Tuesday 02 June 2020

Hoekstra: consumers need help to make better financial choices

Finance minister Wopke Hoekstra Photo: Rijksoverheid

Consumers should be given more guidance to make better financial choices rather than being expected to find their own way through the maze of options, finance minister Wopke Hoekstra has said.

On Monday the minister outlined proposals for a ‘consumer choice action plan’, supported by banks, insurers and universities, to try to help individuals make better choices.

Financial institutions tend to overestimate people’s ability to behave rationally rather than go for the easiest option, even when it leaves them financially worse off in the long run, said the minister. He cited examples such as buying a mobile phone on credit or not paying off the mortgage early because of the paperwork involved.

‘For a long time the prevailing view has been that if you provide consumers with the right information, they will make appropriate, rational decision,’ Hoekstra wrote in a letter to parliament. ‘It’s precisely because decisions are made partly on an intuitive basis that the way choices are presented has a highly influential effect.’

Two reports in the last few years criticised the government for setting its expectations of people’s financial knowledge too high. The Scientific Council for Government Policy (WRR) concluded in 2016 that debt problems were compounded by the assumption that citizens were well informed, disciplined and decisive in their financial dealings.

‘For many people the rules are too complicated, and moreover not enough consideration is given to people’s psychology,’ the WRR said.

The Authority for Financial Markets (AFM) said that the slogan ‘Let op! Geld lenen kost geld’ (‘Caution: Borrowing costs money’) was ineffective because people did not make decisions about lending on a rational basis.

Supporters of the action plan include Rabobank, the Volksbank and the Association of Insurers (Verbond van Verzekeraars). Hoekstra said the details would be finalised over the course of the next year.

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