During last week’s Bliss Integrated Financial Services Symposium, our panelists led a lively discussion on how financial services companies may be able to repair their damaged reputations and better communicate with customers. More than once, the themes of financial literacy and individual responsibility – and the roles they played in shaping the 2008 crisis – came up. For me, these discussions brought back one particular memory.
A couple of years before the financial crisis hit, I had decided it was time for me to look into buying a home, as many of my friends had. When I went to my local bank they had good news for me – I would likely be approved to take up to a $160,000 mortgage, despite my student loans and relatively short credit history.
I was thrilled, but then I asked another question – would the rising property taxes and insurance costs be an issue? The bank representative assured me that this shouldn’t be a problem, but if I really wanted to play it safe I should try not to take out more than $80,000 for a mortgage. That’s right – I would really only be safe borrowing half what they would be willing to lend me. Something about this didn’t sound right to me so I left, paperwork unfilled.
I got lucky. Many others didn’t walk away when I did and are now struggling to recover from foreclosure. But it wasn’t necessarily my sense of responsibility that made me leave – it was my uncertainty and fear of the unknown. I’d only asked about the insurance and taxes after hearing my own father complain about the rising prices. On my own, I didn’t know enough about mortgages and lending then to have been concerned by the $160,000 figure I was quoted.
What if financial literacy had been part of the service the bank offered me, though? Instead of quickly quoting me potential loan figures, the representative could have encouraged me to attend a first-time home buyer course or taught me how to budget while saving for a home. How different would the narrative be today?
The truth is, too many Americans make poor financial decisions because they are financially illiterate. Financial services companies have an opportunity to fill that void and in the process change how customers feel about their services. While it may be a significant investment upfront, a robust financial literacy program may be one of the best ways a company could work to rebuild its reputation.
What do you think – should education be a greater part of the way financial services companies communicate?
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