Remember Sid the Seagull resplendent in his boardies, t-shirt and floppy hat exhorting all of us all to Slip! Slop! Slap!
If you do, besides showing your age, you were privileged to witness one of the most successful public health campaigns ever. Launched in 1981, Slip! Slop! Slap! was credited with a substantial and permanent drop in the incidence of skin cancer throughout Australia. In those days, sunburn prevention consisted of zinc cream on the nose and a liberal smothering of baby oil, just to make sure you got well and truly fried to a crisp.
Contrast this unqualified success with the patchy results of many well-intentioned – and some not so well-intentioned – attempts to improve community financial literacy, mainly after the global financial crisis horse had bolted in 2008. In the light of that, here are some questions to consider:
- Could it be that success in financial literacy is a long-term project which may take decades to show significant success?
- Could it be that some financial literacy programs will be successful and others won’t be?
- Could it be, unlike the incidence of skin cancer, that measuring success in a complex field like financial literacy is very difficult?
- Or could it be that we’re deluding ourselves, wasting time and money on an activity that has limited chance of success?
The answer to the first three questions is “yes” or at least “we hope so”. The answer to the fourth question is “yes” or “we hope not”.
Professor Lauren Willis of Loyola Law School, Los Angeles, has no doubt that we’ve been delusional about financial literacy for some time.
“The final salvo of financial education promoters is usually that education is the only politically feasible path to improving consumers’ financial lives… one clue that financial education is not the only politically feasible path is the amount of money that industry spends on advocating for and funding financial education programs, even though consumers who exercise welfare-enhancing personal financial behaviours typically are less profitable for industry,” Willis noted in her 2011 paper, The Financial Education Fallacy.
Willis continued: “Firms sometimes support these programs so as to use them as marketing opportunities. But firms also support programs when they have no control over the content. Why? Firms fear the other forms of regulation they believe they would face if they could not point to financial education as the cure for consumer financial woes. But if the inefficiency of current programs were known and the costs of effective financial education were truly understood, other forms of regulation would move to the fore.”
In other words, Willis is suggesting that the financial services industry uses support of financial literacy education programs as a smokescreen to avoid commercially inconvenient regulation, such as bans on conflicted remuneration.
If Willis’s conclusions are correct, we should immediately cease all financial literacy education and redirect our efforts into regulatory strategies that work in the interests of consumers. Those consumers will then no longer be required to find their way through the complexities and conflicts of an industry that has hitherto acted against their best interests.
While I have sympathy for Willis’s views, it would be sensible, before adopting the ‘nuclear option’, to consider the contents of current financial literacy education programs that are not achieving significant improvements in consumer outcomes. Having examined many programs, two things stand out. The first is that many of them pummel consumers with a huge amount of confusing information, rather than recommending practical actions they should be considering to improve their financial capability and decision-making.
Superannuation education seminars are some of the worst offenders. Typically, their content is driven by compliance officers whose job is to minimise their employers’ liability. Consequently, many of these seminars are full of poorly explained technical language. Examples include defined contribution, commutation, indexation, portfolio design, annuity and preservation age. In fact, they are often so complicated that their impact (hopefully, not intentional) is to convince participants that superannuation is indeed too complicated and to be avoided at any cost. Talk about setting up consumers for failure.
Dr Emily Heath, a neuroscientist and researcher, in her excellent paper How to build real Financial Capability, examines the differences between programs that work and those that don’t.
Heath identifies what drives personal financial decisions and describes a range of evidence-based principles on which successful financial capability programs should be based. These include using rules of thumb, making good practices easier, just-in-time intervention, strengthening self-control, the use of case studies and encouraging consumers to ask for help. The principles (ten in all) are designed to change behaviour, rather than offering masses of confusing technical information which may help some consumers to become financially literate, but typically cause them to be ill-equipped and uncertain about making sensible and practical decisions about their financial affairs.
The second common feature of most current financial education programs is that they fail to acknowledge the “hard issues”, namely systemic failures in the financial services industry including conflicts of interest arising from vertical integration and remuneration arrangements (as identified in the recent Hayne Royal Commission). A clue to the reason for this failure is that the financial services industry has had such a large part to play in the growth of the financial education “industry” and in the design and funding of many existing education programs. Therefore, it is simply not in the interests of the industry to draw the attention of consumers to its fundamental ethical failures.
As a result, financial education programs are full of “soft issues” such as budgeting, borrowing, buying cars and the importance of life insurance. All of these are important, but when it comes to describing the detrimental impacts of conflicted remuneration arrangements (which consumers should understand) most financial education programs are silent. And even when these issues are raised, they are usually deflected as something that “used to happen” or in which only a small number of marginal industry participants (the “bad apples”) are involved these days.
This is a significant shortcoming in current programs. Without independent and fearless education by consumers of the industry’s structure, the impact of conflicts of interest and the importance of a sceptical approach to advice offered by the industry’s participants, such programs are only doing half the job. They should also include action points about dealing with the industry and the questions to ask before choosing a trusted financial adviser or product provider.
Whether the financial literacy/capability venture will achieve the success of Slip! Slop! Slap! is still an open question. Its ability to do so depends upon the ability of education providers to redesign their programs to concentrate on the capability of consumers (rather than just literacy through information) and the willingness of those providers to assist consumers in dealing with the enormous power asymmetry that currently exists between the financial services industry and its customer base (as also noted by the royal commission).
If financial education providers do not lift their game, then I must regretfully conclude – like Professor Lauren Willis – that we’re deluding ourselves. Consequently, the considerable and growing financial and human resources that are allocated to conventional financial education programs would be much better deployed elsewhere, including in the policing of much tougher legislative interventions that the industry fears and may be about to be visited upon it.