The Financial Information Mismatch

Almost every day, I open my mailbox to find at least one solicitation for a credit card, usually promising a free plane ticket and seat upgrades. What I don’t think I’ve ever received is an explainer about how interest rates on credit cards work, or when to use debit instead of credit, or how to manage my savings. And it turns out I’m probably not alone, according to a study from the Consumer Financial Protection Bureau.

The bureau wanted to compare the types of information consumers see about finances, so it contracted with Boston Consulting Group to estimate how much is spent on financial education vs. marketing of financial products. The report focused on core banking, such as lending, checks, and savings, and excluded investment-related activities, such as retirement planning. Not surprising, the gap between marketing and information spending is vast.

The report estimated that the government, banks, nonprofits, and foundations spend about $670 million on financial education each year. About 70 percent of that comes from nonprofits, and the federal government is No. 2.

While $670 million may seem like a lot, it works out to about $2 per person and is dwarfed by the $17 billion the CFPB estimates the industry spends on marketing. “That means the majority of information consumers receive about financial products comes from a company trying to sell them something—which can make it quite a challenge for consumers to find unbiased information,” CFPB Director Richard Cordray said in prepared remarks.

About a third of the marketing dollars went to what the report calls “awareness advertising,” such as television ads. More than 40 percent of those awareness ads pushed credit cards. The industry spent the remaining two-thirds—$12 billion—of the overall marketing budget on direct marketing, including Internet ads and, yes, those solicitations jamming my mailbox.

The Consumer Bankers Association issued a statement saying banks value both informing customers about products and improving financial literacy. “However, as every government agency should know, it is not about the amount of money spent, but the quality and effectiveness of the program,” said Richard Hunt, the group’s chief executive officer. That’s true: Some financial education programs are more effective than others, and there are entire academic programs committed to studying what works best. And, of course, deceptive marketing is illegal. But if a better balance of marketing and education is the goal, financial literacy programs would need to be 25 times more effective than the TV ads and junk mail.

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