Financial literacy’s reach and momentum are impressive. The movement continues to make inroads into needed areas and gain steam as a movement. Its proponents have created an untold number of programs and opportunities for participation. In the realm of the political and the practitioners, the movement is now a mainstream effort.
But financial literacy is being driven from the top. In many ways, it’s a solution to a problem that the masses don’t even know they have. It’s an answer to a question they haven’t asked. They don’t know about it, and if by chance they do, they don’t think it applies to them. Financial literacy has a technical problem.
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The Benefits of Financial Literacy
Financial literacy is a potential solution — at least partially — to the socioeconomic gap. People’s use and understanding of money either helps them to advance or holds them back, depending on the outcomes of the decisions they make involving their finances.
Financial literacy helps them make better decisions and move in the direction of being in control of their financial lives instead of controlled by their financial lives. In the arena of social good, it has vast potential.
There’s no valid argument against improving financial literacy. It could potentially benefit nearly everyone.
Certainly no one would be harmed as a result of making better financial decisions. People at all walks of life could potentially do better. But the movement has the greatest potential for society’s most marginalized. Those who struggle financially on a daily basis are potentially the greatest benefactors of improved financial literacy, but for the most part, they don’t know it exists. Nor are we reaching them, in many ways.
Problems With Reaching an Audience
Financial literacy’s advocates are numerous. Academics produce a steady stream of research that continues to expand our understanding. Organizations produce programs and provide education at levels across the spectrum. Personal finance writers share their experiences and encourage followers to strive for better. But the audience is limited.
We have a forced audience. Students are increasingly required to have at least some exposure to personal finance topics. This is a good thing; it should help the up and coming generation.
We also have a voluntary audience. Many people seek out financial advice, often regarding a specific crisis or situation that they’re currently facing. Some are just tired of the struggle and know there has to be a better way.
But the marginalized people who don’t have much hope aren’t being reached in significant numbers. They’re not the audience of those writers. Nobody’s reaching them, save some smaller local efforts.
And the problem continues as you move up the financial spectrum. The working poor benefit less from financial literacy efforts than those above them do. This is a problem.
Other than some students who are forced to participate, financial literacy efforts are failing to attract those who would benefit the most.
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This is our technical problem. Our audience isn’t interested. They’re not interested in saving money they don’t have. They’re not interested in investing in the stock market. Or insurance. Or risk management strategies. They’re not interested in things that they don’t see as applicable. If you’re struggling to pay rent, all these fancy financial concepts simply aren’t relevant.
They’d like to do better financially, but they don’t think we have the solution to their particular problems. Nor is our approach going to win over many converts. Financial literacy is extremely technical. Overly so. It’s killing itself in the details.
If we approached driving the same way we approached financial literacy, no one would go anywhere near a car. The roads would be empty.
You’d have to understand basic engineering principles and a fair amount of theory. We’d require people to have a good understanding of internal combustion engines, as well as up and coming alternative propulsion systems. You’d need to understand braking systems and the functions of their components. And that’s the easy stuff. You haven’t even started on transmissions and power management.
But that’s not what most people want. Most people don’t want an engineer’s understanding of their automobile. Or any other method of transportation. They want to be able to reliably get from Point A to Point B.
What if that’s also what people want from their finances? What if they don’t want to know how to design and build a complete financial system and understand each and every technical challenge and pitfall?
What if, financially, people just want to be able to get from Point A to Point B?
Being sick doesn’t make you want to become a doctor. Struggling financially doesn’t make you want to become a financial adviser. But that’s how we treat it. We take those who face financial challenges and try to turn them into their own financial advisers. We’re making engineers out of people who just want to comfortably get from Point A to Point B.
The problem isn’t just within the sphere of financial literacy. It’s our whole financial system.
Financial advisers make recommendations and have clients sign pages-long documents detailing the discussion and their understanding of the risks, which everyone knows they don’t understand. The legal requirements of financial products are a joke. We need to reform the system.
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The Bottom Line on the Problems of Financial Literacy
We need to reach people we’re not reaching. But we won’t reach the people we need to reach with programs that try to turn them into financial engineers.
As an industry, we need to do a better job of delivering prescriptive solutions. We need to help people to do better. But we don’t do that by offering something they can’t or won’t use.
Instead, we need to step back and deliver a financial literacy user experience that helps people get from Point A to Point B financially in the same way they get from Point A to Point B geographically. We need to fix our technical problem.