10 Mixed-Up Money Messes We Need to Simplify

Many financial transactions have become too complicated for even professionals to understand.


More than 40 years ago, Motorola came out with a fancy new solid-state television called Quasar. The company devised a clever marketing campaign for the new set that emphasized its technical superiority without loading consumers down with a 300-page user guide and complex technical specs. Motorola did this by inventing a concept it called "works in a drawer." You can easily picture scenes from Mad Men—AMC's hit series about Madison Avenue in the 1960s—in which Don Draper and his advertising team dream up this campaign. All of Quasar's superior technology could literally be found in a drawer. You didn't need to know anything about the technology. You just needed to know that Motorola knew all about it and that all these goodies could be popped into and out of your set easily for maintenance and repairs. No problem.

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Today, the stand-out company that consistently does a superior job of putting its technology in a drawer is Apple. Its products have a very high "cool" factor precisely because the technology stays in the background. What you see with Apple gizmos are intuitively clear user controls and prompts that make it easy to use the products in powerful and sophisticated ways. The most popular apps for the iPhone would take far longer to describe than to download and use.

The world of consumer financial services is desperately in need of an Apple mentality—clarity, more transparency, and user-friendly products. In an era of increasingly sophisticated financial transactions, many consumers are falling further and further behind in understanding how to use such products. The result is tremendous friction between consumers and product providers. Product sales fall far short of their potential. Consumer suspicion and distrust become the dominant features of the buyer-seller relationship. And government, when it steps in to provide yet another layer of regulation, is simply not in touch with consumers either. Try looking at the record of a federal rule-making hearing for credit cards or retirement funds or other consumer financial product. It is impenetrable.

Here are 10 money matters with special meaning to retirees and other consumers that are badly in need of some "works in a drawer" solutions:

1. 401(k)s. There have been extensive public hearings on retirement accounts in the wake of the 2008-09 market collapse. Maybe some year we'll see meaningful advances in consumer-friendly disclosures and serious efforts to help people better understand their retirement and investment choices. I scan my retirement accounts regularly and I can't even begin to find any useful disclosures on fees. What do I pay fund managers? I see period-to-period changes in account values, but I don't see any effort to compare the performance of my investments with peer groups. And I don't see any useful help in connecting the dots between what I'm doing today and how my retirement years are shaping up. Do we really need yet another law for this to happen?

2. Annuities. I used to believe that all financial products could be explained to consumers, given enough information and time. I was wrong. I have been writing about annuities for 40 years and they remain alien to the very people they're supposed to help. Unless you have a boatload of money and a good financial adviser, the annuity industry has not developed a successful way to speak to you. The irony here is that surveys of middle-income consumers find them clamoring for secure and predictable returns. They're willing to put up with modest returns in exchange for stability. Annuities can be knocked for high fees and fancy features that mystify most investors. But a basic annuity is a great way to lock in future income streams that are reliable. Even the White House has been singing the virtues of annuities. Maybe there are few Apple marketing folks with some spare time who can help out here. There's gotta be an app for this.

[See 8 Money Trends Shaping Seniors' Lives.]

3. Consumer communications contracts. Have you seen the Vonage ad where consumers walk across the screen and throw their cell phone contracts onto a mountain of paper? They're so happy that Vonage will free them from a contract. All those clever Verizon ads show so many creative ways to mimic the five bars of signal strength that means nirvana for cell users. Why can't they create customer service agreements we can understand?

4. Credit cards. It is the fall of 2010, and we're several years past the rolling collapse of consumer credit markets. We've gotten new pro-consumer laws that make it harder for credit card companies to zing us with high and unwarranted fees. But I still feel like prey for card issuers. I still get mounds of unwanted mail urging me to take out more new cards. And my existing card accounts still send me those scary blank checks in advance of major holidays. I'm sure they are just letting me know what kind folks they are to be extending me gobs of credit just when the nation's retailers are most in need of my purchasing power.

5. Health insurance. Can I really add much here? We have a new health reform law that nearly no one understands. It adds thousands of pages of new rules to an already convoluted system that defied comprehension. I get to see my doctor for something like 20 minutes a year. Much of this time is spent prescribing drugs that, due to the economy, I am less and less likely to be able to afford and actually take. And what's the strongest health tip I get from my docs? Easy. Do everything you can to stay out of hospitals. That's where the really nasty germs live, and you are better off avoiding them.

6. Long-term care insurance. Roughly 8 percent of aging Americans have purchased long-term care insurance. It provides support for people with physical and mental disabilities that prevent them from doing basic activities—feeding and dressing themselves, using the bathroom, getting around, and the like. About two-thirds of us will need the services covered by this product at some point in our lives. The costs of specialized care in a nursing home or assisted living facility can quickly wipe out the assets of even financially sound households. Health bills are far and away the leading cause of personal bankruptcies. Even with these cautionary tales and a growing arsenal of tax and other advantages, long-term care insurance continues to struggle to make its case.

7. Mortgages. Was it really a surprise to learn that no one actually reads the forests of foreclosure documents before signing them? In fact, the mortgage business has become so dysfunctional that it's hard to imagine being surprised by any new revelation. Please, is there an adult in the room who can hit the reset button?

8. Mutual fund fees. Hey, the feds have finally come up with some new disclosure rules on fund fees. This has come after years of extensive review and foot dragging. Now, all we have to do is wait until the new regulations take effect—in 2012. I know it takes time to prepare for new rules, but we surely can do better than this.

9. Social Security. More than 58 million people get monthly Social Security and Supplemental Security Income (SSI) payments. The government does a solid job of getting those payments out and of keeping track of the earnings histories of everyone with wage income. But last week's announcement that there would be no cost-of-living adjustment in benefits next year revealed that consumers don't understand how their benefits are determined. Further, the debate over the long-term financial health of Social Security makes it clear that we don't understand the big picture very well, either. Social Security needs relatively small adjustments, not an overhaul. If we did nothing, the program could still pay all claims for the next 27 years. More to the point, Social Security is funded by employer and employee tax payments. It does not add to the budget deficit.

10. Taxes. I read a lot of articles and books about retirement planning. A jaw-dropping amount of advice is about tax strategies. Are the contributions and earnings on this or that account taxable? If so, when and at what rates? Compare income-tax versus capital gains tax rates. Are there estate tax considerations? If I claim Social Security before reaching my full retirement age, how will any outside earnings be taxed? Ratchet up the discussion to wealthy individuals and businesses, and taxes drive key decisions even more powerfully. The tax code has long been the tail wagging the dog. Some public goals can be supported through tax policy. The tax deduction on home mortgage interest charges is a prime example. But the total of such tax preferences exceeds $1 trillion every year in largely invisible tax savings. Is that the right way to do the people's business? Facing crippling government budget deficits, hasn't the time arrived for a really meaningful simplification of the tax code? How else can people know enough about their government to make informed choices?

[Visit the U.S. News Retirement site for more planning ideas, insights, and tips.]