There are billions of dollars dedicated to educating the public about money, and the results of those efforts — some funded by taxpayer dollars, others by the private sector — are dubious at best.
I’d no sooner be against apple pie and the love of a good dog than I’d be opposed to financial literacy, but as National Financial Literacy Month comes to its conclusion, I wanted to speak up to say why I neither value nor participate in the annual April celebration.
I recognize that it’s odd for someone whose job is to work with the financially literate or those who want to be — whose own livelihood depends on individuals wanting to learn more about how to manage and control money, credit, debt and investments — to speak ill of the concept.
My problem is less with financial literacy than with those pushing the agenda for both the month and throughout the year. There are billions of dollars dedicated to educating the public about money, and the results of those efforts — some funded by taxpayer dollars, others by the private sector — are dubious at best.
For starters, no one truly has defined just what financial literacy is. To some people, it applies to the “unbanked” and “under-banked,” terms generally thrown out to suggest that various minority groups need more help from financial institutions. To others, financial literacy is avoiding the more than $15,000 in credit-card debt racked up by the average American household, or it involves executing a plan to pay that debt off.
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Many people believe that financial literacy is about retirement savings; a recent Employee Benefit Research Institute study showed that only 60 percent of workers are saving for retirement, and only 10 percent of the workforce follows a financial plan that would ensure stability and security in retirement.
And still others would suggest that you can’t be financially literate without being prepared for financial emergencies. A Federal Reserve survey last year estimated that nearly half of all American households couldn’t handle an emergency expense of just $400; most surveys suggest that the average financial calamity will cost somewhere in the neighborhood of $2,500.
Yes, retirement-savings balances are rising, but that has less to do with literacy efforts than with the bull market of the last decade. A Fidelity survey of its customers showed that the average 401(k) account balance at the end of 2017 was up 13 percent during the year; the Standard & Poor’s 500 index gained about 21.75 percent in 2917, and the Vanguard Balanced Index Fund — a reasonable benchmark for an average retirement saver — was up 13.75 percent.
That means that investors benefitted mostly from a good market without adding much to the pot. If they did kick in a big chunk of income, statistically they then invested so poorly they couldn’t keep pace with an average balanced portfolio.
That hardly seems like a great show of financial literacy.
With no real definition for what the term means, it is hard to measure the success of literacy efforts.
Over the years, I have had readers and listeners thank me for something I taught them, only to tell me how they had used that knowledge; in some cases, what they had done was the polar opposite of the lesson taught in a column or on my show.
The audience member felt better educated and therefore deemed my efforts a success — the same way many literacy efforts get passing grades — even as I recognized that they had simply found new ways to make the same mistakes.
Years ago, a survey by a national regulatory group found victims of fraud were more financially literate than people who had avoided those kinds of troubles. You’d think that literate consumers would avoid trouble; you’d be wrong.
All of this is not to denigrate efforts to educate the public about money.
But let’s acknowledge survey after survey that shows how poorly Americans fare when it comes to knowing how finances and economics work. A study last year showed the United States ranked 14th among all nations when it came to financial literacy; less than 60 percent of Americans passed a five-question test about diversification, interest and other basic tenets that likely should be a part of anyone’s ability to say they are financially savvy.
And let’s not forget that many of the people behind the literacy efforts have their own profit motives at stake here. When the big-card issuers support seminars with positive agendas like “Use Your Credit Cards Responsibly,” the bulk of their message is actually “Use your credit card.” That message helps their bottom line whether the user is savvy or digs themselves a credit hole.
Further, most literacy efforts suffer from a public that isn’t too interested in learning this stuff until they have to be.
Harris Nydick, managing partner at CFS Investment Advisory Services in Totowa, New Jersey, and co-author of the just-released book “Common Financial Sense: Simple Strategies for Successful 401(k) & 403(b) Retirement Plan Investing,” noted that he gives seminars all the time to employees who are mostly tuned out to messages that could help them improve their investment results.
“You need someone who is ready to be receptive to the message and is ready to act on that message, and that is a very small percentage of the population at any given time,” Nydick said. “People may come around eventually, but scare tactics about outliving your money or not being able to retire — and appeals to greed by talking about how much extra money they could end up with — don’t seem to work when someone is trying to figure out how to make ends meet, and doing a bad job of it.”
None of this means that financial literacy efforts should be stopped.
Instead, they should be year-round, and available in forms that the public can get when they want and need them, because that is the only time most people will heed them. They should have a consistent message that follows the agenda of the public, and not the private companies that use them to boost profits, and they shouldn’t be treated as something special and unique, when financial education should be a cornerstone of life skills, taught young and practiced for life.
Any time — every month — is a good time to learn more about handling money. You don’t need a special celebration when the truth is written right in your own financial statements.