Welcome to this call to discuss a new report from the Consumer Financial Protection Bureau on financial education. I’m Camille Busette, Assistant Director of the Office of Financial Education here at the CFPB.
By way of background, the Consumer Financial Protection is a federal agency created in 2011 in response to the financial crisis. The Bureau’s vision is to have a consumer finance marketplace:
- where customers can see prices and risks up front and where they can easily make product comparisons;
- in which no one can build a business model around unfair, deceptive, or abusive practices;
- that works for American consumers, responsible providers, and the economy as a whole.
Within the Bureau, the Office of Financial Education is responsible for developing and implementing initiatives intended to educate and empower consumers to make better informed financial decisions. Empowering consumers to make the financial decisions that will help them meet their own life goals is a critical part of the mission of the CFPB. To carry out that mission, we need to understand the wide range of information sources consumers could be exposed to in making financial decisions.
To do this, the CFPB commissioned a study of the size and scope of the financial information field. The results give us an overall indication of the relative dollars spent in the U.S. on, first, financial education and second, on the marketing of certain types of financial products to consumers. This information is important because it helps to establish, both for us and those engaged in financial education, the information context within which consumers are operating when making financial decisions. The study also helps to inform the financial education efforts of the Bureau.
First, I’m going to give you the high-level findings of the report. Then I will talk a bit more about how we did the study, and then say a few words about what the CFPB is doing to help consumers navigate their financial lives.
So first, here are the headline findings.
- We found that $670 million is being spent annually spent to educate consumers about financial products by multiple sectors – federal, state, local government, nonprofits, and financial institutions.
- t the same time, we found that the financial services industry spends approximately $17 billion each year marketing financial products and services to consumers.
- That means that there is 25 times as much spent on financial marketing as on financial education.
- To put it a different way, as a nation we spend $2 per person per year on financial education, while $54 per person per year is spent on marketing products.
- 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.
I would like to note that these results are estimates and should not be treated as precise measures of spending. We hope the study encourages further research and stimulates discussion on the scope and role of financial education. It is also probably worth noting that these estimates do not include spending on financial education or financial service product marketing related to retirement, college loans, insurance, and investments. The estimates also exclude financial education that is directly paid for by consumers, such as fee-based counseling, as well as certain fixed costs.
Detailed results and methodology: Financial Education
Now, let me share a few more details from the study. First, we looked at the providers and funders of financial education, including:
- Federal, state, and local government
- Nonprofit organizations
- Financial institutions
- Private philanthropies
We looked 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. The study used 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.
The study separated out spending that directly supports the provision of financial education to consumers from spending that supports the financial education field. Direct provision of financial education includes costs associated with services that directly serve consumers, such classes and workshops, one-on-one coaching and counseling, informational website and brochures for consumers, and the like. Supporting services include services such as funding to other organizations (including those that directly provide financial education), technical assistance, training, research and evaluation services, conferences, etc., that help financial education service providers do their work. In this study, we focused primarily on estimating the spending on direct provision of financial education.
Looking at the direct provision of financial education, we found that:
- Federal government spends $130 million on providing financial education,
- State governments spend $7 million
- Local governments spend $31 million
- Nonprofit organizations spend $472 million
- Financial institutions spend $31 million
These sources of spending sum to approximately $670 million spent on direct provision of financial education every year. All of these sectors also spend additional resources on supporting services like grants and training, but we did not analyze that spending in detail in this report.
Overall, this means that about three-quarters of financial education spending comes from private sources while one-quarter comes from public sources.
Detailed results and methodology: Financial Marketing
Then, we looked at spending by the financial industry on both awareness advertising and direct marketing of consumer products and services.
Awareness advertising is when a company puts out ads with a general promotional message but not necessarily selling a specific product. Financial institutions spend about $5.5 billion annually on awareness advertising. We broke this down by type of product, and found that:
- 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.
Another $12 billion spent by financial institutions is put towards direct marketing, which has the goal of selling a specific product, like a travel reward credit card or a certain type of savings account. We found that:
- 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.
Together, these two types of marketing – awareness marketing and direct marketing — sum to a total of approximately $17 billion spent on financial marketing to consumers.
Comparing the spending on financial education to spending on financial marketing, we find that there is 25 times as much spending on marketing as on financial education annually.
This amounts to $2 per person per year spent on financial education, compared to $54 per person per year in marketing of financial products and services to consumers.
Implications and CFPB’s response
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.
In addition, we have a number of other resources to help address the issues raised by this study. For example:
- If you’re looking for simple ways to educate consumers about how to navigate or avoid financial problems, we’ve made a series of fliers and one-pagers available to order for free. Many are also available in Spanish. These can be found on our website.
- We are also focusing on making financial education more effective by evaluating what works in existing financial education programs, and developing innovative financial education strategies to help consumers in navigating their financial lives.
- We are also working on promoting financial education in schools and libraries, in the workplaces, and in other community-based settings.
Through all of these and other efforts, we aim to provide high-quality sources of unbiased financial information, and identify and promote innovative, scalable methods for providing financial education to consumers. Collectively, we need to make financial education resources and approaches as effective and innovative as possible in order to maximize our impact in empowering American consumers to make good financial decisions for themselves and their families.
I want to end by saying that we see this study as a first step in helping us – and all of you – to understand the context in which we are working. The numbers presented today are estimates, and we welcome all of you to think about how we can learn more about financial education and financial marketing, and how to better help American consumers navigate the market and their financial lives.
I would be happy to answer any questions you might have, and hear your thoughts on this report and how we and all of you can use the findings to further strengthen the field of financial education.