G20: they don't need no (financial) education ? leave that to the regulators
PPI was the disaster that finally opened the eyes of UK regulators to there being no substitute for the expert eye of a seasoned professional who can spot a scam in operation
G20 leaders will be told on Thursday that one of the structural changes required to make capitalism work better is that consumers be given a strong dose of financial education.
The OECD boss, Angel Gurr�a, will hold a press conference in St Petersburg during which he will urge Brazil, Russia and China along with more developed nations to use education to prevent the widespread mis-selling of financial products.
"Improved access to basic financial products ? including bank accounts, credit and saving products ? for a rising middle class in emerging economies, the increasing sophistication of the financial landscape and products while public and occupational welfare benefits are shrinking in most developed countries have shed light on the importance of consumers' financial decisions," says the OECD report.
"With little understanding of how they work, there may be negative consequences not only on individuals' and households' future financial well-being, but also on the long-term stability of financial and economic systems."
In the sense that prevention is better than cure, or better than compensation in the case of financial services, it sounds like a good idea. Yet as the middle classes of Brazil, China and Turkey are persuaded to buy pensions, insurance and a mortgage to buy a house, the UK has shown these ideas to be outmoded. Only simple products can save the consumer from disaster. A pension can be as transparent as you like, but 99% of people will never get to grips with the way it works or be in a position to question which type suits their needs.
So while it is always sensible to establish a basic knowledge of the financial rules that govern various forms of borrowing money and the many ways we can invest, the debate has moved on and the OECD, though well-intentioned, is well behind the intellectual debate. And for that we must thank the PPI mis-selling scandal.
PPI was the disaster that finally opened the eyes of UK regulators to there being no substitute for the expert eye of a seasoned professional who can spot a scam in operation.
No amount of consumer education could undermine the efforts of high street banks desperate to sell PPI. It was a dangerous and fraudulent product that made fantastic profits for the banks. Try as they might, no single campaigner could block the marketing juggernaut designed to drive sales until more than half the working population had been sold one and the compensation bill topped �10bn. In the end it dawned on the government that only the regulator could fix the problem.
The Financial Services Authority's "financial capability department" spent millions on education initiatives while PPI was busily mis-sold. Thankfully, the FSA's successor, the Financial Conduct Authority (FCA), has hived off this activity and instead enshrined a policy of "temporary product intervention" that means regulators step in when it becomes obvious financial companies are bamboozling their customers.
Such bamboozling is happening now on packaged current accounts, which banks sell typically for �10 a month with phone and travel insurance bolted on. The accounts are sold despite many customers not needing the extra products or not being able to make a claim. Complaints are pouring in. Speculation abounds that the FCA is about to announce a temporary product intervention, or in common parlance a clampdown, on their sale.
There was a hint in the aftermath of the banking crash that regulators would go further and examine each and every new financial product for its potential to cause harm, but that was dropped. Instead we have a system that hopes to stop bad dealing before too many customers become victims.
As a compromise it is not the worst outcome. However, it ignores the more fundamental point that the financial services industry is pathological in its pursuit of profit. As a result, most financial products are over-complicated and over-priced. There are some competitive arenas like house insurance, but mostly our savings, investments and mortgage interest payments leach into the pockets of countless City folk. Five years after the crash, they have somehow clung to their bonuses and commissions, trail fees and termly payouts.
Politicians, fearful that any move against the industry will depress profits, have rarely intervened. Ultimately they believe one of the UK's biggest taxpayers could wither away.
The OECD appears to be equally accepting of the finance industry's dominance. And just as the food industry blames individuals for getting fat, so the financial services industry is allowed to re-establish caveat emptor.
After all, an "educated" consumer is one they can blame for their own misfortune.
Yet when most people in the City fail to understand products sold in other parts of financial services industry, what chance do ordinary consumers have?
The OECD should attack the profiteering by financial services firms and demand simpler products, while dodgy products are regulated out of the system. Education can be left to schools.
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posted by pension333 @ 07:01
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