Last week, many of those who were vox popped why they voted no in the Lisbon Treaty said they did so because “I don’t sign contracts I don’t understand”.
Good for them. Hopefully they exercise the same good sense when buying financial services products.
But judging from the findings of the Financial Regulator’s first consumer Financial Capability Study this is not the case for all of you.
Our level of diligence varies wildly, depending on the product, though we are likely to do more research for big ticket items like a mortgage (65%) and for compulsory insurance like motor and home and other general insurance (53%).
When it comes to life insurance (39%) and investments (39%), our due diligence falters and gets even worse for included: credit cards (29%), savings (24%) and loans (18%) and current accounts (17%).
Perhaps the Regulator should have turned those figures around: their research shows that 83% of consumers don¹t bother to shop around for their current account and 82% for their personal loans.
Another 76% don¹t bother to compare rates and conditions for the savings account they use and 71% for what interest rates and terms apply to the credit card in their pockets.
Meanwhile, 61% bother to do any research into their investments and life insurance; 47% don¹t shop around for car and home insurance and 44% don¹t bother to compare the best rates and conditions when buying a mortgage.
Is it any wonder that so many of us end up complaining to the other arm of the Regulator the Financial Services Ombudsman when we get ripped off?
Or that their savings are being eaten away by inflation and how the cost of their mortgage is so much higher than their neighbour, who paid the same price at the same time?
This is an important survey because if provides much needed statistical evidence to support my view that our level of knowledge about financial services products, and how banking and investment markets work is very low.
The Consumer Director, Mary O’Dea admits as much: “This study will also help us to identify what information or education initiatives are needed to help people become more financially capable. These headline results already show very clearly some of the main issues regarding the financial capability of consumers in Ireland.”
Our attitude towards risk is a perfect example of this knowledge deficit. According to the survey 44% of respondents said they didn’t want to take any risk with their money.
However, they are totally unaware, not only of the inflation risk they take leaving their funds in a low yielding bank account, but of the risks associated with what many believe are low risk investments.
Over one third of respondents said they didn¹t know that tracker bonds, unit trusts and endowment policies are directly affected by stock market performance.
“The value of savings and deposit accounts are not likely to be directly affected by stock market performance, yet 7% thought they would be,” according to the survey report.
The report claims that studies in the UK and Australia into financial education and research, conferences and initiatives being conducted by the EU Commission in 2007 has led to the setting up of an expert EU group that will eventually report back to the Commission.
Unfortunately, by the time anything comes of this flurry of activity, more and more people here could end up being added to the complaints pile sitting on the Ombudsman Joe Meade’s desk and they would be the lucky ones.
Most of us just muddle through our financial ignorance and mistakes, taking small and large losses equally, and hoping that eventually we¹ll have learnt enough from our costly mistakes to walk through the next minefield relatively unscathed.
This really isn’t good enough. The Regulator has done terrific work in putting a library of price surveys, information booklets and consumer legislation together, but not everyone who opens a bank account, buys a mortgage or sets up an investment fund for their kids or a pension for themselves is getting the message.
So here are a few suggestions that perhaps the Regulator will take on board:
* Put pressure on the financial services companies to give out your guides and booklets such as ‘Credit Cards: What you should know’; ‘Car Insurance: What you should know’, ‘Savings and investments made easy’; ‘Equity release’; ‘Mortgages made easy’ and all the others when the customer first comes in to enquire about the product.
* Step up your publicity campaigns for these booklets: the Regulator’s advertising has been witty and engaging. They need to find a way to get more money to do more of it, using the internet and mobile phone messaging too to get through to younger audiences.
* Get moving on financial education in the schools. Our education system is hugely limiting as it is, but it’s downright criminal that 18-year-old graduates don’t know how compound interest works, or what the difference is between a current and deposit account.
Is it any surprise that our young people fall into exactly the same debt and spending traps that their parents are in?
Free adult financial seminars should be made available at least once a year in every major town and city let the local banks and insurance companies offer to sponsor the event; they say they’re always looking for ways to “engage” with their customers.
* Start naming and shaming those financial companies that intentionally rip-off consumers. Then fine them and haul their sales forces off the high streets for re-training as is done in the UK.
Meanwhile, do your own research, use the Regulator’s website www.itsyourmoney.ie and don’t sit back and do nothing if you think you have been ‘mis-sold’ a financial product. Complain to the institution and then to Joe Meade, the Financial Services Ombudsman via www.financialombudsman.ie