Here are five valuable benefits of knowing and consistently tracking your credit score:
Helps Secure Better Interest Rates A higher credit score can qualify you for lower interest rates on loans, credit cards, and mortgages. Knowing your score allows you to estimate what rates you may qualify for and gives you a chance to improve your score before applying, which can lead to significant savings over time.
Improves Chances of Approval for Credit and Loans Knowing your score gives you insight into your chances of approval for credit or loans. By understanding your score and working to improve it if necessary, you increase the likelihood of being approved, avoiding unnecessary hard inquiries from declined applications.
Boosts Financial Planning and Goal-Setting Monitoring your credit score helps keep you focused on responsible credit habits, which can be crucial in achieving financial goals. For example, knowing what affects your score can motivate you to pay down debt, make timely payments, and improve your overall financial health.
Reduces Risk of Identity Theft Regularly checking your credit report can alert you to unusual activities, like unauthorized accounts or hard inquiries, that might indicate identity theft. Catching these early can help you take action quickly, preventing further damage and potentially sparing you from financial losses.
Empowers Negotiation and Leverage With a high credit score, you’re in a better position to negotiate terms, from credit card limits to loan terms. Lenders are more likely to offer favorable conditions to those with strong credit, so tracking your score and knowing where you stand can give you leverage when negotiating rates and fees.
Investors aged 25 to 49 have a roughly half-half split between domestic and international markets, but the change has been most marked among over-50s.
Some investing trends can take decades to evolve, while others seem to happen almost overnight.
In the context of Australian investors, it’s evident that the latter scenario is continuing to play out as a growing amount of money is being deployed into offshore sharemarkets.
Our research shows that across a range of Australian investor age groups there has been a marked tilt by investors towards international share markets since 2021.
Broadly speaking, it’s clear that the home shares bias once prevalent among Australian investors has taken a back seat in the plane.
That largely accords with the Australian Securities Exchange’s data that tracks flows into exchange traded funds (ETFs) every month.
Over the first three quarters of 2024, ASX-listed international equities funds attracted about 56 per cent of the $23.3 billion in total inflows into ETFs. By comparison, Australian equities ETFs attracted only 22 per cent of the total inflows.
But things become even more interesting when viewed across the different age cohorts investing in ETFs and unlisted managed funds that provide broad exposure to the Australian and international sharemarkets.
Diversification is critical
We looked at the investing patterns of thousands of Australian investors using Vanguard’s personal investing platform over the past four financial years, breaking them down into four age bands – under 25, 25 to 39, 40 to 49, and 50 and over.
Our data shows that in 2020-21, Australian investors aged 50 and over were investing about $4 out of every $5 into the Australian sharemarket. By June 30 this year, that number had dropped to about $1.70, with the balance going to international shares.
Investors aged between 25 and 49 were investing about $2.20 into the Australian market in 2020-21 for every dollar invested in international markets. Now that number is essentially dollar for dollar.
It’s a similar story for the youngest age cohort, the under 25s, although in 2020-21 they were investing about $3 into the Australian share market for every $1 invested offshore. At the end of 2023-24 that number was also about one for one.
So, the message seems to be getting through. Diversification across asset classes and geographies is really critical in investing.
Fundamentally, this shift to offshore sharemarkets is a recognition by many investors that the Australian sharemarket makes up only a small percentage – about 2 per cent – of the global sharemarket. Indeed, most of the largest companies in the world by market capitalisation are listed outside Australia, in North America, Europe and Asia.
The recent strong performance of international markets, especially United States’ markets, also has encouraged many investors to move outside the Australian market. It is evident many investors have been chasing performance, even though past performance is never an indicator of future returns.
International shares have outperformed Australian shares in eight of the past 10 financial years.
In 2023-24, the US sharemarket delivered a total return of 24.1 per cent, and the broader category of international shares 19.9 per cent. This compared with the Australian sharemarket’s 12.5 per cent total return.
International shares have outperformed Australian shares in eight of the past 10 financial years. To quantify that, a $10,000 investment into international shares in July 2014 would have achieved an average annual return of 13.1 per cent by June 30 this year and grown to $34,329 before costs and taxes, and assuming all distributions had been reinvested.
The same investment into Australian shares would have lagged, delivering an average annual return of 8.3 per cent, and growing in value to $22,239.
The trend across all age groups points to investors wanting greater investment diversification by accessing international markets. There are many ETFs listed on the ASX that provide quick exposure to international shares.
Although returns from international sharemarkets have been relatively strong over time, having good diversification can help to smooth out returns during times when different sectors underperform others.
Hopefully, investors who have made the shift to offshore shares see the value of diversification and stick with it through all market cycles.
It is important for investors in international assets to be aware of potential tax consequences and the risks associated with foreign currency movements, which can have a significant impact on returns.
Your Debt-to-Income (DTI) ratio is a key financial metric that measures how much of your monthly income goes toward paying debts. Unlike credit utilization, which focuses on credit card limits and balances, DTI considers all monthly debts, including loans, mortgages, and credit cards, relative to your gross income. Here’s how to calculate it: divide your total monthly debt payments by your gross monthly income, then multiply by 100 to get a percentage.
For instance, if you earn $5,000 monthly and pay $1,500 toward debts, your DTI is 30%. A low DTI indicates that you have more income available after debt payments, which lenders generally view as a sign of financial stability.
How Credit Bureaus and Lenders Use DTI
Credit bureaus do not directly factor your DTI ratio into your credit score; however, it’s essential to lenders and creditors. When evaluating loan applications, lenders often use your DTI as a measure of how much additional debt you can manage responsibly. A high DTI may suggest that a borrower is overextended and may struggle with future payments, making it less likely they’ll be approved for new credit or favorable loan terms.
DTI Scales and What They Mean
Excellent (0-20%): A DTI of 20% or less is considered excellent, as it shows you’re using a small portion of your income for debt payments, indicating strong financial health and high creditworthiness.
Good (21-35%): In this range, you’re still in a good position. A DTI under 35% is usually considered manageable, showing lenders you have room in your budget for potential new debt.
Fair (36-49%): This range is a bit high, as more than a third of your income goes to debt payments. Lenders might see you as a moderate risk, and approval for new loans could become challenging.
Poor (50% and above): A DTI over 50% suggests you’re using over half your income on debt, signaling a high dependency on credit. This level of debt can make loan approval difficult and may prompt lenders to deny applications.
Monitoring your DTI and keeping it as low as possible can improve your chances for credit approval, better loan terms, and a stronger overall financial outlook.
In a significant shift towards consumer empowerment, Australia embraced positive credit reporting, or comprehensive credit reporting, in March 2014. This transformative approach allowed credit bureaus to gather and share a wealth of detailed information about individuals’ credit histories, moving beyond the traditional focus on negative data like defaults and bankruptcies. But how does this change benefit consumers?
Key Changes with Positive Credit Reporting
Inclusion of Positive Data: The most notable enhancement is the addition of positive information to credit reports. Now, factors such as on-time payments, account balances, credit limits, and the variety of credit accounts are included, creating a holistic view of a borrower’s creditworthiness.
Enhanced Credit Scores: This inclusive approach means that consumers who manage their credit responsibly can see an improvement in their credit scores. A strong repayment history translates into easier access to credit and potentially better interest rates.
More Accurate Risk Assessment: Lenders can now make more informed decisions based on a comprehensive picture of an individual’s credit behavior. This shift reduces reliance on solely negative reporting, allowing for a nuanced assessment of risk.
Improved Access to Credit: For those with limited credit histories or who have faced challenges in obtaining credit, the new system increases their chances of approval. By demonstrating responsible credit management, individuals can significantly enhance their profiles.
Greater Accountability: The transparent nature of this reporting system encourages consumers to take their credit behavior seriously. Knowing that positive actions will be reflected in their reports can motivate individuals to maintain healthy credit habits.
Interestingly, the concept of positive credit reporting isn’t new; it was first introduced in the United States with the Fair and Accurate Credit Transactions Act (FACTA) in 2003, laying the groundwork for a more balanced view of consumer credit.
In summary, Australia’s adoption of positive credit reporting marks a pivotal change in how creditworthiness is assessed, fostering a more consumer-friendly landscape in lending and credit management.
In Australia, private banking is designed to offer high-net-worth individuals (typically with a substantial asset base or significant income) personalized financial services and tailored advice. The approach is relationship-focused, with a dedicated private banker or relationship manager coordinating access to a range of services, such as:
1. Wealth Management and Investment Advisory
Private banks help clients with asset management, investment strategies, and portfolio management, often with access to exclusive investment opportunities. They offer advice on everything from equities and fixed income to more sophisticated products like alternative investments and structured products.
2. Tax and Estate Planning
Many private banks collaborate with tax and legal specialists to provide integrated tax planning and estate structuring. The goal is to optimize tax efficiency and ensure wealth preservation across generations, which may include setting up family trusts or foundations.
3. Lending and Credit Facilities
Private banking clients often receive preferential lending terms, including higher credit limits, lower interest rates, and access to tailored loan products. This can include home loans, investment loans, and margin loans with flexible repayment options, often linked to their broader financial strategy.
4. Exclusive Financial Products and Accounts
Private banks provide specialized account types that offer higher interest rates, reduced fees, or rewards tailored for high-net-worth individuals. Some banks also give access to products not typically available to retail customers, such as exclusive insurance policies or bespoke investment products.
5. Lifestyle Services
Many private banks extend lifestyle services, such as access to luxury travel planning, concierge services, exclusive events, and more. This could include VIP access to cultural, sporting, or networking events and preferential treatment with luxury service providers.
6. Global Banking Services
For clients with international assets or interests, private banks offer cross-border services such as international investments, foreign currency accounts, and tax planning assistance tailored to expatriates or those with global wealth management needs.
Eligibility and Cost Structure
Private banking in Australia usually requires a minimum asset threshold, which can range from AUD $1 million to $10 million, depending on the institution. Fees vary widely, and services may be fee-based, commission-based, or a combination. Some banks charge an annual fee, while others might take a percentage of assets under management.
Overall, private banking in Australia is about delivering a highly customized experience that helps affluent clients grow, manage, and pass on their wealth efficiently.
Winning the lottery is a dream come true for many, yet surprisingly, a common thread among lottery winners is that they often go back and buy more tickets. But why would someone who’s already struck it big go back for more? The answer lies in the psychology of reward, a concept heavily explored in behavioural finance, where dopamine plays a starring role.
The Role of Dopamine in the Lottery Experience
Dopamine, often called the “feel-good” neurotransmitter, has a powerful role in how we experience pleasure and anticipation. However, it’s not just about feeling good when something positive happens—dopamine is deeply involved in the anticipation of rewards. When someone buys a lottery ticket, it’s not just the potential to win that thrills them; it’s the excitement leading up to the draw. This anticipation creates a dopamine spike that feels rewarding even before knowing the outcome.
In the case of lottery winners, this same dopamine-driven anticipation that initially drew them to buy a ticket doesn’t simply disappear after a win. Winning itself is an intensely pleasurable experience that further reinforces the brain’s dopamine pathways, making the allure of “another win” all the more enticing. The anticipation itself becomes a reward, drawing winners back for more tickets to recreate that thrill.
Behavioural Finance and the Lottery Cycle
In behavioural finance, we study how psychological factors influence financial decisions. In the case of lottery winners, a few key biases can explain why they might continue to buy tickets:
Recency Bias – This bias refers to placing too much weight on recent experiences. After a big win, the memory of that experience is vivid and emotionally charged, making it easy to believe another win could be just around the corner.
The Gambler’s Fallacy – Though the odds of winning the lottery are incredibly low, people tend to believe that past outcomes influence future ones. A winner may feel they’re on a “winning streak” or that they have a lucky touch, even though each ticket has an independent probability of winning.
Overconfidence Bias – After experiencing the rare event of a win, winners might feel they have an edge in winning again. Behavioural finance studies show that confidence, especially in something as unlikely as winning the lottery, can be surprisingly sticky.
Reinforcing the Habit: Why Lotto Winners Buy Again
So, what do most lottery winners have in common? The answer is that many are drawn back by the powerful cocktail of dopamine and cognitive biases. This pull isn’t just about rational decision-making; it’s about the irresistible combination of thrill, anticipation, and the memory of winning. When dopamine kicks in, fuelling the desire to “experience that again,” winners are motivated to seek out another chance to win, reinforcing the habit.
While the decision to buy another ticket might not make sense financially, understanding it through the lens of behavioural finance helps clarify why lottery winners often return for more. The experience is not purely logical; it’s driven by a deeper, more instinctive reward cycle that connects anticipation and pleasure.
