Does Marketing Drive Your Financial Decisions?
When you make decisions about your credit card choice, usage and payments, are you making your financial decisions based on knowledge or marketing? The Consumer Financial Protection Bureau (CFPB) recently published a study that believes biased marketing may be guiding consumers' financial choices. The agency looked at the amounts of money spent on financial education and financial products marketing to learn about what consumers are exposed to as they make financial decisions.
The study, conducted for the CFPB by The Boston Consulting Group, found that the amount of money spent on financial services marketing is about 25 times more than what's spent on financial education, which is defined as the money spent by entities like federal, state and local governments, financial institutions, non-profits and charitable foundations, among others. When you're talking about this in terms of dollars, that's $17 billion spent on marketing and $670 million on education. While $670 million doesn't seem like small potatoes, the analysis estimates that works out to about $2 per person per year, while about $54 per person per year is spent on marketing efforts.
In looking at those marketing efforts, the study broke out that spending by awareness advertising and direct marketing. "Awareness advertising is when a company puts out ads with a general promotional message but not necessarily selling a specific product," said Camille Busette, Assistant Director of the Office of Financial Education at the CFPB, in a press call.
Of the $5.5 billion in annual spending on awareness advertising, 56 percent of it was on credit and loan-related products. While this type of spending included advertising about mortgages, vehicle loans and home equity loans, the bulk of it was put toward credit card advertising.
Financial companies also spent $12 billion on direct marketing costs to sell specific products, such as a rewards credit card or a specific mortgage loan. "We found that nearly half of direct marketing is done with Internet ads. Mailers and television ads were the other two most common forms of direct marketing," said Richard Cordray, Director of the CFPB, in a press call. TV, print and radio ads and other types of advertising made up the rest of this spending.
"This tells us that consumers are seeing financial marketing everywhere they turn -- online, in their mailbox, and in their family room on the television," said Cordray, noting the constant marketing messages consumers had to filter through versus any true education about financial products. "It is truly a David and Goliath scenario, which highlights the importance of providing high-quality sources of unbiased financial information to consumers," said Cordray.
The report found that consumers face a lot of challenges when managing their finances, and financial education helps them with their decisions. However, the disparities in spending on educational information versus biased advertising could mean that the consumer may have difficulty making decisions that are in their best interests.
"At the Consumer Bureau, we believe that the best and most immediate form of consumer protection is self-protection: being able to avoid problems in the first place and to know what you can do about it when you do experience a problem," said Cordray.
To that end, the CFPB is beefing up the educational features on its website, consumerfinance.gov. It has an interactive tool called Ask CFPB, which is a database with unbiased answers to over 1,000 frequently asked financial questions, including questions on credit cards, prepaid cards and credit reports and scores. The CFPB site also has a series of free fliers about financial issues.
The CFPB plans on continuing its efforts toward better financial education by evaluating existing programs and creating new educational tools and strategies to better help consumers make decisions. Additionally, the agency will do more promotion of financial literacy in schools, libraries, workplaces and community groups.