This post addresses a challenge that applies to any complex subject matter, but I will relate it to our special interest, which is promoting financial literacy.
With any sophisticated product or service, most of us need some explanation of how it works, what it can do and why we should exchange our hard-earned money for it. Think computers. Think cell phones. Think of buying a home. Think of anything that requires a transfer of information and you’re thinking along the same lines I am.
The purchase process in these transactions involves consumer education before the credit or debit card is swiped, the cheque is signed or the cash is tendered. But when does learning end and selling begin? The line can be fuzzy.
It is one thing when you are in an electronics store with many TVs to choose from, but it is another thing when you are buying a mortgage, opening a bank account, getting a credit card or purchasing an investment product. The lack of financial education among consumers requires that a lot of trust be placed in financial institutions, and marketing plays a very big role in decision-making. However, education is not marketing and marketing is not education when it comes to your finances.
This is a key dividing line for Investor Education Fund (IEF) and I am passionate about helping readers of this blog appreciate the distinction. It’s why I call on policy-makers to support unbiased, credible sources of information on financial literacy. Yes, that constitutes our mandate, but our mandate is sound and the need is real. Here’s why:
Marketing is about promoting a particular company’s product or service. It relies on branding and it demands marketplace differentiation. If it’s done well, the client and the provider are satisfied, and the business is profitable.
Education is about imparting knowledge that leads to understanding and confident decision-making. It deals with core concepts and it enables critical analysis that weighs claims against likely outcomes. When done well, it can lead to an informed and responsible consumer.
In our mind, the real breakdown between financial marketing and education is what I call “the last metre.” This is when you are at your institution or talking to them over the phone seeking to buy a product such as a mortgage. Will your institution encourage you to shop around to look for the best rate? Should you take your institution’s word that the terms of your re-mortgage are competitive, or will you shop around? Ultimately, will the well-intentioned education process stop when there is a product to be sold?
Financial institutions are as competitive as any other business. Their ultimate goal is to sell you products – in this case, a mortgage – and it is easy to see why it would be too much to expect them to take on the role of consumer advocate. They already have their hands full dealing with a very competitive marketplace.
That is why it is so important that financial education and financial marketing not be blurred. Combining education and marketing will not help Canadians make sound decisions that are in their best interests. There is a natural conflict between sales and consumer-centric education that is unlikely to be overcome.
This website exists to accelerate financial education and improve financial literacy. Use it to its full advantage and share the URL with others who would benefit from it. It costs you nothing other than time, and it’s time well spent. Your financial institution can also help educate you to a point, but it is your job to be cautious and make sure that you question and compare products to get the best deal for you. That’s what we can help you with.
That’s my take – what’s yours?
Investor Education Fund