Trends in Consumer Finances
Today's financial world is highly complex as compared with that of a generation ago. Twenty-five years ago, knowing how to maintain a checking and savings account at a local financial institution was sufficient for many Americans. Today's consumers, however, must be able to differentiate among a wide range of products, services, and providers of financial products in order to manage their personal finances successfully. Certainly young adults have access to credit at a much earlier age than their parents did. Accordingly, they need a more comprehensive understanding of credit than was afforded to the previous generation--including the impact of compounding interest on debt balances and the implications of mismanaging credit accounts. In addition, as technological advances have contributed significantly to dramatic changes within the financial services market, consumers generally must be familiar with the role computers play in the conduct of every traditional financial transaction, from withdrawing funds to gaining access to credit.
In addressing such concerns, educators need to focus directly on providing youth with a foundation for understanding personal financial management. The need for such efforts can be gauged from information about a much broader audience. Research studies and anecdotal reports point to trends in consumer financial conditions that have caused concern among consumer groups. For example, Federal Reserve statistics indicate that household debt outstanding increased by more than nine percent in 2002, the largest rate of increase since 1989. And while analyses suggest that, overall, this level of debt is being serviced adequately, reports of nonbusiness bankruptcy filings reaching record highs in 2002 reveal that many consumers are experiencing significant financial crises.
Regulators, lenders, community leaders, and consumer advocates continue to be concerned about abusive home-mortgage lending practices. More recently, the emergence of certain deposit-linked products has also sparked debate among these parties. For example, one product marketed as protection against bounced checks has generated concerns among consumer groups ranging from the appropriateness of assessed fees to the possible unintended effect of reinforcing poor account-management practices on the part of consumers who do not properly monitor their accounts.
Trends in the Financial Services Industry
The information summarized above might seem to indicate that the combination of market forces and industry trends has had negative effects on consumers. On the contrary, because of the remarkable growth and technological developments in financial services, many benefits have accrued to consumers of household and business credit. Computer and telecommunications technologies have lowered the cost and broadened the scope of financial services. As a consequence, specialized lenders and new financial products tailored to meet very specific market needs have proliferated. At the same time, the development of credit-scoring tools and the securitization of loan pools hold the potential for opening doors to national credit markets for both consumers and businesses. Deregulation has created important structural changes in the financial services industry and has contributed significantly to creating a marketplace that is increasingly competitive and highly innovative.
Throughout our banking history, we have seen significant adjustments to existing policies to enable markets to respond to the demand for services. These structural changes have heightened competition, resulting in market efficiencies that continue to help drive down costs and foster the emergence of increasingly diverse and highly specialized organizations. These entities range from banks and brokerage firms that offer their services exclusively through electronically based delivery mechanisms to locally based public-private partnerships that provide counseling and financing arrangements to low- and moderate-income families. …