Paternalism is one of the great drivers of political debate. Financial markets are no exception. Do we want the government to just facilitate the market, or to protect consumers?
Facilitating the market means, for example, ensuring that products are transparent. In this philosophy, it’s OK if a product is very risky, or very expensive, as long as this information is easily accessible for potential buyers. If that is the case, consumers can review all information and decide freely what product best matches their needs.
Unfortunately, products such as mortgages and pensions are not transparent at all. Even if they were, they are often too complex for the average consumer. And they often span a lifetime. Oddly enough, people tend to instantly loose interest when consequences of their choices are further away than a couple of years.
Here’s an exampleÂ (in Dutch). Who is to blame here? To what extent did this mortgage lender provide insufficient information? And to what extent were borrowers too confident and lazy to read all the fine print? Who is going to pay up?