Love it or hate it, deregulation is a major priority for the current political administration. And while regulatory battles may seem like concerns for policymakers on Capitol Hill, they have real, whack-you-in-the-wallet implications for consumers, too.
The impact of deregulation is especially relevant when it comes to the financial services industry, where regulatory rollbacks may give lenders, credit card companies and other financial institutions the freedom to engage in business practices some consider predatory or abusive.
“Deregulation may spur the economy, but in doing so, it emboldens corporations and companies to look out for themselves,” says Kathryn Hauer, author of “Financial Advice for Blue Collar America.” “It’s going to become more important for individuals to make sure they’re not getting scammed or tricked [and are] led down the right financial path.”
Recent regulatory reductions for financial services include the delay of the fiduciary rule, which requires financial advisors to act in your best interest when giving retirement and 401(k) advice, and rolling back the implementation of certain regulations for payday lenders and companies offering prepaid credit cards. Conservative politicians have also made moves to weaken the Dodd-Frank Act — the Wall Street regulations signed into law after the financial crisis in 2008.
Even the Consumer Financial Protection Bureau, a watchdog group tasked with representing the rights of financial consumers, has changed its mission statement, under its new leadership, to include the goal of “addressing outdated, unnecessary, or unduly burdensome regulations.” While that’s good news for financial companies, it may concern consumers, who worry that businesses will be less inclined to offer appropriate, safe financial products to their customers.
That’s a valid concern, says Lauren Willis, professor at Loyola Law School in Los Angeles. “People cannot realistically protect themselves from every scam,” she says in an email. “That is one very important reason we need the CFPB to pursue and stop deception and abuse in financial services.”
[Read: 5 Scary Facts About Financial Literacy — and How to Avoid Becoming a Statistic.]
So what does deregulation mean for your finances? It’s complicated, experts say. In general, those who favor deregulation stress that it allows consumers to make their own financial choices without the impact of federal or state intervention, and it can put downward pressure on the prices of services and goods. If there are bad deals out there, they argue, consumers will stay away, and those companies will change their practices or go out of business.
But to make good financial decisions and steer clear of predatory money products, experts say, consumers need a certain level of financial literacy.
“To me, financial literacy is a response to a world that is changing in a fundamental way,” says Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at George Washington University’s School of Business in the District of Columbia. But Lusardi adds that consumers need financial knowledge even in pro-regulation political climates. “Regulation can hardly keep up with [our financial world] anyway, and often regulation is too late,” she says. For example, cryptocurrencies such as bitcoin are developing and growing faster than the regulations governing them.
But if deregulation is the kick in the rear some consumers need to start prioritizing their financial literacy, then that’s as good a reason as any to shore up your financial knowledge, Lusardi says, as long as those consumers maintain their money know-how through every type of regulatory environment.
[See: Basic Money Lessons You (Probably) Missed in High School.]
Basic financial literacy includes understanding credit, your rights as a consumer, the importance of savings and other key financial concepts. But financial literacy has its limits, some experts say. After all, you can’t spend all day reading the fine print on your credit card agreement, cross-examining the finer points of your brokerage statements or poring over tax law, says Frank Paré, a certified financial planner and national president of the Financial Planning Association.
“To try to [beef] up your financial literacy, with all the various financial products and services that are out there that touch the consumer, it is daunting and overwhelming for a person who is working a regular 9-to-5 [job],” he says. There are only so many hours in the day that a person can work, take care of family, navigate a social life and make time for financial housekeeping, he says.
“I see deregulation as putting the onus on individuals to fend for themselves without giving them the right tools to do it effectively,” he adds.
If the government won’t regulate to fill the cracks where financial literacy falls short, experts recommend bringing in an expert you trust. “Always consult with a trusted advisor who is not involved in the transaction before engaging in any major financial transaction,” Willis says. Paré recommends using a certified financial planner who works as a fiduciary, meaning he or she is required to act in your best interest when giving advice. If you don’t know whether the person you’re working with is a fiduciary, just ask.
[See: 10 Things Everyone Should Know About Money.]
When making financial decisions, give yourself appropriate time to question the pros and cons of each choice. Allow 24 hours before making any major financial commitments, Willis says. Don’t make decisions in front of a salesperson and be mindful of every saleperson’s motivation, she adds. After all, a sales representative has a family to feed, a mortgage to pay and bosses to impress. Those bosses also have stockholders to keep happy, she says, even if it’s at the expense of consumers.
If you’re looking for help staying financially literate, there are plenty of resources online that cover the basics. U.S. News & World Report’s Personal Finance section has explainers on everything from building a budget to avoiding financial scams. Take a free course through the National Endowment for Financial Education’s Smart About Money initiative or through FoolProof, which teaches consumers how to make wise financial decisions and for which Willis is an academic advisor.
Make sure you understand the financial products and investments you’re dealing with, says Ted Beck, president and chief executive officer for the National Endowment for Financial Education. He says, “If you can’t explain the [financial] transaction to someone else — in other words, you don’t understand it — don’t do it.”
Whether you’re excited or disturbed by the trend toward deregulation, you can make your voice heard by voting in local and national elections and through public advocacy. But in the meantime, in this political climate, you’ll need to shoulder more of the burden to keep your financial health strong and steer clear of unethical, unsavory and abusive financial products.
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Why Financial Literacy Matters in an Era of Deregulation originally appeared on usnews.com
