June 21, 2011
Unseen Risks Challenge Consumers
Financial-product complexity isn’t talked about on Capitol Hill, where Congress is arming itself for battle royale over the appointment of Harvard Law School professor Elizabeth Warren to head the new Consumer Financial Protection Bureau.
But some economics and business professors are sticking up for the financial consumer, who they say faces an “ever-widening set of financial options” and “dizzying amount of information.”
“Households are expected to make decisions about pension plan contributions and payouts, to choose from a wide array of credit instruments to fund everything from home purchase to short-term cash needs, and more generally to assume a greater level of responsibility for their financial well-being,” Harvard economists Brigitte Madrian and John Campbell, Harvard Law professor Howell Jackson, and Peter Tufano at the Harvard Business School wrote in a recent paper.
“There is growing evidence that consumers make avoidable financial mistakes” with “nontrivial financial consequences,” they said.
Published in the latest issue of the Journal of Economic Perspectives, the paper used three case studies to support their call for more creative regulation: mortgages, payday loans, and 401(k)s. …Learn More