How Australians could save $12 billion by switching
If you’ve ever decided to ditch your bank, insurer or utility to take up tempting offers, and save serious money with a competitor, but never quite made it don’t worry you are NOT alone.
Fascinating research out this week reveals some of the home truths about how much money, almost $12 billion, we could all save by switching to cheaper service providers.
That’s the money on the table but while half of all consumers seriously consider switching home loans, credit cards, insurance, telecoms and even groceries less than a quarter actually do it.
It might not make sense in rational economic theory but as people en masse we are surely not stupid. Some have dubbed this $12 billion a ‘lazy tax’ but perhaps it’s not all apathy but perceived good reasons holding us back.
So what is happening and what can we, as individuals and governments wanting to benefit from more competition, do about it?
For FiftyUps the news, at least as far the study by Queensland University of Technology and commissioned by the customer-owned Heritage Bank found, is the older you are the less likely you are to switch. Likewise if you live in the bush.
The better-off are more likely to switch to even save smaller amounts of money than households with lower income. Maybe they are more thrifty or have more time.
The main barriers stopping more consumers from taking advantage of the undoubted financial gains are called switching costs.
They include the time, trouble, effort and sometimes the monetary costs of changing suppliers. There’s also the uncertainty as to if the promise of a change will add up to a real gain.
The survey found for home loans, where you can save most, these barriers were in descending order; the effort to switch, the perception all lenders are the same and a lack of information.
But 30% of those who had switched their home loan reported saving more than $2000 a year which is surely worth getting out of bed for.
Some of the switching costs for home loans, such as exit fees for an early departure from a mortgage contract, have been removed by government to promote competition.
Likewise for years we have enjoyed number portability on mobile phones. We can change providers and keep our number which reduces the ‘switching cost’ of the time and trouble of telling everyone how to reach us.
Maybe government policy can do even more. In the UK there’s a similar issue with what’s called customer inertia to unlock these savings.
A recent report called Should Switch, Don’t Switch suggested a national switching week in January encouraging consumers to do the work just once a year.
It also suggested ‘nudging’, that is subtly encouraging us with a range of incentives monetary and otherwise, NOT to automatically sign up again for tariffs at the expiry of the contract.
They are all good ideas which we should explore in Australia especially since the QUT survey found those who do shop around collectively save $2.5 billion a year.
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The academic, who conducted the research, says while apathy is the key barrier to switching she predicts if there’s an economic downturn in the next year harder times will drive far more people to shop around.
You could wait for the government and industry to make information more available and highlight where savings can be made but waiting for this will cost you money.
Much better to explore the switching habit now and take that money off the table and keep it in your pocket.
