DATELINE–Washington, D.C.

A two-year survey of consumer banking habits reveals that nearly two-thirds of Americans no longer understand how money operates.

The U.S. government’s General Accounting Office released a report late last week announcing the results of a two-year survey of consumer banking habits. Among its top findings is the startling revelation that nearly two-thirds of Americans no longer understand how money operates.

In the past, similar GAO surveys have been used to inform domestic fiscal policy and to determine key economic indicators such as the federal interest rate. It was hoped that this year’s Consumer Understanding, Activity and Confidence report would settle growing unease about the direction of the U.S. economy by providing an in-depth look at consumer confidence.

But minutes after the report was made public, the Dow Jones industrial average dropped over 150 points to 7,898.38 as investors reacted to the study’s troubling conclusions. The GAO survey found that while some consumers are savvy enough to use the latest financial tools and actively participate in a bullish market, the overwhelming majority are unable to comprehend how staid financial transactions such as banking are organized.

Chief among the GAO’s indices of consumer equivocation is the exponential growth of ATM fees at large banks. Roughly 70 percent of the consumers polled for the CUAC study did not understand the difference between banking fees and so-called “off us” transactions to which banks attribute their ATM fees.

The GAO reported that banks recorded $2.5 billion in annual ATM surcharge revenue last year, calculated at a 71 percent surcharging rate of $1.23. The 1997 figure represents an increase of 20 percent from the year before, and the federal agency predicts 1998 ATM surcharge revenues could exceed $3 billion.

In traditional financial models, such profits at the cost of the consumer are exceptionally rare, if not impossible. Brian Arthur, a Stanford economist believes the ATM surcharge issue is only the tip of the iceberg. “Everything that formal economic models predict and recommend is based on a rational economic agent,” Arthur explains, “which means someone who knows that option A is to his detriment and option B is to his benefit.”

In one section of the CUAC survey, consumers were asked to describe how banks “make money.” Most could not. In fact, only a statistically marginal number were even aware that banks use consumer deposits in order to make loans and accrue profitable interest. A startlingly large percentage (23 percent) stated that banks are government-sponsored institutions not unlike the postal service or, in some cities, waste management services.

Of course, not everyone is bemoaning this crisis in consumer awareness. In 1997 banks recorded a sixth straight year of record profits. According to the FDIC, full-year industry earnings totaled $59.2 billion, up $6.9 billion (13.1 percent) from 1996 results. ATM Fee income was the fastest-growing segment of banks’ non-interest income that year (up $2.3 billion, or 9.4 percent).

These unprecedented profits were recorded only a year after the two largest ATM networks – Visa’s Plus and MasterCard’s Cirrus – ended their ban on surcharges, allowing banks to levy a charge against non-customers who made transactions, except where prohibited by state law. In the two years since such fees have been available to banks as a money-making instrument, the number of ATM’s has almost tripled nationwide.

“Banks charge more today because they do more,” responds American Bank Association spokesman Hugh Suree. Enumerating a menu of services ranging from telephone banking to direct deposit, Suree faults the GAO report for using outdated language in its survey. He claims most consumers simply could not understand the wording of the CUAC survey and thus failed to provide accurate responses. “In all of our studies,” adds Suree, “customers are willing to pay extra fees because they do appreciate the convenience of automated banking.”

Arthur disagrees. He speculates that “even if only 10 percent of all bank customers took a more active role in the way their money is being siphoned it would lead to a general reform in banking practices.” In his opinion such consumer pressure would not only benefit consumers but would actually protect the U.S. economy from a total collapse of the banking system. “If consumers don’t resist fee-driven banking,” Arthur suggests, “we’re on a ship without a rudder.”

Arthur and his fellow economists are not the only ones expressing concern over the GAO report. On Wall St., the mood is no less gloomy. Sung Bing, an analyst with Goldman Sachs, says most brokers are equally wary of the numbers in the CUAC report. “A person who doesn’t understand how he and his money are parted isn’t a fool,” he implores, “that person is a wrench in the works.”

Looking out from his 34th floor window, Bing stares at the bay where New York’s Hudson and East rivers merge before being swallowed by the Atlantic Ocean. After a moment he laments, “What can you do about 40 million wrenches in the works?”