Living with credit, Protecting yourself

Financial mistakes? It could be a case of TMI

Fred Williams

What a relief — it’s not just me.

The report is out, and it’s official: We don’t necessarily suffer from a lack of information when we make decisions about money.  Often, what we suffer from is too much information — it’s just not in a language we can understand.

This is one of the findings in a report about the state of financial education and our collective financial savvy. The findings of the Consumer Financial Protection Bureau weren’t forehead slap-worthy, but at least they provide comfort that others are in the same, confused boat.Financial mistakes? It could be a case of TMI

In a financial transaction, people are inundated by densely worded forms that make it difficult to understand what’s going on — when buying a home or a car, for example, or just opening an account.  At the other extreme are simple, appealing, but not very helpful messages from financial companies that are designed more to sell than to enlighten.

“That does discourage a lot of people and give them a negative perspective in many cases,” says Paul Richard, executive director of the Institute of Consumer Financial Education. His advice is to keep it simple when possible, such as by dealing with mutual funds instead of stockbrokers and credit unions instead of profit-hungry banks.

The consumer bureau talked to financial educators about the most common problems people have keeping their financial ship upright. Bulky “disclosure” statements that are like wading through wet cement struck a chord with me.  Maybe some of these other findings will sound familiar to you:

  • Refusing to admit you need help until a crisis hits – month to month, people feel like they are succeeding if they just manage to stay out of the soup.
  • Difficulty balancing goals, such as whether to build up savings or pay off credit card debt.
  •  Trouble changing habits, even when armed with a plan to improve your financial health.

If these are the problems, what are the solutions? Unfortunately, financial training isn’t in shape to come to the rescue.  It doesn’t arrive at the right time — teach high-schoolers the importance of saving for a car, not for retirement, the report says — and there are few standards to go by. People agree on the need for better financial education, but there is no agreement about what works, and the providers are spread all over the map.

Banks are positioning themselves as resources for financial education lately. Yes, the masters of the fine print also want to be known as a trusted source of financial advice, and are increasingly providing educational packets to their customers.

Stewart Rose, president of Truebridge Financial Marketing, insists this is not a case of the fox guarding the henhouse.  “It’s not unlike the electric company teaching you how to save electricity,” he says. “In a regulated industry, you want to take a responsible role.”

Rose, whose company generates educational materials that banks provide on their websites, says that regulators, including the CFPB and the Federal Deposit Insurance Corp., are pushing the industry to help educate customers — and lenders are listening. Truebridge focuses its consumer whitepapers — which are explained in plain language — on “life events” such as moving, changing jobs, starting a family or buying a house. Yes, the idea is that some readers will eventually connect with the bank’s mortgage company or trust department, Rose says, but the material provides a well-rounded look at the issue rather than a sales pitch.

“I think the writing is on the wall — you better be responsible in the way you conduct business,” he says. One of his bank clients in the Midwest complained of having been cited for the fees it was charging customers. Now it is hoping to get on the right side of regulators by changing how it communicates.

Rose has a point about the message coming from financial regulators.

“We have built the greatest system of economic liberty in the history of mankind, but it will only endure if we take the necessary steps to strengthen that system from the bottom up, starting with the individual,” CFPB Director Richard Cordray said May 29 at an investor education conference.

Cordray also said the best form of consumer protection is self-protection, and highlighted some means to that end. The FDIC’s MoneySmart curriculum covers a range of basics. And the  CFPB is developing a library of answers to specific questions.

The complexity of financial decisions is increasing, Cordray said, and those who don’t arm themselves with an understanding of the major choices they face will likely have years to regret it.

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  • doris herman

    I can’t understand how banks are giving 1.00% on 5 year CD’s and they charge 12.00% interest on a late payment on a credit card charge and on top of that a late payment charge?
    There is something unbalanced in this. Brings to mind a loan shark.