By Martin Schmalzried, COFACE Families Europe
Recently at the World Consumer Rights Day on 15th March, COFACE Families Europe engaged in the European Commission consumer education campaign called ‘Your future. Your choice.’ on the topics of safety online, sustainable development, data protection and financial literacy. But what’s so great about consumer education and how can we get it right? And in which situation does it still have a very relevant use?
One of the reasons consumer education is so enticing, both for the private sector and the public sector, is that you can quickly make very sexy claims about results and impact whereas other solutions take much more time to materialize.
For the public sector, passing new regulation is an extremely lengthy process and can take easily spill over the current politicians’ or civil servants’ mandates. One has to initiate a review of the current regulation, consult a host of stakeholders, issue proposals, negotiate with national governments, MEPs, civil society, the private sector,… It’s an extremely resource intensive undertaking for usually a very low pay-off. As is often the case in democracy, nobody is “happy”.
The private sector complains about extra burdens which increase their operating costs, civil society and consumer organizations complain about loopholes and unacceptable trade-offs leaving consumers and citizens exposed, and national governments instrumentalize the regulation for their own political agenda. On the other hand, a consumer education campaign can be launched fairly quickly, putting together a website and other “resources” for consumers can also be done relatively fast, and organizing events on consumer education is a no brainer. Sure, consumer organizations and civil society complain, but the private sector loves it, and at the end of the mandate, when comes the time to justify one’s use of public funding, there are lots of nice metrics and indicators of outputs and outcomes you can tick to justify further funding for the next mandate, as opposed to putting down “we considered proposing a new regulation/directive and the process is staled”.
For the private sector, it’s a no brainer. Consumer education is part of their CSR (corporate social responsibility) strategy. Whenever a new problem surfaces, such as protecting oneself online, or shopping for complex financial services, there are broadly two solutions: blame the consumers because they are “irresponsible” and make irrational choices, or blame the private sector for a lack of transparency, or even manipulating consumers into behaving in such a way to maximize their sales. And of course, it’s all too obvious that blaming consumers and engaging in consumer education activities costs much less than having to implement new strict rules and regulations. Consumer education campaigns can then be reused when lobbying the public sector to convince them that new rules and laws are not necessary. By combining the companies’ own self-imposed codes of conduct or objectives (which often fail only to be replaced by new objectives and targets), and consumer education, the problem will be solved without the need to engage in a lengthy and tedious legislative process, which by the way, will be watered down, so why bother?
Some consumer education campaigns do sound great. Why wouldn’t it be important for consumers to learn how to choose a financial investment product? Or learn about healthy eating habbits? But when you string together all of the different topics, you end up with a full University curriculum, especially in some specific fields like financial services. For instance, in 2008, after the subprime loans crisis which set of the great financial crisis, the financial services industry basically blamed consumers for making poor financial decisions. Notwithstanding the fact that these products were basically pushed on consumers, it was later found that the people selling the products didn’t know what they were selling either. In fact, only a very limited number of people understood the full complexity of subprime lending, collateralized debt obligations, special investment vehicles, and credit default swaps. Good luck “educating” the consumers.
In fact, it sometimes seems that complexity and consumer education are two sides of the same coin. First, you create a very complex product nobody, not even your sales people, can understand, and second, you publish consumer education material to make sure that consumers are well “educated” to make responsible choices. Then you repeat the process in a self reinforcing spiral of doom. I could add that regulation then becomes also ever more complex and plugged with loopholes, as it has to adapt to ever more complex products, which only adds oil to the fire.
Quite obviously, a very little number of consumers have the time to attend post-doctoral consumer education classes, since most of them have a life.
Finally, something should be said about consumer de-education, which basically undoes what consumer education is supposed to do. Consumer de-education can also be referred to as advertising and marketing. These are messages which typically convey a message that runs exactly contrary to what the consumer education message delivers. Examples are plenty:
- Advertising campaigns inciting consumers to take out a credit to buy frivolous junk while at the same time running consumer education campaigns to make sure consumers are “responsible” with their money.
- Advertising campaigns focused on junk food and heavily processed foods while at the same time promoting healthy and balanced eating.
- Advertisements on buying the new only slightly better version of whatever tech gadget while at the same time promoting sustainable development and repairing the old instead of buying the new.
Consumers end up stuck between a rock and a hard place, and showing early signs of schizophrenia. It must feel like having an angel and devil sitting on your shoulder, whispering contradictory injunctions into your ears.
Consumer education vs. consumer information?
A clear distinction also needs to be made between information provided to the consumer as a legal requirement and consumer education. These are very different and have distinct rationales. Legal requirements for information should never be labeled or identified as consumer education.
Even consumer education, as a general term, is highly misleading. Education is meant to be general and covering everything. When you receive an “education” in any given field, be it physics, sociology or healthcare, the knowledge you acquire should cover most of what there is to know about that field, and especially, independent of any kind of bias or influence. When it comes to consumer education, however, the knowledge a consumer acquires, especially via private sources, cannot be deemed neutral. No business will spontaneously advise a consumer to “check out the competition”, unless it has checked the competition beforehand, and is assured that it temporarily sells the best deal in town.
How to consumer educate?
One might get the false impression, from reading this article, that we should scrap consumer education altogether. But there are many instances where consumer education is important:
- Informing consumers about their rights. For instance, informing consumers about their new passenger rights enables them to ask for the compensation they are entitled to and have airlines proactively abide by the rules.
- Sharing valuable consumer reflexes that apply in many different circumstances. For instance, making a use of official comparison websites set up by their governments to help them compare offers.
- Letting consumers know where they can seek redress and informing them about their national consumer organizations and how these assist them with their problems.
- Running consumer education campaigns designed directly by consumer organizations or civil society to ensure their relevance and quality.
All in all, it’s clear we shouldn’t throw the baby away with the bathwater. Even if, as discussed above, consumer education is a highly controversial topic, even just considering the terminology, it still has its uses. As a general rule, it is highly recommended that when it is done, it always involves the parties representing the interests of the recipients, aka consumer or civil society organizations, which can then vouch for the relevance, utility, quality and neutrality of the messages delivered.
Finally, consumer education should never be a substitute for regulation. Whenever a new consumer challenge emerges, there should always be a careful consideration of whether existing regulation is sufficient to tackle it.
**DISCLAIMER: All opinions in this article reflect the views of the author, not of COFACE Families Europe**
About the author:
Martin Schmalzried holds a Master’s Degree from the ULB (Brussels) in Political Science. He has been working at COFACE-Families Europe as a Policy and Advocacy Manager for 9 years. He has been responsible for the portfolio of financial services since January 2009. He is a Member of the Financial Services Users Group (FSUG) since 2013 and a Member of the EBA Banking Stakeholder Group since 2016. His areas of expertise are financial inclusion, creditworthiness, big data in financial services, fintechs, blockchain and virtual currencies.