April is Financial Literacy month. So before the month elapses, allow me to highlight some thoughts on financial literary from Todd S. CFP. The question we ask: how do you get a financial education?
Financial Literacy: Learn About Money, Boost Your Finances
Personal savings rates are dismally low (not to mention the savings account rates from financial institutions), debt is uncommonly high, retirement savings and preparedness are nearly nonexistent, and most people are either uninsured or grossly underinsured. And, the list goes on. My contention has always been that financial education should be a requirement for high school and college students; that money management skills should be taught in schools.
In my belief, much of the problems people face could easily be circumvented if we give people the correct tools and knowledge before they skip out into the big bad world. Let’s face it, most of our parents mismanaged their money or did a pretty crappy job of teaching us how to navigate the complex financial landscape. If you are one of the few who had helpful parents who had the foresight to expose you to personal finance while you were younger, then consider yourself fortunate. For many of us, this is unfortunately not the case, and thus, it’s pretty common for this cycle to permeate through the generations.
Once More, The Mortgage Crisis
Let’s look at the mortgage crisis, for instance. We’ve asked here before: who’s to blame for the subprime mortgage mess? Sure, there were inappropriate and unethical business actions occurring, but who signed the paperwork for the mortgage? The consumer. Who decided to buy a house and secure a mortgage in attempts to hop on the housing market craze? We did. Who had to own a home even when it may not have made perfect financial sense at the time? Again, that would be us — regular folks who continually seek better fortunes for ourselves and our families.
Ok, so this may be a little harsh, but my point is this: if people had the basic, necessary financial literacy to read a contract, know the difference between a variable and fixed rate, or if people knew how to make a budget and apply it better, don’t you think that the housing and mortgage crisis would have been far less damaging and widespread? In general, I also think that if people were better versed on economic cycles and business cycles, perhaps the tech bubble of the late 90s and the housing bubble of the 00s could have been minimized or even averted. I suspect that with more financially astute individuals in our midst, we’d probably reduce the likelihood of the masses chasing the flavor of the day and creating artificial bubbles.
However, my idealistic vision of financial education is dissipating at a fairly rapid pace. In my experience, participants have to be dragged nearly kicking and screaming to FREE financial literacy events hosted through work, after work, online, wherever. Understandably, schools are disinclined to schedule financial education classes because they have so many competing agendas.
We Need More Than Just A Financial Education
More importantly though, education alone will not solve the problem. Most people need accountability and coaching to change their behavior, in order to learn and to make smarter decisions with their money. We can talk to people all we want, but who’s to say what they will or won’t do when they walk out the door? Again, from my experience, the best bet is to supplement financial education with ongoing coaching, which has had a good success rate. This is something I’d advocate, but there have been a couple of obstacles to implementing this type of plan — organizations may not be interested in funding such a program, or even if they do, people may not be all that eager to participate in it. Unfortunately, not everyone looks upon personal finance as a high enough priority.
Why do we continue to struggle financially, as a nation, despite the availability of free financial material you’ll find online in hundreds of thousands of websites and blogs? What about the thousands of financial firms, libraries and book stores that offer educational resources in finance?
I think I am starting to think like Lauren Willis, a professor at Loyola Law School who suggests that we should just give up on financial literacy. She contends that it is merely a waste of time and money because financial products change rapidly, education does not improve behavior (like my aforementioned experiences) and may give people the illusion that they can manage their own finances when they cannot. This sounds pretty consistent with my personal experiences as a budding financial educator and trainer.
But, I refuse to agree with Ms. Willis wholeheartedly and do believe that greater knowledge does breed greater control and better decisions. And something of note: she does suggest that some of us may benefit from having experts help us with our finances. What do experts, advisors, coaches bring to the table? They provide an avenue for accountability that can encourage changes in counterproductive behaviors we cannot always spot and fix on our own (while personal finance bloggers will tell you that they use their blogs as a way to be self-accountable with regards to money).
So please follow the old adage and don’t look a gift horse in the mouth — if your employer, another organization or some solid opportunity comes by to offer financial education, then attend! Do your due diligence if you are unfamiliar with the service or offering, and if there’s no catch, then go for it! And if you feel it’s necessary, then seek outside counsel and create your own financial dream team. If we all place priority in getting a financial education and taking action on what we know, then we’ll be taking great strides in improving financial literacy in our nation.
Created: April 7, 2010; Updated: April 21, 2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 17 comments… read them below or add one }
You’re right. There should be some kind of education course on finance and budget management. It would be really useful to kids starting out college or even late high school. Our society continues to get into deeper and deeper debt and unless we educate ourselves on finance, we’ll never get out of it.
I totally agree that a financial education is just the start of the process. Learning the ropes is a great start but having someone there to support you through the tough times will make your chances of success even greater.
Going to the gym once or twice won’t necessarily help you lose weight or get fit but add in the motivation of a personal trainer who will track your progress and keep you motivated and you are now on the path to success.
Money is the same, learning how to do a budget is a great start but you need a lot of motivation and discipline to stick with the budget.
Like most of the other comments, I also agree. We teach kids how to do calculus in college but do not teach them the difference in a debit card and credit card.
I also agree with the article on the subprime crises. At the end of the day, no one was forcing these people to get into bad loan situations. Common sense should tell you if you make $40K per year, you cannot afford a $300K house – the math does not add up.
I would really like to see courses geared toward fiscal responsibiliy and financial planning. I think it would help the overall picture of our country.
The problem is that we don’t today know enough about how money works to make “courses” on this subject legitimate in an intellectual sense. Most of the strategies promoted today are fads, things that came into fashion for a time for one reason or another. If you go back 30 years, you see just the opposite “rules” being put forward as Absolute Truths.
Rob
I completely agree that financial education is very important. No one is more responsible for your financial situation than you. There is no power in transferring responsibility to the stock market, the real estate market, or even your financial adviser. Do your due diligence and learn what is best for your individual financial situation.
I also agree that financial education is important, but I think there is a limit to how far it can go. While everybody can understand concepts like LBYM, there is a certain amount of mathematical/statistical literacy required to cut through the marketing propaganda (I’m thinking mutual fund advertising here). Really understanding why past performance is not indicative of future returns and the nature of statistical randomness is just beyond most people.
Interesting that the picture that accompanies this article only shows people holding credit cards…. not cash, or gold coins, or stock certificates, or bonds, or mutual fund or brokerage statements. That says a lot to me about where we are with financial literacy.
Returning to some old fashioned values tempered with common sense would go a long way to curing many peoples financial problems. Stick with the basics….. spend less than you earn. It can really be that simple.
To me its not up to schools to teach financial literacy, though many do an ok job of it. It is the individual’s responsibility in their own self-interest to get educated and stay education. The basics of finance are not that difficult, and being a successful investor can be as straight-forward or complex as you want to make it.
@Biz of Life,
So you caught the irony of the image. But I also believe that anyone can benefit from learning about the proper and appropriate use of credit cards. If we knew how to manage our credit better, we’d look upon credit cards not as tools of our financial demise but simply as tools of convenience.
Financial literacy is definitely something that needs to be taught to our children as part of an outcomes based educational process. School should be about preparing young people for life’s challenges, and learning about money and finances is a definite must for a young person about to enter the adult world. The less surprises for them, the better.
I agree that steps should be taken to educate children and even students regarding finances so that they can also understand the value of money.
This should be a course that’s taught like home ed and shop class.
I wholeheartedly agree that financial education should be taught in schools.
In your opinion, why don’t you think they do this? What are their competing agendas? I’m curious to know more.
Nice tips and I agree with your views. Such kind of tips can help to increase our financial knowledge. As the cliche goes, knowledge is power, and you can definitely increase your wealth if you knew more about how things work.
I’m in the financial literacy camp but it’s a lot harder than people realize. For example, even students who study economics at the university level don’t know the basic principles just a few years later. Every economics student should understand that in a competitive market when prices rise forces are set in motion that will push prices down. Now think about those who piled into structured product a few years ago that ended up as toxic debt that had to be bought by the Federal Reserve. All of those people buying the debt were “financially literate” yet they were instrumental in the bringing on the “Great Recession”. Lauren Willis is not totally off base.
Money 101 should be mandatory in every high school.
I created a financial literacy class for my high school students about 5-6 years ago. To insure that my students would learn the information, I structured the class around a lot of activities and classwork. As a teacher, I believe students do not learn until they are performing the tasks or projects. As a former CFO, it was important to me to have them learn the information. My students are in a low socioeconomic area of the city and I wanted to give them opportunities to succeed. At the end of the semester, I asked for evaluations of the course. All felt they learned a lot from it. I think financial literacy should be a graduation requirement for high school. My success has motivated me to volunteer at community organizations to spread the word further. As far as people attending this type class, you have to market it like anything else.
I asked for evaluations of the course. All felt they learned a lot from it. I think financial literacy should be a graduation requirement for high school.