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 often out of touch with consumer needs.
Here are 10 consumer money matters that need attention in Washington and elsewhere:
1. 401(k)s. Retirement investment companies constantly reassure us that their defined-contribution accounts are successful, or would be if consumers set aside sufficient funds for retirement. Of course, they fund these commercial messages and voluminous studies with the enormous fees they earn by "managing" retirement accounts, often with mediocre results. Is there any doubt we need new ideas to achieve better retirement outcomes?
2. Annuities. 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 is that surveys of middle-income consumers find them clamoring for secure and predictable returns, even as annuity payment guarantees are being pummeled by today's low interest rates.
3. Consumer communications contracts. Has any consumer actually ever read and understood one of these endless documents? Don't we instead just avoid the pain and click "accept" when asked to do so? Meanwhile, the companies brag about how clever their products are. Why can't they be clever enough to create customer-service agreements we can understand?
4. Credit cards. OK. We now have 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 continue to 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. And if we get state insurance exchanges and mandatory coverage in 2014, the real fun will begin.
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. The mortgage crisis and collapse of housing prices were caused, in part, because no one paid attention to mortgage applications and every requested loan was approved. Now, as the housing industry is finally starting to recover, banks are reluctant to loan money even to solid borrowers. Please, is there an adult in the room who can hit the reset button?
8. Mutual fund fees. After years of hearings and rulemaking efforts, the feds finally came up with some new disclosure rules on fund fees. And investors have received their first batch of new and improved disclosure forms. Only it now appears that the documents don't really disclose all the fees that consumers may have to pay. And it's not clear consumers are reading the forms, anyway.
9. Social Security. Nearly 62 million people get monthly Social Security or 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 as the program has become the dominant source of retirement income for most Americans, it's also painfully clear that millions of consumers do not understand how it works or how they can claim benefits that are in their best long-term interest. Yet, hampered by budget cuts, the Social Security Administration has halted paper-based annual statements explaining the program to participants.
10. Taxes. A jaw-dropping amount of financial 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. In the face of crippling government budget deficits, hasn't the time arrived for a really meaningful simplification of the tax code?