Early evidence suggests that the pandemic has highlighted the need for financial literacy — both now as well as in the near future.
This shouldn’t come as a surprise. A personal financial crisis is often a person’s entry point into a quest for financial betterment and many people experienced pandemic related financial crises. The necessity of financial knowledge and skill has been growing for a long time. We have had an increasing burden on individuals to be responsible for their own retirements.
Defined benefit pensions are few and far between; retirees are getting less from companies and future retirees are expecting to get less from Social Security.
The burden is shifting to individuals at the same time as the financial world is rapidly becoming more complex, and the future will likely require individuals maintain a greater understanding of financial literacy.
The array of new financial products and services is mind boggling. And tech has continued to democratize finance by increasing accessibility.
People have access to more options than ever before — but often lack sufficient knowledge to make informed decisions.
Cryptocurrency is a great example; many people have at least a general idea of what it is, yet few could actually explain it or articulate the risks of investing in it. But anyone with a phone can buy some.
Financial crises do not hit everyone equally. Those who lost jobs or income during the pandemic tended to be lower income earners and people who could ill afford the financial hit. Few had embraced financial literacy prior to the pandemic. Hopefully that door is cracked a little wider now.
The Future of Traditional Financial Literacy Education
A small percentage of people have a great interest in financial matters and seek out knowledge themselves. Many others appear to lack sufficient time or interest until they are knee-deep in a financial crisis.
The entry point for financial education is often a problem — pain drives the search for a solution.
It can be a small pain, such as lack of saving to pay for a car repair, or a larger pain, such as bankruptcy.
Life events also present these opportunities. A new home or new baby may be accompanied by questioning how to afford this great new future. Life events are entry points in the quest for financial knowledge.
Traditional financial education has been passively waiting for these prospects to show up. There are a plethora of resources available on demand, whether physical books or courses, or online aids and resources.
There is a vast wealth of resources and an active community of people interested in personal finance. But it misses many of the most vulnerable.
This avenue is not dead by any means. There is still solid demand for traditional channels.
State-Mandated Financial Education
A number of states, slightly fewer than half of them, now mandate personal finance education in schools. A few states require students to have taken a stand-alone course in economics or personal finance to graduate.
More require that personal finance education be incorporated into other classes. Either way these states have a requirement for personal finance education.
This is fantastic, but far short of what is needed. It also may be less than it seems.
The financial education component may only be a couple of hours in a single class without any meaningful objectives. I have no doubt that schools and teachers would love to do a great job with this — they would love to graduate kids with a degree of financial savvy that prior generations lacked.
The reality is more complex. There is quite a bit of teaching to succeed on mandated tests, and there are many other problems in education taking priority over financial education.
Financial education courses are more likely to be offered in wealthy suburban districts and less likely to be offered in inner-city districts. Some schools have bigger problems to deal with. The mandates are there, but they have no teeth.
State-mandated financial literacy education that works is essential. There have been great strides and there are great things being done. We are not near the goal line yet by any means.
Technology's Role in Teaching Personal Finance
Technology removes barriers to entry and makes finance available to the masses. It also makes financial education available to the masses.
Some take advantage of the latter before jumping into the former. But there is no gatekeeper; financial products and services are available to people who lack sufficient knowledge or resources to use them. Fortunately, they can also get in at low dollar points and may not suffer irreparable harm.
Consumers have benefited widely from the marriage of finance and technology. There has been an explosion of lower cost options and a wealth of time-saving opportunities.
Brick-and-mortar banks, which were the mainstay of money management in the past, now appear unnecessary to tech-savvy investors. Those who have financial skills can do nearly anything with a high level of convenience and low level of cost that would have been unthinkable a few years ago.
Technology is changing the landscape of financial education. Technology enables financial education to meet people where they are in a way that traditional financial education programs could not. Technology enables just-in-time and situation-specific modularity that no comprehensive program can match.
Technology can also help guide people with the exploding need to understand the behavioral aspects of finance and how they may unknowingly hinder themselves.
Videos, games, and quizzes can target specific situations and specific needs to get right to the heart of the issue. Webinars can be a great interactive tool for additional depth on a topic.
Stories can serve as mini case studies and guide individuals down paths others have traveled— or make them aware of pitfalls they may not have considered.
Stories also allow for an additional level of connection as readers become vested in the success of the storyteller in their quest for financial growth or improvement. In that way, stories can provide a much needed hook that brings readers back time and again.
Stories, games, and quizzes can help make financial education painless. People who would never endure what they would consider the drudgery of taking a course will do the equivalent delivered in a nonthreatening manner.
Technology’s great strength is that it can deliver anything to anyone at any time. Its great weakness is that anyone can jump in, whether they understand what they are doing or not. Technology makes it easier to deliver financial education, but may also be making financial education of even greater importance.
The Bottom Line on the Future of Financial Literacy
The field of financial literacy is a wide and exciting place to be. Opportunities abound. No matter where you are in the financial sphere, there is a place to fit in and to contribute.
There is no lack of need; there is no competition for a small market. The market is nearly unlimited; the need is greater than we even know.
Ultimately financial literacy is about decisions. The bottom line of any individual’s financial future is the sum total of the financial decisions they make in their lifetime.
There may be factors that can’t be influenced and needles that can’t be moved, but given what you have to work with your decisions will be the primary determinant of your outcomes.
The future of financial literacy is bright — it has to be. There is no one program or methodology that will own the future. People are not the same and their needs are not the same.
There needs to be a variety of programs and options available to meet people where they are.
We need to engage people at their entry point and hopefully help them find an interest in taking control of their financial futures.
Financial literacy is more than knowledge alone. It is a set of skills, and even those skills will continue to change as the financial system evolves.
There is both unprecedented need and unprecedented opportunity. Whether you are involved with financial literacy as a vocation or as a consumer, it is an exciting time. The future is wide open.