Much as I've enjoyed the lively discussion about financial literacy jumpstarted by a couple recent BankThink posts, I suggest we abandon the notion that banks are morally obligated to educate their customers.
A beautiful sentiment, but it's too easy to counter with the argument that individuals should be responsible for their own money management.
It's even easier to point out that consumers might be reluctant to take advice from banks, given the role the industry played in the financial crisis. Lingering mistrust virtually guarantees that some consumers will view even the noblest of efforts as an insincere attempt to get back in the public's good graces or draw profits from younger and/or underserved demographics. (See the comments on this Salt Lake City Tribune article about Zions Bank's teaching kids about financial literacy as evidence of this assertion. "Hi kids, When you get in a financial mess ask the feds to bail you out," the first commenter quips.)
Financial literacy initiatives should be still be pursued, though. Cece Stewart and Bob Annibale of Citigroup rightly point out that "building a nation of savers will keep more money in our economy, make responsible credit more accessible and improve resiliency when setbacks occur." As one Wall Street Journal reader commented on a blog post questioning the value of financial literacy, "financial illiteracy creates real financial and economic concerns for our nation."
Additionally, the economic downturn forced lots of folks to pay closer attention to their finances. Survey (after survey after survey) indicates there is significant consumer interest in financial educational materials and personal finance management tools. However, banks will best address this interest by approaching financial literacy as a value add, not a public service they have so graciously elected to provide.
To put it bluntly: Ditch the free hourlong webinars. Tone down the educational press releases. Refrain from dressing up events with helium balloons. The best financial literacy initiatives at banks probably don't even include throwing sizable donations at nonprofits.
Instead, concentrate efforts and resources on developing products and offering services that will help consumers meet a specific financial goal. Partner with nonprofits to build awareness of these products as a means of promoting them and distributing valuable advice.
Jennifer Tescher and Joshua Sledge highlight some programs in the works that operate this way in a recent BankThink post. My favorite: An initiative from the Mission Economic Development Agency that allows low-income Latino immigrants to use a portion of their tax refunds as the required deposit for a secured credit card, a payment method that helps consumers build credit responsibly in order to apply for other loans or larger lines later on.
There are also some existing products that illustrate how banks can use financial literacy to add value. Capital One's Journey Students Rewards Card, as one example, rewards cardholders for making payments on time and provides access to a monthly credit score. The card has been rated highly by credit card ranking sites since its debut in 2011, partially because it addresses a specific need of young consumers. That is, it teaches them how to build credit. Wells Fargo's move to provide customers with a free version of their credit score could be similarly effective, if the bank were to expand it beyond a promotional deal.
Also, several tech startups have seamlessly integrated financial literacy into their business models. Moven, for instance, touts money management and financial wellness as a key component of its alternative checking account.
These and similar efforts trump organized financial literacy rallying cries because they benefit all parties involved. Consumers get sound advice and a product that can directly help improve their finances. Banks, meanwhile, have another angle to work as they try to stay competitive with the likes of Moven. Public trust gets rebuilt organically.
Otherwise, by flying the financial literacy flag too high, banks risk creating this industry's equivalent of greenwashing.