Although a disproportionate number of low and middle-income households were duped by predator lenders and too-good-to-be-true mortgage-filled assets, only 20 percent of U.S. households, mostly the wealthiest ones, talk to financial advisors to help them navigate the complex nature of the financial services industry.
So what is the average American to do?
In Step 3 of Arianna's seven steps to preventing a third world America, she urges individuals to build their financial literacy with any number of low-cost tools available.
We recently sat down with Matthew Fellowes, founder and CEO of HelloWallet, a low-cost online money manager, to learn about recent changes in the industry. Previously a fellow at the Brookings Institution, Fellowes spent years in public policy before launching HelloWallet in 2008. While some of HelloWallet's competitors take ads or sponsored content from banks, one of HelloWallet's greatest strengths is its independence from any bank.
Matthew Fellowes, founder and CEO of HelloWallet
Why did you create HelloWallet?
There's so much money out there being wasted. Last year consumers spent about $30 billion in overdraft fees, but 70 percent of those people had savings in the banks that could cover their overdraft fees. And in the mortgage market everyone's so focused on the foreclosure crisis, but take a step back. Last year $60 billion was spent on unnecessary mortgages. Depending on who you ask, one to two thirds of homeowners are paying fixed mortgage rates that are 1 percent higher than they qualify for. They aren't modifying.
Why not?
One problem is that everyone is so busy they just can't stay on top of things like refinancing, which require vast resources. It's not a priority for any bank. It's not in a lender's best financial interest either, in the short-term. But in the long-term, banks will get hurt if they keep undermining their customers.
Do you think the recent financial reforms do enough to protect consumers?
There's no doubt the new agency will provide an essential break to some unscrupulous practices, but it's not going to be enough. The financial services market is fundamentally a whack-a-mole game where the government and lobbyists will fight and fight over one or two things, like removing ATM fees, but leave banks with so wiggle room to add another fee.
For example?
Like credit cards. We spend years writing and pushing credit card legislation, but in the meantime the banks are laughing because the reform bill has just created a reason for them to raise APR fees on everybody. They ended up making money off the legislation!
We are constantly reacting to innovation, but not driving it. So I wanted to create something that would drive some innovation in the financial services industry.
What else is new with HelloWallet?
Last week we formed a partnership with the New York State United Teachers to give access to 600,000 teachers-- a target of unscrupulous practices.
Earlier this year we also partnered up with the California state school system, the largest in the United States, to provide HelloWallet to staff and students. In January, all graduating seniors will have free access.
We've got our beta site out there now but our post-beta site-- which will launch in early 2011-- will be much more robust, with a completely redesigned user experience, and many more functions.
Try out HelloWallet's helpful college-savings tool, test your financial literacy with their Financial Capability Quiz, and click here to try HelloWallet beta for free!
You can also follow Matthew on Twitter at @hellowallet.
For more, visit our new Third World America section.