CFPB Study Underscores Need for Financial Literacy
By Deanna C. White, Correspondent
A new report released by the Consumer Financial Protection Bureau (CFPB) suggests the amount of money spent on financial marketing greatly outweighs the amount of money spent on financial education - a trend that can muddy the waters even further for consumers trying to find the impartial financial information they need to make smart financial decisions.
According to the report, Navigating the Market: A Comparison of Spending on Financial Education and Financial Marketing, for every dollar put toward financial education, $25 is spent on financial marketing, which can make it even harder for consumers to find unbiased financial information to make informed financial decisions.
"When consumers receive the vast majority of their financial information from companies that are trying to promote an image or sell products, consumers have very little unbiased information", said CFPB Director Richard Cordray. "Today's study further reinforces the dire need for more and better financial education in this country."
The CFPB said the report offers a "yearlong financial snapshot" of spending on financial education in the United States.
According to the report, the financial services industry spends approximately $17 billion each year marketing financial products and services to consumers, while approximately $670 million is spent annually to provide financial education to consumers.
So how do those numbers sift out per person? According to the report, each year, financial institutions spend about $54 per person on financial marketing, while only $2 is spent educating them. The CFPB said",Those numbers highlight the need for consumers to be able to access unbiased information about financial products and services."
Several CPAs, and leaders of the profession's financial literacy initiatives, say that while the findings on the amount of money spent on financial marketing aren't necessarily surprising, the report does once again underscore the critical need for more financial education - particularly for school-age children and young adults.
Jonathan Kraftchick, CPA, a member of the North Carolina Association of CPAs (NCACPA), said it's not unusual to find marketing dollars for financial products outweighing money spent on financial education, since the "lopsided ratio of marketing to education can hold true in just about any consumer industry."
"That being said, however, the survey does a good job showing the importance of making sure people are properly equipped to discern between choosing a proper financial product and a listening to a sales pitch", Kraftchick said.
Kraftchick said most consumers have a natural trust of finance professionals without realizing that every "financial product is designed to make a profit." Some of these products can be very helpful, Kraftchick said, and some may not be.
"Making a profit isn't a bad thing, but when the profit motive puts the consumer's best interest behind making money, this is where that trust can be abused", Kraftchick said. "This is where CPAs and other financial professionals can really make a difference by using that trust and providing people with the tools to make the best decisions for their situations."
Kraftchick said the disparity between education spending vs. marketing spending is par for the course in every industry, but knowing the gap exists should "give us all incentive to do more."
"Navigating your way through the many financial decisions we're all required to make is getting more and more complex. From adjustable rate mortgages to twenty-page credit card agreements to variable annuity life insurance . . . it's all getting out of hand", Kraftchick said. "We live in a time where two people who have similar incomes, savings, and debts can have very different outcomes, depending on a few clicks on the computer."
Kraftchick believes coming out of a recession, many consumers are finally seeing their finances stabilize, but they have a "nervousness that is putting financial advice at a premium."
"Without proper financial literacy training, these people are certainly susceptible to making some very dangerous financial decisions. While marketing budgets continue to soar, it's more important than ever to equip people to make sure they're making the best decision possible", Kraftchick said.
Layne R. McDaniel, CPA, CGMA, a member of the Society of Louisiana CPAs (LCPA) Financial Literacy Committee Task Force and board member of the Louisiana Jump$tart Coalition, believes the CFPB findings are somewhat expected given that they're "consistent with general business practices which state that it takes more money to change behavior than it does to teach or establish it."
McDaniel said",There's a greater need for creditable, unbiased financial education, particularly among students and young adults. As CPAs, we are best positioned to provide this education, without influencing their choice of individual products or services."
The Illinois CPA Society (ICPAS) is just one of many CPA societies across the country that have developed their own financial literacy initiatives, or partnered with other nonprofit organizations, to fill the financial literacy void.
ICPAS President/CEO Todd Shapiro said the study findings bolster the belief that impartial, expert financial literacy education is needed now more than ever, and CPAs "with their advanced education and technical expertise are uniquely qualified to help people of all ages navigate the complexities associated with managing their money"
And CPAs aren't the only finance professionals who say the CFPB report underscores the importance of financial literacy education for students and young adults.
Officials from Big Four professional services organization EY, which has a longstanding commitment to financial education through programs like its EY Connect Day and College MAP (Mentoring for Access and Persistence) program, say solid financial literacy skills are key to the success of the workers of the future and the companies who hire them.
"Through EY's support of the workforce of tomorrow, we've been attuned to the educational needs of young people and recognize the importance of financial literacy to the success of the next generation of workers", said Deborah K Holmes, Americas Director of Corporate Responsibility, Ernst & Young LLP. "Our College MAP program is one example of how EY is using team-based mentoring to help high school students become college ready and gain access to information that will help them succeed in college and in their careers - including financial literacy. The findings from the Consumer Financial Protection Bureau highlight the need for students to receive critical financial literacy information through unbiased channels they may not normally encounter or seek out."
For more information on the report visit the CFPB website.