What About Good Debt Advice?
For years there has been also
sorts of chit-chat and discussion about how financial literacy will magical
cure the woes and troubles of consumers and prevent them from getting into financial
trouble. That's just simply wrong.
While financial education course
may create more awareness on how to evaluate some financial products, that
training is no good if it's not applied. And not everyone is going to be a good
financial manager no matter how much training you give them.
It's not like we have an obesity
problem in America because people don't know about eating well, portion
control, and expertise. And it's not going to be tremendously different in the
financial world if we trained everyone about interest rates, contract clauses,
and fees.
Even recent work by the Consumer Financial Protection bureau
is trying to work hard to dumb-down financial transactions so we can make some
sense about getting a mortgage, credit card, or taking out a student loan
But as one author noticed recently:
When consumers make poor
financial decisions, they often do so because they lack information and
understanding of product features. Financial literacy and
sophistication is shockingly low: About one-third of the U.S. population
understands the concepts of compound interest or how credit-card debt works.
Such financial illiteracy is correlated with high levels of debt and high fees
for financial services, and is greater among people with low incomes and low
education, as well as minorities and the elderly.
I've never seen a study that
shows the average debt literacy rate among the population. Debt literacy would
be the skills, knowledge and experience to properly handle a debt emergency.
While a third of the population might be considered to be grossly financially
illiterate, I would estimate that close to 99 percent of debtors would be debt
illiterate.
Studying the issues surrounding
debt is just not something people do in advance. instead, rather than become
experts on how to get out of debt when they land in trouble they often believe
or turn to the first person that gives them a magical solution they want to
hear about.
The idea that paying for
exceptional advice and an independent opinion from a debt coach is a smart
thing to do seems foreign to people in trouble. Yet that professional and
experienced advice is just what the doctor would order for a higher chance of a
better result.
Debt relief companies are not in
the advice business. They are in the widget selling business. Rather than
independently evaluate your situation and provide fair, independent or balanced
recommendations they most want to sell your their services and the "consultation"
is really not more than a closing sales pitch.
