With so much concern over privacy in the digital world, it’s worth noting how the careful disclosure of consumer data might actually help. This is especially true in the area of personal finance, where the newly minted federal Task Force on Smart Disclosure seems to be digging in.
The White House authorized the task force last summer with the mission of prying loose consumer information and organizing it in a way that helps individuals make smarter money decisions. The big idea here is that more transparency in how people spend and save would create a baseline that helps consumers spot their own weaknesses. It would also help banks and other institutions better understand the needs of their customers. At the policy level, smart disclosure would help raise the nation’s financial literacy, which would leave us at less risk of a repeat economic meltdown.
This is all open for debate, of course. And clearly individuals’ privacy must be respected. But there is no question that smart disclosure of financial data has the potential to push the nation’s financial education effort forward by a quantum leap. How might it work? Here’s a simple example, which Chris Vein, a White House staffer on technology innovation, recounted last month before a Financial Literacy and Education Commission panel:
Officials had recently convinced three utilities in California to disclose detailed energy consumption records, giving 6 million residents easy access to their full history. A friend of Vein’s downloaded her data and was shocked to see how much she was spending. She decided to investigate. “It turns out that her daughter was taking hour-long showers,” Vein said. “Those showers were requiring lots of hot water, and a hot water heater to heat it. They asked their daughter to stop taking long showers. Low and behold, their utility bill dropped precipitously.”
This kind of data mining is helpful on a personal level. But it’s only a small part of what smart disclosure is all about. The real juice is in unlocking consumer data that third parties synthesize on a broad scale and use to create guidelines and tools that help individuals make smart money choices. Smart disclosure might lead to a smart-phone app that helps you compare insurance policies or mortgages at the point of sale, where it is needed most.
We already have apps that read a barcode at the mall and tell you if a cell phone or video game is available for less somewhere else. “If you’re looking at mortgages and sitting down with a broker, why shouldn’t you be able to take a snapshot of a barcode and instantly have access to information and advice from third parties on that product?” asks Sophie Raseman, a task force member.
Government makes a lot of data available. The challenge is in getting private industry, especially banking, to go along. As Raseman noted: on travel sites like Kayak.com and Expedia.com there is a wealth of clear information to help you choose the optimal flight; yet that level of detail does not exist on a financial website like Bankrate.com, where you might look for a mortgage or credit card. And good luck trying to find useful information on the terms of a payday loan.
“The ability to understand and control one’s finances is one of the most important life skills,” said Richard Cordray, director of the Consumer Financial Protection Bureau. “It creates a path to economic independence and mobility. I view it as fundamental to responsible citizenship in our system of economic democracy.”
Increasingly, financial education is about giving consumers simple tools to make good decisions—as opposed to asking them to understand the intricacies of financial transactions. Smart disclosure is a further push in that direction.