Philip Lowe: Remarks - launch of ASIC's National Financial
Capability Strategy 2018
Remarks by Mr Philip Lowe, Governor of the Reserve Bank of Australia, at the breakfast event to
launch ASIC's National Financial Capability Strategy 2018, Canberra, 21 August 2018.
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I am very pleased to be here to participate in the launch of the National Financial Capability
Strategy.
All of us have to make choices about money every day. Do I spend, or save? If I spend, what do I
buy and how do I pay for it? If I save, where should I invest; how much risk should I take? If I
borrow, how much should I borrow and how quickly should I pay it back?
In many ways these choices have become more complicated over time. We have more options
than ever before - which is good - but these options can be bewildering. It is fair to say that
many people find it hard to navigate their way through the myriad of possibilities out there.
But we all do need to find a way to navigate through these choices. We all need to plan. For our
own sake, and that of our families, we need to do this as well as we can. If we go in the wrong
direction, it can have a major effect on our families and our welfare, perhaps for years. So it is
really important we make well-informed financial decisions. And, we can all do with a bit of help to
make sure we are going in the right direction. The strategy that is being launched today can
provide that help by providing education, information and support for Australians as they manage
and make decisions about their money, and plan and save for the future. I would like to
congratulate the government and ASIC for the work they have done in putting this strategy
together.
At the Reserve Bank of Australia, we are also trying to play our part. As Australia's central bank,
the RBA has a very strong interest in people being in control of their financial lives and making
well-informed choices. I say this from the perspective of the individual and the economy as a
whole. At the individual level, each of us will be better placed in our lives if we make good
financial choices. And at the collective level, the financial choices that the 25 million of us make
about how much we spend, save and borrow can have a major bearing on the health of the
overall economy. If enough of us make risky or bad choices, the whole community can eventually
feel the effects. So it matters a lot.
One of the things the RBA seeks to do is to provide balanced analysis about the economy and
the financial system and where the risks lie. We hope that this helps people make informed
decisions about their finances. We also have a public education program that is aligned with the
school curriculum. As part of this, we are devoting significant resources to helping support the
teaching of economics and finance in our schools. People can also visit the Reserve Bank's
Museum, where they can learn about Australia's banknotes and economics more generally. The
Bank has also been a partner in the recent upgrading of Australia's payment system, which is
allowing you to make more timely payments.
For many Australians, their biggest single financial decision is whether or not to borrow to buy a
home. It is an important decision, one that can have a major bearing on your finances for years to
come. I am not allowed to give financial advice, but I would like to make four brief points that we
should all keep in mind.
The first is that interest rates go up and down.
It is nearly eight years since the previous increase in interest rates by the RBA. This means that
many borrowers have never experienced a rise in official interest rates. They have mostly
experienced lower rates. At some point this will change. Over recent times the Australian
economy has been improving. This is good news. If we continue on this current improving track,
as we expect we will, it is likely that the next move in official interest rates will be up, not down.
This will not be welcomed by some, but it would be a sign that things are returning to normal. My
advice here is to make sure your finances can withstand a lift in interest rates.
The second point is that housing prices don't always go up; like interest rates, they go up and
down.
We are seeing an example of this in Sydney and Melbourne at the moment. And most of our
cities have seen falls in housing prices at some point over the past decade. While I would expect
housing prices to trend higher over time as our incomes increase, there is no guarantee that your
home will be worth more tomorrow than it is today. So plan accordingly.
The third point is closely related. Make sure you build adequate financial buffers into your plans.
Things don't always turn out as we expect. So for most of us, having a buffer against the
unexpected makes a lot of sense. We all need to prepare for that rainy day. It rarely makes
sense to take all the credit that you are offered, whether on a credit card or when you apply for a
loan. Many Australians with mortgages find the best way of building buffers is to put any spare
money into their offset account. This makes a lot of sense.
My fourth and final point is to shop around and don't be shy to ask for a better deal; whether for
your mortgage, your electricity contract or your phone plan. There are very good deals out there if
you look. We can all play a role in making our markets more competitive by being smart and
informed in our choices.
Again, I am pleased to be here at the launch of this important strategy. Congratulations to those
who have worked so hard to put it together.
Thank you.