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Consumers Need Improved Access to Financial Education to Make Responsible Financial Choices
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau published a report analyzing the amount of money spent on providing financial education to consumers and the amount spent trying to influence consumers’ decisions about financial products. The report found that for every dollar put towards financial education, $25 is spent on financial marketing, which can make it difficult for consumers to find objective information.
“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.”
A copy of today’s report is available at: http://files.consumerfinance.gov/f/201311_cfpb_navigating-the-market-final.pdf
The study is a yearlong snapshot of spending on financial education in the United States. The Bureau’s report found that the financial services industry spends approximately $17 billion each year marketing financial products and services to consumers. Meanwhile, approximately $670 million is spent annually to provide financial education to consumers. Those numbers mean that each year, financial institutions spend about $54 per person on financial marketing, while only $2 is spent educating them. Those numbers highlight the need for consumers to be able to access unbiased information about financial products and services.
Financial Education Findings
The study examined six major sectors that contribute to financial education spending: nonprofit organizations, the federal government, financial institutions, state governments, municipal governments and school districts, and philanthropic giving groups. Nonprofits spend the most annually on directly providing financial education—about $472 million, followed by the federal government with $130 million. Financial institutions spend about $31 million. The CFPB determined that about three-quarters of financial education spending comes from private sources while one-quarter comes from public sources.
The study looks at financial education spending on housing counseling, credit counseling, school-based programs, financial counseling and coaching, community-based programs, and other types of financial education provided directly to consumers. Today’s report relied on publicly available research, tax documents, market studies and reports, as well as more than 40 interviews with federal and state government officials, non-profit organizations, financial institutions, local governments, public schools, and other experts to inform its findings.
Financial Products Marketing Findings
Annual spending on marketing financial products and services splits into two major categories: awareness advertising and direct marketing.
Awareness advertising is characterized by general promotional messages about financial products and services, not necessarily making an immediate sale of a product. Awareness advertising totals $5.5 billion and can be divided by product type:
- 56 percent on credit and loan-related products: More than half of awareness advertising money was spent on credit and loan related products. The advertising focused mainly on credit cards but also included mortgages, vehicle loans, and home equity loans.
- 24 percent on banking services: Nearly a quarter of this money was spent on advertising on checking accounts, savings, and other bank related services.
- 19 percent on other services: Almost one-fifth of the money was spent on advertising related to other services like ATM networks, credit counseling, and check cashing.
The report found that most of this advertising is done through television ads, but also through newspaper, radio, magazine, display, and outdoor ads.
Direct marketing is advertising done by financial institutions with the goal of getting a consumer to make an immediate purchase. Today’s report found that direct marketing by financial institutions totals $12 billion annually.
- 44 percent on internet marketing: Almost half of the approximately $12 billion spent in direct marketing was spent on online display and search ads.
- 22 percent on mailers: Nearly a quarter of the funds were spent on direct mailing advertisements.
- 16 percent on television: About 16 percent was spent on direct response television advertising.
- 18 percent on other advertising: The remaining 18 percent was spent on newspaper ads, magazine ads, social networking radio ads, emails, and other marketing methods.
The significant disparity in resources devoted to financial education as opposed to marketing financial services underscores the importance of providing high-quality sources of unbiased financial information to consumers. The Bureau offers Ask CFPB, an interactive online tool designed to help consumers find clear, unbiased answers to over 1,000 of their most frequently asked financial questions. The CFPB website also contains other helpful resources for consumers, and has specific sections designed to provide information for students, older Americans, and servicemembers. The Bureau will continue to focus on a financial education strategy that enables consumers to make informed financial decisions throughout their lives.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.