With Great Power Comes Great Responsibility
Nothing wrong with offering financial advice, but while fighting off a bank robber?
“Keeping your spending contained within a budget is always important,” Iron Man tells Spider-Man while blasting Mole Man, the robber, with repulsor rays. It’s a scene from “Avengers Saving the Day #1,” a comic book from Visa and Marvel Comics that teachers can use to impart financial literacy to kids.
In a post-recession world, where personal finance education has yet to improve the way we make financial decisions, hundreds of financial services firms, from credit card companies to mortgage lenders, are stepping in to get the job done. They see the opportunity to foster goodwill, acquire future customers and, by making people more financially savvy, maybe even stave off the need for regulation.
The risk is that students may learn less about finance than about the products these companies sell.
“The idea that the fox is going to teach the hen is a bit much,” says Lauren Willis, a professor at Loyola Law School in Los Angeles. She believes that the best way to protect consumers from, say, subprime mortgages with teaser rates isn’t through financial education, which hasn’t shown signs of making a difference, but through increased regulation.
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One financial literacy company, Washington-D.C-based EverFi, has designed online software modules aimed at children from 4th through 12th grade. The software is free to schools and covers a range of topics, from budgeting to retirement planning. It includes games and characters such as Rufus, a comedian who is always bungling his finances. Kids can advise Rufus not to buy that TV he wants just because he has a credit card.
The company says over five million students use the system, which launched in 2008. Some 1,000 partners, including foundations, wealthy individuals and corporations, finance the programs. Partners sometimes send volunteers to teach financial literacy alongside teachers, which kids say is inspiring.
Companies aren’t just being magnanimous when they send volunteers to schools. Parents are grateful, says George Barany of the Consumer Federation of America, a Washington, D.C.-based consumer advocacy group. So grateful that they may open up an account with that bank if all goes to plan.
That's not the intention of EverFi’s service or its partners, says co-founder Ray Martinez. The company doesn’t even allow the names of sponsors in the curriculum. Still, BB&T Bank, an EverFi sponsor that offers financial literacy courses to 30,000 students in North Carolina, South Carolina and Alabama, acknowledges that it’s after new business. "The idea is to provide kids with education and then get them to open an account," says Donta Wilson, president of BB&T Bank in Alabama.
It’s no different, says Wilson, than Apple donating iPads to schools. While Apple doesn’t tell the kids to go out and buy an Apple tablet, they are more likely to buy one from Apple than from another company. “We don’t say the account has to be with BB&T,” says Wilson, though he says that can seem the natural choice.
Other financial services firms also see an opportunity to profit from teaching financial literacy while teaching kids to save. Over at Scott Middle School in Hammond, Indiana, Beth Hobbs is teaching 7th-graders a 12-week course on financial literacy using Money Smart, a program offered by the FDIC, the federal agency that insures bank deposits. One class focused on how to open a checking account. The kids learned how to complete the forms and practiced writing checks, Hobbs says. Then a representative of Regional Federal Credit Union in Hammond, who was there to explain why everyone should have a savings and checking account, passed out applications encouraging the kids to open an account.
Hobbs says that neither she nor the principal of the school had any problem with the credit union mixing teaching and marketing. In fact, she offered the kids extra credit for opening an account or, if they already had one, for depositing $3 as a way to encourage saving. "The credit union will be sponsoring a contest within the school," she says. "So we need to get kids to sign up." The idea is to encourage kids to save, says Kevin Kosek, director of marketing and business development at Regional. While students can open an account anywhere they like, “we prefer it if they open an account with us,” he says.
Companies can even be tempted to compromise the lessons they teach to serve themselves, says Remar Sutton, the chairman of FoolProof Initiative, a consumer advocacy organization that provides online financial literacy courses. He says that some credit card companies don't explain to students that they can make money by charging high interest rates on balances and that consumers therefore should pay off their debts each month. Some independent mortgage lenders don't explain that their home loan fees can be higher than if you went through a bank or credit union. "Anytime a financial literacy program is driven by a business, it has a hidden agenda," says Sutton.
Some companies say there is no such agenda. Insurer and money manager ING offers its own literacy program that teaches kids about a wide variety of investments and their fees. While one of the firm’s more popular funds, the ING MidCap Opportunities fund, has an expense ratio of 1.33 percent, ING will not steer students to such funds over a lower-cost index fund, says Rhonda Mims, ING’s head of corporate responsibility.
HSBC Bank USA sends volunteers to classrooms through a financial literacy program operated by Junior Achievement, an educational nonprofit group. HSBC will not market itself or any of its financial products to students, says Carlo Airdo, the bank's vice president of corporate responsibility. While volunteers introduce themselves to students as employees of HSBC, the bank's name is never mentioned again. "We are not looking to sell anything," says Airdo.
The lessons can be ambiguous. In the Visa comic, Spider-Man uses a credit card to buy his Aunt May a present, a decision that increases his debt burden and could result in greater profits for Visa. Although Avenger Black Widow has a budget, she tells Spider-Man she spends 40 percent of it on weapons and jewelry, hardly an example of prudent spending.
Meanwhile, Iron Man, a.k.a. Tony Stark, says banks can “help you determine the best way to earn more money through interest and investments.” Banks have historically offered high-fee investment products compared to competing mutual fund companies, such as Vanguard. Though Visa isn't a bank, it partners with many that issue its credit cards.
"I can see how this could be perceived as a conflict," says Jason Alderman, head of Visa’s financial literacy program. "Still, it's good advice regardless of who gives it."
And what of Visa’s choice of billionaire playboy Stark to teach Spider-Man financial responsibility? Anyone familiar with comic book lore knows Stark inherited much of his wealth from his father. His lavish lifestyle, poor managerial skills and excessive risk-taking have bankrupted him in the past.
Stark is a savvy businessman, says Alderman. “While he's buying expensive sports cars, I think it’s because he budgeted for them,” he says. “It’s part of his financial plan."