Bridging the ignorance: supporting consumers in taking self-assessed financial decisions

Increases in the number and in the complexity of financial products and services has exposed consumers to the risk of not being able to fully understand the characteristics and the differences between the various solutions that are being proposed to them; this may deny the individual the possibility of making autonomous and well informed choices. While education is essential to bridge the gap between limited consumer knowledge and the high complexity of the various financial solutions, in the case of adult consumers with limited time and inclination to learn, financial counselling represents the way to re-establish fairness in negotiations between consumers and financial intermediaries. This paper proposes a model of self-assessment which helps consumers taking sound financial decisions. The fundamental hypothesis is that while information is generally available, it is seldom used as it is over abundant and too complex; in order to allow individuals to take more informed and autonomous financial decisions, information has to be selected and made more usable. Specific tools and solutions are thus necessary. The model is intended to be applied within the realm of credit, with particular reference to retail lending. The results obtained from the application of the model within the Italian market show that financial behaviours linked to i) requests for new loans, ii) late payments and iii) the number of current and pre-existing loans most explain the risk of future financial distress; the variables referring to socio-demographic profiles like gender and geographical region show more limited, yet still significant, predictive capacities.