Why we don’t embrace consumer education

Consumer organisations hold low esteem towards conventional / traditional consumer education and literacy schemes. Probably because it will not create the much needed balance of power between consumers and their providers.

I have so far spent most of June 2012 in meetings, debates and attending presentations on the subject of consumer protection in the financial markets. Representatives for numerous governmental and regulative bodies in EU, Americas and trans-national institutions have met consumer organisations, without interference from the corporate financial players. The scene for these meetings has been the Transatlantic Consumer Dialogue (TACD) 13^th annual meeting in Washington D.C.  The absence of industrial representatives has allowed an unconstrained dialog, without the habitual claims of over-regulation, unchangeable system feature, which makes it impossible to improve consumer conditions or ideas about consumer’s affection to their providers of financial services and products.

Some reflections from the dialog:

1. Consumer representatives on both sides of the Atlantic (including myself) calls for active consumer protection from financial supervisor authorities and regulators. We regard undertakings from supervisory authorities and regulators as more effective than our own undertakings and those of consumers. Consumer representatives have a long history of warning and urging consumers to act rational. We have suggested alternative products and behaviour, but still we see consumers going right in the traps of the financial sector time after time. Complex products, creative labeling and product developments must take much of the blame. No wonder we rather call for specialised finance consumer authorities and supervisors.

During those passed days I have had the chance to meet several of such specialised finance consumer authorities.  E.g. the 10 month old Consumer Finance Protections Bureau (CFPB) of USA, the Financial Consumer Agency of Canada (CFCP), Department of Consumer Protection in the European Banking Authority (EBA), Global program on consumer protection and financial literacy in The World bank, Financial education and Consumer Protection Unit in OECD (which is the secretary for the G20 on the matters of Financial education and Consumer Protection). All of them inspiring.

2. On both sides of the Atlantic, officials involved in the financial consumer aspects has focus on financial literacy. Consumer organisations hold low esteem towards conventional / traditional consumer education and literacy schemes. Probably because consumer education and literacy schemes don’t create the much needed balance of power between consumers and their providers.

None of those officials who promote financial literacy as a meaningful measure regards it as a sufficient condition for improved retail financial markets. Anything else would be naïve. The same officials have yet to substantiate the assumption that financial literacy is an effective tool to handle the current challenges which consumers experience.

I have yet to be persuaded – beyond theoretical arguments– that we will experience more effective markets and less consumer detriment if we prioritize conventional consumer education.

Society would benefit more if we provided decision making tools rather than providing classroom based education or financial literacy through adjusted school curriculum. Interactive digital technology serves consumers well for this matter. The Norwegian Consumer Council has developed www.finansportalen.no a price and product comparing site, which gives a platform for better consumer choices. We have also made necessary steps to bring this site to smart-phones.

With the tools of finansportalen.no we simplify choices of personal property and casualty insurance, current accounts, saving accounts, credit, mortgage and investment products. With such tools close at hand when purchasing financial products, consumers are allowed to act rational. Consumers get full comparable information presented in a simplistic manner from all providers. Such information is a necessary condition for effective markets. We estimate the societal benefit of finansportalen.no to be at least NoK 200 million.

Effective markets are the end purpose of any financial literacy scheme. So why not give priority to  price and product comparing sites, rather than costly consumer education programs?

Stikkord: CFCP, CFPB, Complex products, Consumer Finance Protections Bureau, consumer protection, Department of Consumer Protection in the European Banking Authority, EBA, Financial Consumer Agency of Canada, Financial education and Consumer Protection Unit in OECD, financial literacy, financial literacy schemes, finansportalen.no, Global program on consumer protection and financial literacy in The World bank, TACD, The Norwegian Consumer Council, Transatlantic Consumer Dialogue