Banks fail to properly disclose they are signing up children to school banking programs for commercial gain and the young Australians don’t understand tactics used on them, the financial services watchdog has found.

The Australian Securities and Investments Commission on Tuesday released findings of its two-year review into school banking programs, finding young children have limited ability to understand the marketing tactics of banks.

“Providers make use of persuasive advertising strategies to deeply engage participants with their brand,” the report says.

“Little consideration is given to the participants’ abilities to filter marketing messages.

“A key strategic objective in offering school banking programs is for commercial gain – signing up new customers at a young age. School banking program providers fail to effectively disclose this.”

ASIC looked at a range of issues including risks and benefits, how programs are implemented and marketed to schools, and to see if they affect student saving habits.

The review found programs claim to help school children with long-term savings habits but banks were unable to demonstrate that programs were improving savings behaviour.

ASIC wants schools to better understand the objectives of the banking programs, to consider their potential harms and benefits to students, and to better understand incentives banks use to lure them in.

Close to $2.5 million was paid to schools in the 2017/18 financial year in a bid to encourage more participation in programs.

The programs are offered by 10 banks including the Commonwealth Bank of Australia, Bendigo and Adelaide Bank, and IMB.

As of June this year there were close to 4000 primary schools across the country – 63 per cent – taking part in a banking program.

There were 180,000 accounts through the programs, making up eight per cent of all Australian primary school students.

Commonwealth Bank has been running a school banking program since 1931.

Its current version, Dollarmites, has long dazzled students with colourful holographic rulers, bright yellow banking books and cute cartoon mascots.

Concerns over the programs have resulted in them being banned in Victorian government schools from next year, to be replaced with school-led financial skills classes.

A survey done for the review found 84 per cent of parents were satisfied with the program for their children.

Parents also raised concern with banks marketing to their children, with others seeing it as a ploy for banks to get future customers.