Financial products demonstrate bankers’ problems with financial literacy. Sometime in the 1970s the banks invented Banking Products and a few years later invented Financial Literacy. The rest of us went on as if nothing had changed. But some things had.

The idea of Banking Products enabled bankers to focus on selling. But what they were selling were not ‘products’ in any ordinary sense. There was nothing tangible to sell. What they sold were agreements between people with bank accounts and the banks themselves. Once upon a time the money was cash: coins, banknotes, other valuables. But now the money has become a series of digits in a database, so much easier to move from one account to another. And herein lies the rub.

We were still trying to manage coins and banknotes: in a mug on the mantelpiece, a box under the bed, or a tin in the cupboard. We thought of money as tangible: something you had and could count, something you never had enough of, something you could exchange for something you wanted.

The only thing that remained from the old days was trust. We used the banks because we trusted them to look after our money, keeping it nice and safe in their cool vaults until we needed it and could take it out. We trusted them when they offered us a ‘product’ that was no more than a piece of paper with a legal agreement on it. We were never going to understand the agreement because it was written by lawyers. Even when it was written in plain English and proudly said so on the cover, we still couldn’t understand it. “I must be stupid!” we said quietly to ourselves, but we still trusted the banks.

Well, here we are in another century and we have woken up to a new reality. The banks looking after our digits in their databases have been using our digits to gamble on stocks, shares, and even more complicated financial abstractions. Byte by byte they have been skimming the money we had entrusted them with. We discovered that the agreements we trustingly signed allowed them to carry on skimming till there was nothing left. Some bankers carried on skimming even after death. Some just emptied the digits by miraculously turning them  back into banknotes and putting them into their CEOs’ pockets and those of their shareholders.

Three things have happened:

  1. We had the GFC—the Grotesque Financial Con— after which the banks finally admitted that they no longer had any digits in their databases because their real digits had pressed the buttons on too many pokies and lost it all.
  2. We in Australia are now having a Royal Commission to try and find out how really naughty the banks have been.
  3. We now discover, the banks tell us in mitigation, that the real problem is not because we trusted the banks when we should not have, but because we are financially illiterate.

I beg to differ. We are not financially illiterate. We know how to manage the money in our wallets. The only illiterates in our midst are bankers, who have failed to match their services to our needs, only their own. They are illiterate when it comes to understanding and respecting peoples’ real ability to manage their own money.

We did not invite the banks to make ‘financial products’. That is something they invented without consulting us or asking us if we wanted such things. They made no attempt to describe these ‘products’ in ways you and I could properly understand. They reluctantly translated some of them into what they called plain English: a superficial gesture that gave documents the appearance of intelligibility but none of the substance. The only thing these ‘plain English’ documents did was to confirm to bankers (and convince us) that we are illiterate. Incompetence and shame are powerful silencers. We said nothing. And why should we say anything? We trusted the banks. And bankers can tell the Royal Commission that you and I are partly to blame because we are financially illiterate.

The grim reality facing us all is that none of the current generation of so-called ‘financial products’ is designed with people and their financial interests in mind. They are crude, deliberately and misleadingly structured agreements designed solely to extract money from wallets—what bankers’ marketing departments privately and cynically call “share of wallet”. This reality is not something the bankers can change by tinkering with the wording of their Financial Products, making them somehow fairer or more transparent. Banks must fundamentally rethink their relationship with us and our wallets if they want to regain our trust.

The banks—and we ourselves—must accept that the starting point is not a campaign to ‘improve’ financial literacy, obscenely calling on our stretched educational system to take responsibility for ill-conceived and poorly designed products that are not in our interest to ‘own’. Banks need to start with what we know about: the money in our pocket.

How about some really useful products that help us manage our digital pockets in the digital age. What about an app that shows me clearly what is left in my mug on the mantelpiece, one that shows me what might happen to my money in the future if I continue to earn and spend as I do today? An app that does not try to tell me after successive financial crises that money is like a magic pudding which keeps growing the more I eat it? Above all, what I need is a financial SERVICE that I can make sense of and trust. Why, I might even be prepared to pay for such a service.

BTW, blaming the victim is never a good idea.

If you are interested to read more of my thoughts and research on financial matters go to:
Rethinking Financial Literacy
Clear concise and effective
credit card statements
Insurance self regulation
and there’s more…