Is The Financial Literacy Movement Just an Illusion?

Crash and Burn Is The Financial Literacy Movement Just an Illusion?

Let’s start with some basic history about the financial literacy movement;  in the United States, the movement really started to pick up steam in 1995.  That’s when former Chairman and CEO of Ford Motor Credit, William E. Odom, was credited with the concept that led to the formation of the Jump$tart Coalition.  And no; that’s not a typo in their name.  The S they use is really the key for money $!

H. Randy Lively, former President and CEO of the American Financial Services Association, then organized the first meeting of what was then called the “Partnership in Personal Finance and Consumer Credit Consortium”.   By 1997, the Jump$tart Coalition was officially established as a non-profit organization with Mr. Lively as its first president. JumpStart’s (sorry, I can’t keep typing the money key) mission statement says they strive to prepare youth for life-long successful financial decision-making.

Two Decades Later

In honor of Financial Literacy Month, let’s see how well the “consortium” of bankers, creditors, governmental agencies, and non-profit educators have done in preparing our youth for life-long successful financial decision making over the almost 2 decades they have been leading the charge of the so called “financial literacy movement”

In 2003, there were a record number of 5.5 personal bankruptcy filings for every 1,000 people living in the U.S. The previous record of almost 5.0 filings for every 1,000 people was reached in 1998 but it wouldn’t be fair to say that the “consortium” could have worked their magic that quickly.  Let’s check out the numbers for 2012:  Total number of personal bankruptcies filed were 1,271,140 or 3.86 bankruptcy filings for every 1,000 people living in the U.S. according to the American Bankruptcy Institute.

How Should We Measure Success

Ironically enough, success can and should be measured by failure!  As in by how many Americans, despite their level of education, income, and perceived level of knowledge with financial literacy, continue to “crash and burn” financially – year after year.  Even after almost 2 decades of the mountain top screamers yelling “teach more financial literacy”!

You can argue if you want that the numbers reflect the economic reality of our times.   But I would argue that economic research has consistently found that personal bankruptcies are a function of income growth, or lack thereof,  and debt composition; particularly credit card debt, out-of-pocket medical expenditures and debt service.

Why Financial Literacy Continues to Fail

I suppose I could sit here and hurl the proverbial “Molotov Cocktail” and tell you that as long as banks and creditors are part of teaching and financing the financial literacy movement, there is a natural conflict of interest between their supposed mission and what the so called “desired outcome” of teaching financial literacy should be; a financially literate society. Yet, after almost two decades of  leading this movement, we remain a financially illiterate society!

What they are teaching is “Financial Functionality” and yes, it is still part of the system that you must participate in every day and as such, we should know how to navigate it successfully.  But therein lays the argument for why it continues to fail: financial functionality is only teaching mechanics!

Wrong People Leading the Charge

As long as the banks and creditors are leading the charge in the financial literacy movement, they will not push for the one thing that could truly free our kids from the chains of debt that many of us have been enslaved to and that would free our children to pursue their dreams; Behavior and the cognitive science of decision making!

And for this one, I don’t need any experts or financial guru’s to corroborate what I’m saying.  All I need to do is put myself up for your inspection;  college educated with 20 plus years working in credit and financing, made lots of money and by any industry or financial literacy benchmark, I was extremely financially literate.  Yet the pilot in the picture above involved in the  financial crash and burn?  That was me!  So why do we continue to “crash and burn” as a society two decades into this financial literacy movement?

Financial Life Building Skills

Knowing how to balance a checkbook, read a credit card statement, knowing the difference between compound and simple interest, the difference between a negative amortization loan and a fixed mortgage or learning how every single financial product on the planet works doesn’t begin to teach you how to fight the Psychology of Consumerism! This is behavioral my friends – not mechanics!

Knowing how to “pause and reflect” when addressing the question of whether you actually have a problem that needs to be solved with the spending of money is an information processing model and it too is behavioral!

Knowing how to live frugally is an art and behavioral as well because it is tied to the Psychology of Consumerism, Critical Decision Making Skills, and learning how to deal with external influences.  Learning and mastering these behavioral financial life building skills should be a part of teaching any financial literacy curriculum in schools if it is to be comprehensive and life changing! And it should be taught as soon as any child can say “I want”!

What Do You Have To Say

If you want to jump in on the conversation, leave me a comment below. If you like the article and would like to help me get the conversation going, please share it with your circle.  I would love to hear your thoughts…. whether you agree or not!



Comments

  1. Jerry says:

    Lou, great job bringing the whole financial illiteracy issue around to the basic point…behavior. Children are programmed from an early age to want what they see, so it becomes an ingrained behavioral trigger. Financial literacy has to start with parental influence. All to often, the parents are in the same cycle of want. As for needing to recognize that you have a problem with money/credit/debt, it is the same as recognizing that you have an addiction. Rock bottom has to hit you in the face hard, then reality may set in.

    • Ding, ding, ding: we have a winner! You have hit the nail right on the head Jerry; consumerism is, in fact, a psychological addiction. But one you can train your mind to easily defeat by incorporating “pause and reflect” before making any spending decisions!

      These are the things we need to teach our children on the school level because, as you so aptly point out, how can parents who are in that same cycle teach their kids how to combat the psychology of consumerism?

      Excellent comment Jerry and I appreciate you taking the time to leave it for others to read! Thanks :)

      • FamZoo.com says:

        I love the idea of teaching both mechanics and behavioral aspects at the school level. I’m very leery of criticizing the folks who focus on the mechanical, but I like the aggressive prod to expand into behavioral. Parents are essential to the equation – no two ways about it. They have a huge influence on their kids attitudes and they control the purse strings. I believe we can supply parents with simple tools to positively influence the financial habits, behaviors and attitudes of their kids – even if the financial behavior of the parents has been sub-par so far. FamZoo is concentrating on simple software tools that help keep families on track and constantly nudge them in a positive direction. When parents work with their kids on the problem, it often prods them to clean up their own act. Win. win. Software is obviously not the magic pill – it’s just an area where we can help make a dent in the problem with our expertise. This is a big problem with big forces in the opposing direction and it’s going to take efforts on all sides to make a difference. I’d be careful about denigrating any one group’s efforts as a “failure” – individually we’re out matched, but together we might make a significant difference.

        • First Bill, let me say that I have great respect for the time and effort you have put into trying to make a difference with FamZoo and the products you have created.

          Having said that, here’s my response: if we were 10 years into the movement, perhaps I might be leery of criticizing or denigrating (as you say) the folks who have led the charge.

          However, since we are almost 2 decades into this movement, I believe it fair to call it a failure! As for your “together we might make a difference” statement – here’s the response for that one: I reached out to several
          “non-profits” over a month ago to partner with me in going to my daughters elementary school and teaching about financial literacy.

          I sent out emails, made phone calls, and went to meetings. Do you know how many of those were returned? NONE! But guess what? It matters not that they don’t appreciate what I am doing. It only matters that I know what I am doing can
          help hundreds; if not thousand change their lives for the better!

          As such, I will be going into my daughters 2nd grade class for one hour beginning this Friday, and every other Friday throughout financial literacy month, to teach them comprehensive financial literacy.

          If you read Dan Kadlec’s piece about behavior vs. mechanics, what I emphasized with was Brian Page’s statement “Our financial literacy efforts aren’t misguided; they are systemically flawed”.

          However, as I did in my comments with that piece, I’ll pose the same question to you here: Why is it that even college educated professionals or people who Mr. Page himself would define as financially literate, still end up in
          Bankruptcy and Foreclosure or in dire financial straits?

          Here’s the answer (it was a rhetorical question): after almost 20 years of this financial literacy movement, it is what it is Bill – a failure!

          And as this article states; until behavior is given as much, if not more attention than mechanics – the financial literacy movement will continue to fail!

          And we haven’t even begun to discuss the inherent conflict of interest of banks and creditors funding and participating in creating the curriculum for teaching financial literacy!

          Thanks for the insightful comment :)

          • FamZoo.com says:

            The answer is likely the missing behavioral piece as you assert (and as I agreed) – perhaps among other things. Also, we’re up against bajillions of dollars of advertising messages that inundates our kids, so that’s stiff competition. I think behavior and habit-forming are huge – that’s what we’re trying to encourage through repetition starting from a young age. I’m just saying it doesn’t mean that the mechanics are irrelevant. Somebody’s gotta bring that piece too. Kudos to you for going out and making it happen where you can. I wholeheartedly applaud your efforts!

          • I agree with both points Bill and thank you for your kind words. But I have never said in anything I have ever written – to include this piece -, that mechanics is irrelevant.

            I have always advocated for behavioral and mechanics to be taught side by side and therein lays the answer to turning this ship around; they both need to be taught together, not one over the other :)

  2. Great Article Lou…I think it is very accurate to say that the wrong people are leading the charge. As long as banks and creditors are the only source teaching any type of financial literacy, consumers will be chained to the wheel of debt. Financial literacy does, in fact, need to start a home…but let’s be fair to parents…how can they teach their children something that has NOT been taught through the last several generations. I hope to contribute to that change as a credit coach, both for First-time Home Buyers and Young People entering the workforce. Thanks for telling it like it is…if you get a minute check out my new website and let me know what you think…karensimpsonhankins.com

    • Hi Karen. Love the new blog! And yes, just like Jerry pointed out with his comment, I believe schools have to lead the charge because many parents are already caught in that vicious cycle without the resources to get themselves out so how can they begin to have that conversation with their kids?

      Keep up the good work and thanks for leaving a comment :)

  3. Nancy says:

    Hi Lou, powerful points. Yes, I agree financial life skills absolutely needs to be taught in school and in the early elementary years. Teaching young kids how to “pause and reflect” so their actions reflect their values and goals instead of being simply impulsive wants will lead them to not only more financially independent and successful lives, but also far more fulfilling.

    • And isn’t that the point? To make sure they are free to concentrate on building wealth and an enjoyable and sustainable life! Thanks for leaving a comment Nancy :)

  4. Ogechi says:

    You have hit the nail on the head especially in your 1st response to FamZoo. Your post proves something I’ve known all along.I too tried to reach several organizations and got turned down. It’s alright though. The part you mentioned about the psychology of consumerism is the reason I created my own curriculum which focuses on behavior. I am no psychologist but I have worked in a bank for 6+ years. Even the bankers themselves have no clue. As for the adults…..well, you can give(teach) what you don’t have(know)

  5. Thank you for the comment Ogechi. I would love to see and review the curriculum you created. Feel free to contact me. I have been teaching financial life building skills at my daughter’s second grade class every Friday for the month of April and started with “needs and want’s” using Nancy Phillips Zela Wela Kids Series.

    She’s big on teaching life building skills and I believe is one of the people who “gets it”! It’s a great way to start the conversation and I’ll be posting about here very soon.

  6. Having worked in the industry for virtually my entire professional career, the fact is that everything is built around sales chock full of conflicts of interest. Just as you point out, the financial literacy movement is funded by institutions that are driven more by profit than by consumer outcomes. When a banker, broker, or agent has a sales target, this is not the advice business, it is the sales business.

    Until the financial literacy movement extricates itself from the inherent conflicts of interest and turns its focus to unbiased guidance, tools, and information that go beyond simple financial mechanics, it will have no hope of success. Besides that, have you seen some of the literature the movement has produced? Much of it is useless, dead horse beating, re-tread information. Garbage.

    • And you know what’s worse? The media continues to feed into this deception. Journalist cover some of these financial literacy events like they are actually accomplishing something.

      You also have organizations with good intentions that partner with these banks as though they really care about consumers. Specifically, take Khan Academy for instance; they partnered with Bank of America to create a financial literacy series.

      The press release said, “Bank of America and Khan Academy recognize that no matter where you are starting from, the best way to improve long-term financial success is by changing habits slowly, step by step”. Say what?

      The same Bank of America that helped lead consumers into foreclosure and almost helped take this country into a depression, then got bailed out by T.A.R.P. to the tune of $25 Billion. The same Bank of America that just settled a $500 million dollar investor lawsuit with guys on their own team.

      I hope parents, teachers, and communities wake up and see that we have to start teaching our children the 3 pillars of financial life building skills alongside traditional financial literacy. Barring that change… nothing will change.

      Thanks for the great comment Michael.

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