Question the Players (and the Game)

July 15, 2020

How does the financial marketplace and motivations of sellers affect consumer decisions and outcomes?

Establish the context

Financial literacy has seen a recent surge in products, programs, and attention. If you use a bank, read the news, or scroll through social media, you’ve most likely seen an advertisement for financial education services or an article offering financial advice. Yet, much of the prominent advice given is focused on the consumer—examining the consumer’s wants, needs, spending habits, and motivations. While these are important factors to consider, there is often a huge piece missing in financial literacy: the motives of the other players in the financial system.

Consumers do not experience the financial system and make decisions in isolation. In order to put basic financial content knowledge into context, consumers must also engage in marketplace metacognition. When consumers engage in marketplace metacognition, they consider the intentions of sellers in making their decisions. Research has shown that when consumers think about sellers—including how and why a particular seller behaves the way they do—consumers’ reasoning about options and financial decision-making improves.

Customers or critical thinking consumers?

To be effective, financial literacy curricula should have a strong focus on financial player literacy. Consumers need to know the basics of financial concepts, but they must also learn that their decisions are being influenced by the system around them—including players and sellers who benefit when consumers use their services. Providing this framing for learners helps them think more deeply about their decisions. For example, when consumers learn about interest rates and fees, they should also learn how different financial institutions profit from charging fees and interest. When they learn about insurance premiums, they should also learn about how insurance companies make money—and how rates are determined. It is not enough to know financial numeracy and definitions. Consumers must learn to question why financial offers are what they are. Who is making the offer and what do they stand to gain?

This subtle but significant change in approach can make a big difference for financial literacy learners. Learning about compound interest is an important component of financial literacy, but learning about the motives of banks to profit from collecting interest that continues to compound on unpaid balances could help take the sheep’s clothing off loan offers that are marketed as helpful great deals. While there is no singular “correct” path for every consumer, being able to name the players in a financial interaction and identify their motives is an invaluable critical thinking skill, regardless of the consumer’s unique financial situation and goals.

In addition, financial literacy curricula should teach consumers to question financial advice they are given and even the programs they are learning from. When curricula, articles, and advisors give advice, learners and consumers should consider the source. They should ask: What is this article or program recommending and why? Who stands to benefit if I follow the advice? What information and/or perspective is being left out? Too often, financial literacy materials are created by the very players in the system who stand to profit. These players may have valuable financial expertise to share, but not many will put into context how they stand to make money from consumers’ decisions.

Check the source

In this booming age of financial literacy materials, it is important to be critical of the thoroughness, transparency, and origin of the materials. You wouldn’t commission a candy company to design your school’s lunch program, so why would you let a bank write your financial literacy curriculum?