Jeffry Pilcher and I have an offline conversation (i.e., email) going on about what’s really wrong with the country.
Our take: Too many people living beyond their means. Or, as JP puts it: “Spending money we don’t have on sh*t we don’t need.”
We’re not alone in this view. In an article posted on Harvard Business Publishing’s Discussion Leaders site, Umair Hague writes:
“We’re not just addicted to cheap oil. There’s a deeper economic truth at work here. We’re addicted to consumption. [O]ur economy is built on firms whose very purpose is to sell; to relentlessly push people into endlessly consuming, without ever considering the long-run consequences.”
As a lot of attention is paid to financial services firms’ role in causing, or facilitating, the credit crisis, the industry’s role in the consumption crisis tends to be downplayed.
Financial firms aren’t the cause of the consumption crisis. The root cause is an entitlement mentality that permeates our society, a mindset that puts the purchase and consumption of “nice to have” things over longer-term investment and savings. In other words, we’re to blame: We simply refuse to be personally accountability for the future.
Where do the financial firms come into play? They’re our financiers. It isn’t just easy access to mortgages and home equity loans. It’s easy access to credit cards. It’s the ability to pay for things with check or debit card when there’s no money in the bank to cover the payment (oh sure, there’s a fee to pay, but what a small price to pay for immediate gratification).
The role of financial services firms in fixing this problem is simple (to describe): They must become personal financial advisors, not just personal financiers.
This isn’t simply a matter of financial education. It’s more proactive hands-on involvement with their customers’ financial lives. It’s providing advice (on both sides of the balance sheet) and guidance (not just self-service tools) on how to manage one’s money. It’s saying NO.
This is why I like what Wells Fargo is doing with some of its credit cardholders, setting them up with automatic payments, designing repayment plans, or connecting them to a consumer credit counseling service.
In the future, though, financial firms need to do this from the start of the relationship — and before problems occur, not after.
I realize that there are plenty of business model issues with what I’m suggesting. I know that. But today’s predominant financial services business model is rife with conflicts of interest: On one hand, firms want to be customer-centric, doing what’s right for their customers. But on the other hand, they make more money when their customers live beyond their means.
No industry can deal with a fundamentally flawed prevailing business model forever.
So when we talk about the changes that need to come to the financial services industry, this is the kind I see coming down the road — particularly among credit unions, who I think are well-suited to play this new role.
In his book The Number, Lee Eisenberg talks about a growing movement among a minority of financial planners toward providing “life planning” to their clients, not simply financial advice. What these forward-thinking advisors recognize is that you can’t separate how you manage your money from how you manage your life.
The challenge, of course, is how to bring these kinds of services (and thinking) to the masses of consumers who can’t afford to pay (a lot) for it — but need it just as badly.
For more on this topic see this Bankwatch post.
Technorati Tags: Banking, Credit Unions, Wells Fargo, Umair Hague