Choices Wherever You Look

The college teacher was scanning the financial pages of his newspaper. “It’s enough to drive you bananas.” He was utterly befuddled by the different interest rate and financial service combinations being offered by the banks, money market funds, savings and loans and brokerage houses which are making newspapers richer with their large space ads.

“How can I begin to know what health plan is best,” moaned the government employee in Washington who was faced with over 20 such plans asking for the premiums of hundreds of thousands of federal workers.

The choices by sellers proliferated in 1982 to unprecedented heights of consumer confusion. If you are considering life insurance, there is Universal Life, Variable Life, Whole Life, Term, and some policies called Term that aren’t Term. If you want to finance the purchase of a home, there are Fixed Rate Mortgages, Adjustable Rate Mortgages, Shared Appreciation Mortgages, Reverse Annuity Mortgages, Growing Equity Mortgages and Graduated Payment Mortgages–not to mention the variations off the variations.

If you’re looking to open a bank checking account, there are minimum balances, charges per check and a host of other pay-as-you-use debits. You think you’ll find some relief with your relatively simple phone bill. Wait a few months and you’ll see a blur of choices coincidental with a surge in your monthly telephone bill. You may even have more than one monthly telephone bill to pay. And then there are all those different airline fares with their travel conditions.

Some economists will say that all this choice means there is more competition between companies for your consumer dollars. They add that with deregulation of bank interest rate ceilings, airline and telecommunication rates, the proliferation of choice will continue to spread.

But proliferation of choice can be a veil for a proliferation of deceptive practices. Sellers’ choices can be differences without much distinction–mere product differentiation that benefits company brand names rather than consumer pocketbooks.

Since airline de-regulation, some fares are lower, such as the New York City–Miami route; some fares are higher–the normal USAIR roundtrip Washington to Hartford costs as much as it does to go from New York to Los Angeles roundtrip; some flight schedules to smaller cities have been abandoned.

To equate a flood of sellers’ choices with superior competition that benefits consumers is to leap over too much evidence to the contrary. It is the quality of the choices and the availability of consumer information to permit consumers to compare promptly which choices better meet their needs that are the issues for examination.

Consumer buyers of insurance do not have this information. Nor do home buyers for many of the newer mortgage offerings. Washington Post real estate writer, Kenneth R. Harney, reported last week that “mortgage-financing violations of the federal truth-in-lending act are widespread, enormously costly to home buyers, difficult to police and are likely to get worse in 1983.”

There are published guides that advise buyers how to negotiate their way through these floods of choices. They rarely seem to be used, however.

The dilemmas of confronting such market complexity opens opportunities, especially with the use of computers for group buying by consumers or for consumer advice brokers. Washington Consumers Checkbook (1518 K Street, NW, Washington, DC, 20005), a quarterly publication which gives readers specific buying advice regarding local services, played a major role this year in the afore-mentioned health insurance plan scramble by government employees in the Washington, DC area. Checkbook consultants addressed seminars with packed audiences, analyzed the various health plans and made recommendations. Editor, Robert Krughoff, believes that his group’s guide saved area employees, who paid some attention, more than $10 million. But other federal employees were too frustrated to study the comparative material on the offered Plans.

All in all, what is clear about complexity is that it has become a growing engine for economic activity–some of it good and some of it not good for consumers° The big question is how buyers or forthcoming consumer advice brokers are going to organize this buying power in a way that matches, skill for skill, the determination of the sellers°