Catherine Zeta-Jones has an important message for policymakers who want to help consumers make better financial decisions.
Let’s go to the video:
I should emphasize that the message is not that economists are bow-tie-wearing geeks who should be sprayed with garden hoses. That may be true, but it isn’t CZJ’s message to policymakers.
No, the special message of the T-Mobile ad is that … it’s not solely an ad for T-Mobile. Did you notice? Right at the end, we see that it’s also an ad for a web service called BillShrink.
What’s going on here? Is Bill Shrink just a front for T-Mobile? That was my first guess, but the fine print at the end of the video says no. That conclusion is reinforced by the investigative work of TechCrunch (ht EconomistsDoItWithModels) which indicates that the venture-backed startup really is independent of T-Mobile.
BillShrink’s business is helping consumers compare mobile phone plans and credit card offers, among other things. As you may have experienced, wireless plans can be painfully complex, with rates varying by number of minutes, time of day, day of the week, your friends, texting, data, etc. Even a sliderule-wielding Ph.D. would have a hard time identifying the optimal plan. So it seems plausible that, as the ad claims, many people choose the wrong plan.
Enter BillShrink. Give them some information about your intended usage, location, etc. (or, even better, information from recent wireless bills), and it helps identify the lowest cost plans. And here comes the fun part, according to Tech Crunch, T-Mobile usually comes out on top.
Naturally, this is a great marketing opportunity for BillShrink. BillShrink probably can’t afford CZJ, but T-Mobile can.
What does this have to do with financial policy? Well, one lesson of the recent financial crisis is that some consumers made bad decisions in choosing home mortgages. Interest-only loans seemed like such a good idea at the time … . And there’s reason to believe that some consumers have made errors with other financial products — e.g., credit cards — as well.
You can have two basic (not necessarily exclusive) reactions to this fact.
The first is to demand tighter regulation to protect consumers from such mistakes. We’ve seen some efforts along these lines in the recent credit card bill and regulatory actions on the mortgage front.
The second is to wonder whether there are ways to better prepare consumers for making these decisions. Sites like BillShrink give a hint of where the second path might eventually lead us. Third-party web sites could do the heavy-lifting in analyzing terms and conditions, and thus empower consumers to make much better sense of complex financial information. The sites will never be able to account for every aspect of a product (the comments at Tech Crunch highlight some issues with T-Mobile’s service, for example) or replace the consumer’s own judgement. But they can make comparing options much easier.
As Congress considers ways to protect consumers in financial markets, it should give some thought to tools like BillShrink and the ways they might help consumers help themselves. The government seems ill-suited for creating such tools. But if policymakers decide that further intervention is required, they may want to encourage such tools. One possibility, suggested by Dick Thaler and Cass Sunstein in their book “Nudge”, would be to encourage or require firms to provide information about products in a way that can be easily analyzed by third parties:
Lenders would also have to provide a machine-readable [report of mortgage terms and conditions], one that incorporates all the fees and interest rate provisions, including teaser rates, what the variable-rate changes are linked to, caps on the changes per year, and so forth. The information would allow independent third parties to offer much better advice. (p. 138 in the hardcover edition)
Oh, and maybe Congress should call CZJ as a witness.