Professor John Campbell (3:09)

Thank you very much for having me, Joel. Pleasure to be here.

Joel (3:12)

First question I ask everybody who comes on is, what do you like to splurge on? Professor is, you know, we splurge on craft beer over here, but, hey, it's okay because we're doing the smart stuff. We're saving and investing for our future. What's that for you?

Professor John Campbell (3:25)

Well, you know, in the last couple of years, I've been spending money trying to furnish a house that my wife and I built on the coast of Maine. So we love the coast of Maine. The rocks, the tides. Turns out getting a house, that's only the first step. Then you have to put things in the house. So we've been gradually doing that, but meanwhile enjoying looking out at the birds, the seals and so forth.

Joel (3:54)

Just sitting on the floor until you get the proper chairs in place, though, right?

Professor John Campbell (3:57)

Exactly.

Joel (3:58)

Hey, that sounds okay. I think I'd be willing to sit on the floor on a house on the coast of Maine. That sounds lovely. All right, let's transition. Let's talk about your book, and I really appreciate your perspective because so often on this podcast, we are talking to individuals about how to improve their personal financial situation. And so often we are talking about jumping over hurdles or just the awkward reality, let's say, of the credit scoring system and how you have to play the game in order to. But there's a lot of explanation required. How, in your estimation, how badly is the personal finance system in America broken?

Professor John Campbell (4:39)

Well, Joel, my co author and I. Let me mention my co author of the book, Tarun Ramadurai, who teaches, teaches in London at the London School of Economics. He and I have the view that the system is fixed but should be fixed. So, you know, a rather weak pun there. We think it's fixed against ordinary people, rigged, if you like. It systematically disadvantages people with, you know, less financial education, less sophistication, very typically less money. And we think that's not okay and the system needs to be reformed or fixed in the other sense that you can fix a broken machine and make it work better. So to summarize the problem in a couple of sentences, we think the complexity of finance induces people to make mistakes Those, that's the shark infested waters you were talking about earlier. It's so easy to make mistakes. And human nature is not very well suited to financial decision making. You know, our brains don't really work the right way. We have to train ourselves to make good financial decisions. So it's all too easy to make mistakes. But then the existence of mistakes, we argue that actually corrupts capitalism. It corrupts the energy of the financial sector into meeting the needs that people express and maybe exploiting the mistakes as opposed to correcting the mistakes. It turns out that it's often in the interests of financial suppliers to make products more complicated than they need to be, more complex, harder to shop for. And so you get a race between mistakes and complexity. The mistakes bring forth complexity and the complexity brings forth mistakes. And round and round we go in a vicious circle.

Joel (6:43)

Some people might question you and say, well, wait a second, John, people are responsible for their own decisions, right? And you're maybe saying that the system's broken, but maybe people should adapt to the system and they should just, they should get their education in personal finance that doesn't really exist, but that they're going to have to hodgepodge on their own, and that's the real solution. What would you say to somebody who would make that argument?

Professor John Campbell (7:13)

Well, I would say that financial education is very important. I'm very committed to it, personally. I believe in it. I think the kind of work that you're doing on your podcast is excellent work. I'm on the board of a nonprofit called the Council for Economic Education, which promotes both economics and financial literacy education in high schools across the country. I teach a personal finance course at Harvard that had over 300 students last fall. So, you know, I really believe in financial education. At the same time, it's a little bit David versus Goliath. You know, the ordinary person is trying to get an education amid many other challenges in life. And yet the financial industry is well resourced and designing products, some of which do meet the needs of people. I mean, I don't want to demonize the financial industry, but some of these products actually do exploit mistakes in a way that I think it's just unrealistic to expect financial education to be the whole solution. It's part of the solution, but it's not enough by itself.

Joel (8:28)

You talk about how the system subsidizes some people while hurting others. And that like is evidently clear in something like credit cards, right, where 46% of people have a recurring balance, they're paying exorbitant interest rates to the credit card companies every month. And then people like who are on the travel blogs and stuff like that, they're optimizing getting thousands of dollars worth of free travel every year, not paying a dime in interest to the credit card companies. So I think that's easy to highlight in a case like that. Would you say that when you're breaking down, who is most harmed by that financial system? Are you, Is it the poor who are most hurt compared to the rich? Or is it the people who are least savvy compared to the people who are most savvy?

Professor John Campbell (9:13)

There's an element of both. Some of the disadvantage of poorer people is inevitable because there are fixed costs of providing financial services. So you know, originating a small loan that's expensive, so that's going to make a small loan expensive. And one reason why credit card rates are high is that, you know, these are small dollar loans. So some of that is inevitable. But unfortunately it's worsened by the transfer from the less savvy to the more savvy. And savviness unfortunately correlates with wealth. So richer people tend to have the benefit of more financial education, more sophisticated networks of people. Maybe they can afford financial advisors, or maybe they're just brought up in families where they're trained how to think about finance when many ordinary people are not. Now, you mentioned credit card rates as an example of the, the transfer. I think I would highlight the kind of hidden costs that people don't anticipate paying but end up paying. So let me give another example. Overdraft fees on checking accounts. Banks market overdraft protection. What does that mean? If you inadvertently spend too much with a debit card or write a check that overdraws your account, the bank will honor it, but they will charge a very high fixed fee for that service, which corresponds in fact to an extraordinarily high apr, a kind of payday lending level. Apr?

Joel (10:50)

Sure.

Professor John Campbell (10:51)

And people who aren't watching what they're doing can easily run up several of these charges in a single day. And that creates revenue for the banks. Now the banks don't keep all that revenue. It is, banking is a very competitive industry, but what they do is they offer free checking accounts. So someone like me, you know, I don't overdraft my account. I get free checking on the backs of the fees paid by people who overdraft. Similarly, think about fixed rate mortgages, the standard plain vanilla fixed rate mortgage that we all know and love in this country that needs to be refinanced when interest rates fall, it turns out the people who know how to do that promptly and advantageously tend to be better educated, richer, they tend more often to be white and less often to be black and Hispanic. And so there are borrowers who don't know to refinance, don't do it, and end up paying higher rates than they need to. Now again, that revenue comes into the mortgage lending industry, but the industry is competitive, so part of the money is passed on to all borrowers in the form of lower mortgage rates. So I have a cheaper mortgage because other people who probably have less money than I do are not refinancing. There's a hidden transfer there. Once you see this in financial products, you see it everywhere. It's pervasive across the personal finance landscape. And that's one of the big themes of the book.

Joel (12:30)

So there's a, I think there's a lot of negatives to cover today. But before we go too far down that path, being the eternal optimist that I am, where do you see things working well in the US Personal finance system? Because you're right, like there are, even when you're talking about banks there, I was just thinking, well, some of our favorite online banks that are pretty large, they've completely eliminated overdraft fees. And so if you just go with the right bank versus one of the biggest banks that has a brick and mortar on every corner, then you're eliminating that at least frustration from your life. But where would you say things are working well?

Professor John Campbell (13:08)

Well, first of all, I agree completely with you that there are many good financial products available and good services. And part of that is being driven by technology. A theme of the book is technology is a double edged sword. It has its dangers, but it also has tremendous promise at lowering those fixed costs that I mentioned earlier and making, you know, cheaper, small scale credit available. Just think of the rise of, you know, online banks, but also online mortgage lenders, you know, robo advisors, a very affordable financial advice. So I think all of that is good. I think there's been, you know, very considerable progress on the investing front. You know, the rise of index funds, the rise of passive investing actually is something that financial economists have been pushing for, for decades and really is, is happening. I think target date funds are a very good innovation because they adjust risk over the life cycle in a very sensible way. And actually I think our retirement savings system is working pretty well for people who work for large companies. The problem really is access and expanding the system so that it really works for self employed People or people who work for small businesses or who change jobs frequently. We've got some suggestions in the book about that. But for many people who work for large organizations, you know, retirement savings, particularly with auto enrollment with a target date fund as a default investment, you know, it's working pretty well.

Joel (14:48)

Well, there was just a recent announcement in the State of the union about potential matching dollars for people who don't have a 401k right through work. Because you're right so often and we're seeing actually even because of technology, more small businesses offering 401ks because they cost so much less to offer their employees. They can be more competitive with some of the big guys. But there are still a lot of people left behind in that system. Do you think matching government dollars is at least part of that solution to incentivize people who don't have a plan of their own through their employer?

Professor John Campbell (15:17)

Yes, I think matches are a good idea. And you know, people who are offered a match through their employer, one of the no brainer things, and I'm sure you say this to your listeners, is, is take advantage of the match. So we are sympathetic to matching now. It can become very expensive. One suggestion we throw out in the book is to help people when they enter adulthood, when they take their first job or even when they turn 18 to open an account and have some dollars deposited there. You know, one might call that universal basic wealth instead of universal basic income.

Joel (16:02)

Yeah.

Professor John Campbell (16:03)

And the nice thing about it is first of all it's much cheaper than universal basic income because you only do it once. But also it introduces people to the idea that hey, you have savings, you have and you have a vehicle for savings and that can perhaps set people on the road to a more secure financial future.

Joel (16:20)

Yeah, I mean just another product that kind of sort of maybe hits a little bit of that is, is the, the Trump accounts for babies. But those are, those have a lot of shortcomings too that we've talked about on the show. But my hope is that at least for those that they get people interested in some of the. Just like oh wait, there's free money. What am I supposed to do with that? And at least piques people's interest into diving in the details and then thinking about growing wealth in other accounts and other parts of their lives. What is the average person. Why would you say the average person has. Tends to have a hard time understanding the trade offs in personal finance decisions? Some it seems pretty simple, right? Like this bank versus that bank. This is the interest rate. I'm getting and this other bank offers very little and they have fees. Right. But then there are a lot of other personal finance decisions that we make, and it's, it's maybe harder for us to decipher the details.

Professor John Campbell (17:16)

Some of the problems result from the fact that most people hate to shop around for personal finance products. Now, you know, you're in the business of talking to people and telling them how advantageous it is to shop around and look for a good deal. And you, you educate people in how to do that. But, you know, many people in this country love to go shopping for, you know, clothes or I started talking about, you know, furniture for my house in Maine. That's fun shopping. But very few people find shopping for personal finance products fun. And there's evidence across many domains that people don't do it enough. You know, far too many people take the first mortgage quote they're offered when they could save, you know, really significant amounts of money, hundreds of dollars a year simply by getting one or two more quotes. So that reluctance to shop gives financial firms some market power. They often compete on branding rather than on price and quality. I live in a suburb of Boston, Lexington, which like many smaller towns in this country, the Main street is just lined with bank branches. And most of these branches, branches are not business centers in any meaningful sense. They're billboards, they have an atm, they have a big logo on the window. And it's just a form of branding. It raises the costs of the banks. You mentioned how brick and mortar banks have these high costs. But this is an example of a form of competition that arises because people are not looking for the best price and the the best quality. They're not shopping on that basis. They're just going with whatever they see as they walk down Main Street.

Joel (19:07)

One of the things you highlight too, you talk about how many banks and savings products there are, but the competition to a certain extent is typically helpful in a free market economy. But that we have maybe too many options that doesn't bring down to the benefit of the consumer.

Professor John Campbell (19:25)

The distinction is between the good form of competition is on price and quality. And that's what we want to unleash. My co author and I are believers in capitalism. In the market economy, we want to make competition work to lower price and increase quality. The difficulty is that in an environment where people are confused and buying on brand familiarity, the industry spends its money on branding as opposed to quality and price. Furthermore, there's an incentive to bundle products to make them more complicated and more difficult to shop for. It just becomes really hard to shop when products are quoted in units that are not commensurable. When, you know, you just can't figure out the bundles that you're really comparing. I mean, one example of that honestly is, is whole life insurance. So whole life insurance is a combination of a tax advantaged savings product and an insurance policy. And it made great sense back in the old days before 401ks, when it was the only form of tax protected savings you could have. But today it's a confusing bundle of a 401k like product and an insurance product. It's very hard to find, figure out what the, what the cost really is or structured products is another example. These are very popular in Europe and Asia and are beginning to come in in this country. You know, where you're offered we have ETFs now that have this structure. You know, you're going to get the S and P, the return on the S and P, less some amount, but with some downside protection. If it, if it falls by more than this percentage, it's almost impossible to figure out how that thing is being priced.

Joel (21:15)

Yeah.

Professor John Campbell (21:17)

So you know, the vision that my co author and I have is let's try to design a set of very simple standalone products that are easy to shop for and let's ensure that the financial industry offers those products. It can certainly offer other products as well, but those must be offered. We don't tell firms how much to charge, but we just tell them the units in which prices are quoted. Then we let competition go to work. So our vision is that shopping for finance products should be as easy as shopping for a headache remedy. You know, a painkiller. I go into, I've got a headache, I go into the pharmacy, I go to the shelf, there's ibuprofen, you know, you have Advil, the brand name, and right next to it you have the generic bottle, the pharmacy brand. But the active ingredients are the same, the dosage is the same, it's two pills either way. And there's a little label on the shelf that tells you the price in comparable units. And then you can decide do you want the brand, do you want to save money? It's very easy to shop and we think personal finance shopping should be more like that.

Joel (22:29)

And you know that you can go to Costco and buy 20,000 pills in one bottle so you never have to buy them again for the rest of your life.

Professor John Campbell (22:35)

Yes, yes.

Joel (22:37)

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Joel (26:25)

Talking with Professor John Campbell. We're talking about why money decisions feel rigged. I'm curious, John, are there financial products that you think simply just should not exist, exist in their current form or maybe should not exist at all? Ones that are just too predatory and people don't understand the trade off they're making? Or at least the vast majority of people don't really, I think. I mean, I'm curious to hear your. I could give examples of what I think might fit into that category, but I'll let you roll.

Professor John Campbell (26:52)

Yeah, well, I'll give you an example that may surprise you. It isn't quite a financial product, exactly, but the institution of points that we have in the mortgage system in this country is something that I would abolish in a heartbeat if I had the power to do it. So what are points? Okay, you get a mortgage, you have a rate, maybe you do shop around, maybe you get a good apr. Then you have to go to the closing and there's closing costs and it's several thousand dollars. And if you're short of money, you can borrow those closing costs. That will be done through the institution of points. What will happen is the mortgage lender will say, we'll lend you a little extra money to cover the closing costs, but we'll charge you a higher rate on your mortgage. Alternatively, if you have extra money, you can bring it to the closing, give it to the mortgage lender, and lower your rate. Now, when you stop and think about it, this is weird. This is changing the amount of debt that you have. But the officially recorded amount of debt, the mortgage balance, doesn't change. What changes is the interest rate. Well, that's not how it should work. Now, of course, you're changing your monthly payment either way. So you might say it doesn't matter. But it does matter, because that higher rate that you promise to pay, if you borrow a little extra, you still can refinance. So you may not have to pay it for very long if you refinance. So taking points gives you an incentive to refinance. Now, what happens, unfortunately, is that less sophisticated people don't get that they borrow the extra money, they pay the higher rate the points for a long, long time. They do very poorly out of it. Sophisticated people, on the other hand, take points and refinance. So once again, we get this transfer from the less sophisticated to the more sophisticated. But also we get a lot of unnecessary refinancing. And refinancing is expensive. You know, there's costs and there's time and lawyers and paperwork and, you know, title insurance. And so we're running a very wasteful system that is very confusing and it's all completely unnecessary. You could easily have a system whereby if you need to cover your closing costs, you simply add that amount to the mortgage balance and maybe you exempt that little slice from LTV requirements so that you're allowed to do that without crossing a regulatory boundary. It would be much simpler and easier for people to understand the cost of the credit that they're getting when they take points.

Joel (29:41)

Yeah, you, you talk about insurance in the book. You talked about that as a key part of protecting yourself financially, which you can. You already kind of talked about whole life insurance and how that product makes very little sense for most people these days. Term life insurance, so much cheaper and so much. It's so much easier to compare apples to apples. But people don't seem to know, you know, which insurance product to prioritize. Like, a lot of people are like, I need life insurance. Like, I don't know, I guess I'll go with whole life. Or they buy extended warranties on products like at Best Buy or something like that, because the salesperson says, well, what if your computer fails? Like you, you certainly don't want to have to buy another thousand dollar computer. And maybe they do that and avoid life insurance. So they're buying the wrong kind of insurance. Is that a failure of the system or of inability to help people understand which products make the most sense for them?

Professor John Campbell (30:35)

Well, it's a combination of both. But I appreciate that you brought up this problem with insurance that people often don't buy the insurance against the big catastrophes and then they do spend money on insuring small risks, extended warranties being the biggest example. So we have a chapter in the book where we call Living with Risk, where we try to explain why it doesn't make sense to buy an extended warranty and why it does make sense to buy insurance against big risks, disability, death and so forth. The problem is that people think about insurance sort of intuitively and emotionally. As you mentioned, you know, when you're buying a lovely new computer, you know, you can just imagine, you know, your kids spilling coffee on it or Coke or, you know, so it's so easy to imagine the destruction and then you want to buy protection against it for emotional reasons. It's also true that salespeople know how to exploit the anchoring effect. So the anchoring effect is that we judge costs relative to whatever numbers are sort of in our head right at the moment. So if I've just bought a car, you know, the cost of the car is, you know, tens of thousands of dollars, right? So at that moment I have a big number in my head. If the, if the salesman now says, oh, for, you know, for a mere $400, you can get this, you know, this, this extra product. Well, that sounds like nothing, right? In the context of the thousands, especially

Joel (32:14)

if you roll it into the payment and it's just mere dollars a month.

Professor John Campbell (32:17)

Right, exactly. And so the, the confusion that we have, the mistakes that we all make, are exploited by salespeople. Right? Salespeople know how to get you when you are vulnerable and to make a very compelling sales pitch to hook into your emotions.

Joel (32:38)

Okay, so we're talking about the reality of human fickleness, human emotion. Can the financial system, can changes to the financial system solve for our irrationality, our exuberance, or I mean, just all those things that we, we feel when we're making decisions.

Professor John Campbell (32:56)

Well, you know, not, not completely, you know, human nature is human nature. I'm not trying to sell a sort of robot paradise where we all are perfectly rational, but I think, I think we can move in that direction and make things a little easier. And, you know, we make an analogy in the book, think back 120 years, 130 years, the pharmaceutical industry was completely unregulated and people were selling legitimate medicines. There were a lot of new medicines coming out that really worked. But people were also selling snake oil and, you know, opiates and all kinds of stuff that was really, really bad. And we did put in place a system of medical regulation that restricts access to the, to the more dangerous drugs, but allows safe and well established medicines to be sold over the counter. And we all take that for granted. And I don't think anybody says, hey, why do we do this? You know, people should figure it out for the themselves. Why are we protecting people from themselves with medicines? I mean, I know there's some controversy now about the role of the fda and it's not that there's no controversy, but I don't think anybody wants to go back to the wild west of 120 years ago. And actually some of the mistakes people make in personal finance can be almost as devastating as terrible. Taking a medicine that leaves you disabled.

Joel (34:32)

Sure, yeah, yeah. Leaves you kind of financially disabled for potentially years. Right. By making a mistake or taking a product. I think of payday loans and just people not thinking they can pay back a loan in a certain amount of time, not being able to and not realizing the perpetual nature of its impact when you can't pay it back quickly. And I'm curious, you talk about too the downsides of loyalty. I think it's like very true. For instance, let's say car and homeowners insurance. It's one of those things where if you don't shop it every couple years, you could be paying far more than you think. But don't just listen to the commercial and shop with one company who's telling you they're the ones that are going to save you 15 or 20%, it's that. But then there's also a level of stickiness that prevents people from being able to move from one company to another. I'm thinking if you wanted to switch banks because you're realizing it's dawning on you, you're not getting the best, you're not getting the best experience, you're not getting the best rate and maybe you are being feed more than you want, but my goodness, it's such a leap, it's going to take all Saturday or whatever, right. To migrate over from one bank to the other. So what do you think about loyalty and stickiness that maybe keep people stuck where they are?

Professor John Campbell (35:46)

Yes. I mean, the loyalty point is that you know, it's sad that many people feel, hey, I'm a longtime customer of this company, this bank or this insurance company, they will treat me right because I'm a long term customer. And people don't realize that actually you're going to be treated worst of all if you're a long term customer because the firm rightly thinks that you're not paying attention to the alternatives. And there's a lot of evidence of that. So that is sad. Now the switching costs is a very big issue. And you know, particularly in this day and age where we, we set up all kinds of things to do, you know, to make automatic payments and you know, we, we give our bank account numbers to all kinds of providers. And so there's this whole system that we set up that is then hard to move. There's a bit of a technological race. You know, it may be that the, if, if, if agentic AI arrives that you'll just be able to tell your AI, hey Claude, you know, switch, switch banks today and save your Saturday. On the other hand, of course there's the risk that people get locked into relationships with AI agents that are actually not working for them, but are working for, you know, the bank or the tech company or whoever's paying the electricity bill for the AI. So it's very hard to know where technology is going with this. But I think we all as human beings have to remain vigilant and try to act in our own interests.

Joel (37:34)

So you have thoughts on rebuilding the personal finance system that you express in your book? But then there's also the financial literacy component of this. And you, like you said in the beginning, you teach a personal finance course at Harvard. Which one of those do you think is most important? Is it more important to rebuild the financial system to make it easier for people to not have to educate nearly as much? I mean, we've done over, you know, 1100 episodes of how to Money because there's just a lot of confusion. Right. And so which, yeah, if you had to pick one, rebuild it or help people to understand it the way it works, which one would you say has more necessity?

Professor John Campbell (38:16)

The financial literacy work that we have in place is absolutely vital. I certainly would not want to take it away, but I think the rewards to amping it up further modest compared to the rewards of really trying to rebuild the system to make it easier to work. And what's maybe, let me explain that a little bit more. I mean, how can we strengthen our financial literacy efforts? What more can we do than we're doing now? Well, one thing we can do is make sure that it's in high school curricula in every state. And that's a goal of the Council for Economic Education. That's a personal goal of mine. I think that would be very good. But we should be realistic about the limits of what you can do in high school. You know, high school kids don't have to make many of the decisions that adults later make. Maybe they take out a student loan if they're going to college, maybe they get a credit card. But you know, they're not thinking about mortgages, retirement, you know, life insurance, those things. And all too easily, high school financial education can be like, imagine if driver's ed were just the classroom piece without any road experience.

Joel (39:31)

Sure.

Professor John Campbell (39:32)

How much would the kids learn if they were sitting in a classroom studying what you do when you see a stop sign? I mean, they wouldn't really get it, it wouldn't stick. And this is the problem. Now in college, what I'm teaching, a lot of my students are college seniors. They are going to be making big decisions and they really care and they really get it. But I'm aware I'm teaching some of the most privileged people in the country. I'm not going to ameliorate inequality by further educating Harvard kids. And anyone in college is in fact going to end up in at least the top half of the, the income distribution. Now, the work that you do, you know, with your podcast, I mean, this is great work, it's very important. But you know, you're going to reach the people who are self improvement type people who are going to benefit, but it's going to be a small, you're not going to change financial life for the hundreds of millions of people. Even in your wildest dreams, you know, that just won't happen.

Joel (40:39)

I wish.

Professor John Campbell (40:40)

So I think we should keep doing what we're doing and try to do it better. But it's really limited what more we can do, I think on that front. And that's why I think we ought to turn our attention to rebuilding the system to make it easier. And I think we can have more impact on the people who most need the help, who are not listening to your podcast and not going to college and maybe forget what they learned in high school, if they learned anything.

Joel (41:09)

So. So in regards to rebuilding the personal finance system, then what are maybe two or the three lowest pieces of fruit? Right? Like if we're like, let's just, let's do the easy stuff, the stuff that's going to make the biggest difference. It's going to be the easiest to fix, it's going to help the most people. What would those things be?

Professor John Campbell (41:26)

Right, So I would name two things. One is, I think I would really try to move the retirement saving system in this country towards a universal retirement account that you carry with you. You open it when you first start work and then it's with you for life. And it's one thing, it's not multiple things. The problem with our system is now there's a profusion of accounts, many, many different things, but profusion leads to confusion. I would rather see one account available to everybody that they carry with them. Now, that may sound like pie in the sky, but that's the system they have in Australia, basically, and it's very well regarded internationally. It works very well. And I think we could get there if we had some, some political will.

Joel (42:13)

And I think what you're getting at there too, tell me if I'm wrong, is even just the small idiosyncratic differences between some of those accounts. Accounts, if you turn 401k money into an IRA, which you can totally do, there are some upsides and there are some downsides that you have to consider before you make that move. And most people don't know about this. Those small things that could cost them money or access to that money. And, and so if it were one simple system with just very easy to understand rules, it would prevent some of that complexity. That is pretty unnecessary.

Professor John Campbell (42:51)

Absolutely, absolutely. So, you know, that would be my, my sort of number one thing. I, you know, I already mentioned mortgage points. I just, you know, mortgages are so important. I think it's good to focus on the big assets and the big liabilities. So retirement savings, mortgages, the big things. I would streamline and simplify the student debt system so that we have income contingent repayment as the default. You don't have to opt into it. That's just the way it works. Again, you know, the uk, Australia, they have that system. It's simple, it works well. And then I have to say I thought that the Biden administration, when they were talking about George junk fees, I thought they were on the right track. The Trump administration has talked about capping credit card rates. I think the problem is not the interest rate on credit cards, which is certainly high, but again, these are small loans and in some cases you have high default rates. The problem is not really the rates. The problem is the magnitude of late fees, which, you know, you miss by a day and you get charged a big fee. The implied APR on that is very, very high. So sort of capping these trigger fees that you can be in a fixed cost that you have to pay if you make a little mistake, I think that's another good direction to go. Those are less important in the big scheme of people's lives. Lives. Those don't tend to ruin a person's life. But I still think that would be good to clean up and relatively easy to do.

Joel (44:38)

I think those just frustrate people too. They add up and they frustrate people and that pestering people to death, that's. That's a problem in the system as well. We got more to get to with you, John, including I want to talk about patronizing people, telling them what they can and can't do. Does that need to be part of the solution? We'll discuss that right after this. Man We've hired some great folks to work behind the scenes with us at how2money over the years if you're a small business, you know this. The right hire can make or break things for you. Hoping the right people see your job posting is not the best growth strategy. So when the pressure's on and you need the right hire, this is a job for Sponsored Jobs.

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Joel (47:45)

Get started@fidelity.com future expenses charged by your investments and other costs and fees associated with trading or transacting in your account apply Fidelity Brokerage Services Member NYSE SIPC I'm talking with Professor John Campbell and John, I love this idea of a more transparent and fair system. Do you think it's realistic or what does it take to expect profit seeking firms to protect consumers with stronger guardrails and to offer them more transparent products that they can compare from one provider to another, one company to another.

Professor John Campbell (48:23)

So we think there's two ways to get there. You know, one way is what I'll call enlightened self interest by the leaders of large financial institutions. I mean, it is remarkable and to me rather horrifying that the financial industry is so unpopular. You know, big financial firms are really in the basement of when you do surveys of how much do people trust different institutions, different businesses? The big financial firms are down there in the basement along with social media

Joel (48:58)

companies and Comcast and Ticketmaster.

Professor John Campbell (49:00)

Right, exactly. So you know, that is very worrying and I think it's actually undermined support for the market economy and for the sort of vision of capitalism as a system that generates prosperity. You know, even the, even the Republican Party has become much less free market than it used to be. And I think that part of the background of that is people's experiences with the financial industry have Turned the population against business in general. And that's a problem because finance is a vitally important sector. It's the brain of capitalism. It tells the economy where to put resources and it provides services that are absolutely essential for all of us to lead a modern life. So we need finance, but it is so unpopular. So I think it would be wise for the leaders of the financial industry to wise up and sign up for a sort of self regulatory effort along these lines. However, if that doesn't happen, the other way to go is through government regulation. Now the political cycle in this country is not at a position where that's very likely in the near term. But our book takes a global perspective. We emphasize that these problems are actually common around the world, not just in the US and we hope that there can be progress made in other countries. We do think it's important that the government shouldn't try to take over the financial industry. We're not talking about national, you know, having government provided finance. We think that would, would be a disaster because finance is a very it intensive business and big government IT projects have a very poor track record. We also don't think the government should regulate in a kind of heavy handed, backward looking way, coming in and saying, you know, you, you just have a vague duty to be nice to your customers and will decide after the fact whether you were nice to your customers or not. That kind of regulation, you know, the industry hates and I can understand why. And it's triggered a backlash. In the uk the Financial Conduct Authority, which was, which is the consumer regulator, sort of veered in that direction and it's triggered a tremendous backlash. We think that's not the way to go. The way to go is to be forward looking, design focused. The regulator should say, look, here's the simple product, this is how it works. These are the units you quote prices in. You have to offer it now go compete and leave it at that.

Joel (51:58)

So when you're talking about government regulation, I can see multiples sides to that. I also, you're talking about credit card caps, right? That mention, even just that mention and that pursuit which has, I would say support from, from people on both sides of the aisle because of the way I think Americans and American politicians view the credit card companies. It's like, well, let's punish them and get interest rates down to 10% and we'll make, we'll make everybody happy. That's a, it's a populist move of sorts. Right. But in the long run you might be pushing people towards worse financial products by enacting legislation because the credit card companies won't offer credit cards to people who, who. And you might think, well, yeah, 20% interest rates suck, let's get rid of them. But if the. If then you're pushed to financial products that are worse than credit cards, you've just actually created more of a problem.

Professor John Campbell (52:54)

Yes, exactly. And so you really have to think hard about maintaining access. And you know, price caps are always dangerous in that regard. I mean, I will also note that it's very sad when people on their own account decide that they're so fed up with the formal financial system that they want to opt out. And often when they opt out, it's out of the frying pan and into the fire. People end up in a worse situation,

Joel (53:20)

you know, like going, going with money under the mattress route instead of the money.

Professor John Campbell (53:25)

If you. Right. You put your money under the mattress, then you earn no interest, or you put your money in crypto and then you're on a roller coaster, you know. And I mean, it's a tragic fact that crypto has been more popular in the African American community than in other communities at any income level. And the reason is the long black experience with white owned financial institutions that abused black people. But again, going into crypto, that's out of the frying pan, into the fire.

Joel (53:59)

Last question for you. Is there a risk of being too patronizing here, of not allowing people to pursue bad behavior if they're so inclined? So you talked about technology, index funds, low cost, good competition there, then new technology on the investing front allows people to do some really wild, crazy stuff with their finances and we see much to their harm. Right, but should people have that ability to say, yolo, I'm gonna, I'm gonna toss money in and start day trading. It's at my fingertips on my phone. Should we allow that for people? Or even something like buy now, pay later, which I think is not a great product for the vast majority of people. And it's a slippery slope. Do I want it banned because I think it's a mostly bad thing for people, or. I don't know, I'm curious to hear how you think of that.

Professor John Campbell (54:53)

No, you raise a really important issue and, you know, we're very cautious. You know, another example that you didn't mention is the rise of sports betting. And you know, now in the prediction markets with absolutely minimal regulation. So is sports betting, you know, how should you think of it if you think of it as a form of entertainment? Well, people are allowed to spend money on Entertainment. Nobody's saying you're not allowed to go to the movies, so maybe you should be allowed to do sports betting. I think the key is to distinguish the fun that people have with speculative activities, distinguish that from the way in which they protect their lifetime financial security. So, you know, the government has said for a long time now that there is a social interest in retirement security because we don't want to have poor elderly people, you know, on the streets. And that's why we have Social Security security. But that's also why we have tax favored retirement accounts. So the government is giving up tax revenue to offer these retirement accounts. I think it's clear that then along with that can come some regulation about what can go on in those accounts. We're not going to have a tax favored sports betting account. Right. So I think it's a matter of finding the sensible middle ground. Yes, we have to maintain personal freedom, but if we operate a system that is too confusing and difficult for most people, the danger is not only that many people will end up in horrendous circumstances, but also that popular support for the market economy will be undermined and we may end up with much more heavy handed, dysfunctional regulation.

Joel (56:55)

Yes. Oh my gosh, that. And that, that is something that does frighten me because we have a young population who sees the free market as a negative thing. And I understand why. I get it. Because it's been perverted in some ways. And so we need to ensure its stability for decades to come. Because, yeah, it might not be the best system, but it's the best system ever created. Right. That's created the most stability for, for people. It's, it's really, it's surprise. I mean, it's incredible what it's been able to produce in this country and the prosperity it's been able to provide. So. Professor John Campbell, I so appreciate your time today. Thank you so much for joining me.

Professor John Campbell (57:33)

Thank you. Thank you, Joel. It's been great to be here.

Joel (57:38)

All right, that was such a good, fun conversation with Professor John Campbell, who gets personal finance incredibly well. He teaches a course on it, and yet he also has this macro view of the whole, of the entire personal finance system that we all encounter every day. We didn't even talk about, right. Like the credit bureaus, credit reports, the extensive errors. How do we fix that? I mean, we have all come into a battle, an issue with a financial service provider at one point or another in our lives and we have wanted to beat our head against a wall or we have paid fees that seemed unnecessary or outrageous or we failed to shop. This is something we talked about on the podcast and that Professor John Campbell highlighted incredibly well mortgages. And this is a place where, unlike shopping for your pair of shoes, where you could save 20 bucks, you're talking about thousands or tens of thousands of dollars over the life of your loan if you're not shopping around and getting a potentially better rate from a credit union or through a mortgage broker. And we talk about how the average person really does just go with the first lender often that their real estate agent suggests. But shopping around could save you ridiculous amounts of money. And so part of the problem here that he's highlighting is that the industry spends money is what he said on brand familiarity with which leads to stickiness. And so whether that's the bank you do business with and just going back to the well, I guess I'll go there for this and such loan product or man. One of the worst things we hear is when listeners say, all right, I'm going to go to my bank to open up my investment account. It's like, no, please don't they offer that. And maybe you feel somewhat comfortable there, but you're going to pay so much more in fees than if you were to go with one of the, the low cost brokerage firms. And Professor John, he highlighted too that you're treated worse if you're loyal, which is often the case. And loyalty is such a lovely, it's such a lovely attribute to have in your relationships with your spouse, with your friends. But when it comes to your financial institutions, you should be a little bit less loyal and you should question whether they should have to earn your business continually. That is what the free market economy is about. He also highlighted just a lot of pitfalls. Right. That we need to be aware of. And I would love to see personal finance education go into not just the high schools, because he talked about the shortcomings there too. And I think he's right. But into the places where we are making those decisions so that we have better information. And I would love to see just some reforms made to, to make it a little easier for us to understand. Gosh, even when you're just parsing the Alphabet soup of retirement accounts, well, how much can I contribute to that? And well, my income just went slightly above the amount where I'm allowed to contribute to that. What do I do next? What's the next best bet for me? And it's incredibly confusing and I think it leads to burnout or just a lack of following through for individuals. So if we can simplify it then I think we're just going to get more participation and less frustration and I think that's a good thing. So hope you enjoyed this episode. Personal finance ain't perfect and we'll keep I guess parsing the details that need to be parsed because the system still going to have a lot of messed up things in it. Thanks as always for listening. You can find the show notes for this episode up on the website@howtomoney.com until next time. Best Friend Out.

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Joel (63:01)

Get started@fidelity.com future expenses charged by your investments and other costs and fees associated with trading or transacting in your account. Apply Fidelity Brokerage Services member NYSE SIPC Travel is such a life changing pursuit and my trip to Australia was one of the best investments I've ever made. I got to enjoy the bustling metropolis of Melbourne and some of the best coffee of my life while also driving the great ocean road and taking in spectacular views. I even hopped on a plane to the island of Tasmania. That was my favorite stop. I loved it all. A trip to Australia doesn't just offer a getaway, it's an investment in experiences that stay with you. Explore more destinations in Australia and start planning your memorable vacation@australia.com this is an iHeart podcast. Guaranteed human.