to improve consumer protections, including in relation to cooling-off, disclosure and sales practices. For example, they are seeking feedback on:
whether the current cooling-off arrangements are working effectively or whether alternative arrangements would be more appropriate;
proposed amendments to the template cooling-off statement to simplify the language and highlight key information for consumers, such as the contact details of the provider and that if an applicant does not exercise their cooling-off rights they may be required to continue to pay levies for an extended period (e.g. until they die) even if they do not use the time-share;
the introduction of more tailored disclosure requirements for fees and costs associated with the purchase of interests in a time-sharing scheme; and
whether any additional restrictions or obligations are required in relation to unsolicited meetings or telephone calls.
They are also proposing amendments to their guidance in Regulatory Guide 160 Time-sharing schemes (RG 160) to outline their expectations for compliance by operators and promoters of time-sharing schemes based on their regulatory experience in areas such as:
the content of Product Disclosure Statements;
the provision of financial product advice; and
conduct during meetings and seminars attended by consumers.
The instruments that they are proposing to remake with amendments are:
[CO 00/2460] Time-sharing schemes—property valuations;
[CO 02/315] Time-sharing schemes—use of loose-leaf price list; and
[CO 03/104] Relief facilitating the acquisition and sale of forfeited interests in registered time-sharing schemes
In summary, they are also proposing to:
remake as a single new instrument [CO 00/2460], [CO 02/315] and [CO 03/104];
incorporate into the new instrument—transitional relief for existing operators relying on [CO 02/237] Time-sharing schemes—operation of rental pool, the template cooling-off statement under Pro Forma 208 and the AFS licence conditions under Pro Forma 209 with amendments, and modifications to the enhanced fee disclosure requirements; and
make amendments to [CO 13/760] Financial requirements for responsible entities and operators of investor directed portfolio services, withdraw ASIC Pro Formas 205, 206 and 207 for new operators, and update our guidance in RG 160.
The consultation paper and draft ASIC instrument, which reflects the amendments proposed in the consultation paper, are attached below.
The last public consultation by ASIC on policy for time-sharing schemes occurred in 2006 and we see this as an opportunity to consult on whether the policy settings remain appropriate or any changes are required.
The draft ASIC instrument, which reflects the amendments proposed in the consultation paper, is available on their website under <a href="https://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-272-remaking-asic-class-orders-on-time-sharing-schemes/" target="_blank">CP 272</a>.
Submissions on CP 272 are due 12 January 2017.
Click <a href="https://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-272-remaking-asic-class-orders-on-time-sharing-schemes/" target="_blank">here</a> to download CP 272 and attachments
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Property 101: Remaking ASIC class orders on time sharing schemes

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ASIC has slapped a permanent ban on Mark McIvor, the former Chief Executive Officer and founding director of Equititrust Limited (in liquidation), which collapsed in 2011.
Mr McIvor, of Labrador, Queensland, is banned from providing any financial services on the basis that he had contravened a financial services law and was not of good fame or character to provide financial services. 
His conduct involved breaches of the financial services legislation, which were considered to be very serious, repetitive, prolonged and dishonest.
An ASIC investigation found that between 1 January 2004 and 18 September 2008, whilst he was the director of the responsible entity of EIF, Mr. McIvor:
<ul>
<li>failed to take all the steps that a reasonable person would take, if they were in the officer's position, to ensure that the responsible entity complied with the EIF's compliance plan; and</li>
<li>signed 28 board meeting minutes, which falsely recorded a board meeting to approve a loan application had occurred, when no such board meetings had taken place.</li>
</ul>
ASIC Commissioner John Price said "ASIC expects high standards of honesty and integrity from anyone providing financial services. Anyone who fails to meet those standards must be excluded from providing such services."
Mr McIvor has 28 days in which to apply to the Administrative Appeals Tribunal to review the decision.
Equititrust was incorporated on 18 August 1993 and was placed into voluntary administration on 15 February 2012.  The creditors of Equititrust resolved that the company should be placed into liquidation on 20 April 2012.
Equititrust held an Australian Financial Services Licence (AFSL) and was the responsible entity of two registered schemes, the Equititrust Income Fund (EIF) and the Equititrust Priority Class Income Fund (EPCIF).  It was also trustee of an unregistered managed investment scheme, called the Equititrust Premium Fund (EPF). 
The voluntary administrators of Equititrust reported that as at the date of their appointment:
<ul>
<li>EIF had about 1620 unitholders who were owed approximately $203.6 mil.</li>
<li>EPF had about 38 unitholders who were owed approximately $56.7 mil; and</li>
<li>EPCIF had 5 unitholders and held no tangible assets.</li>
</ul>
Mr McIvor was made bankrupt on 28 November 2012.
On 19 December 2011, ASIC suspended the AFSL of Equititrust for 12 months, for failing to comply with a number of key obligations as a financial services licensee. (REF: 11-306MR)
On 22 August 2014, Mr McIvor was convicted and fined $10,000 in the Brisbane Magistrates Court of six charges of failing to provide a Report as to Affairs and to deliver books and records to the liquidators of Chevron Capital Pty Ltd, MHSM Holdings Pty Ltd and SM Capital Pty Ltd. (REF 14-223MR).
Property Observer last wrote on Mark McIvor back in 2012 following the sale of his two-storey riverfront home, designed by Sydney-based architect Alex Popov, that sits on Cronin Island with<a href="/news/nsw/22135-ytc-friday-april-26-news-southern-cross-cronin-island-house-finally-resells" target="_blank" data-cke-saved-href="https://www.propertyobserver.com.au/finding/location/nsw/22135-ytc-friday-april-26-news-southern-cross-cronin-island-house-finally-resells.html"> 50-metre frontage onto the Nerang River</a>.
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jchancellor-FAypfDUnLy

Mark McIvor has 28 days to challenge ASIC financial services ban

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Australians are still putting personal finances first when looking to purchase a property, with many believing the potential for capital growth a key factor in where and what to buy.
The CoreLogic RP Data Nine Rewards Consumer sentiment survey found 52% of respondents considered personal finances the primary driver behind what to purchase, with 14% swayed by interest rates and 12% primarily concerned with job security. Housing supply levels or government incentives were not an important factor.
The survey noted the personal financial situation category includes many of the other aspects surveyed, leading it to rate highly. 
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Source: CoreLogic RP Data Nine Rewards Consumer sentiment survey
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