The Financial Literacy Problem


An SEC study published in 2012 found that “U.S. retail investors lack basic financial literacy,” “have a weak grasp of elementary financial concepts” and “lack critical knowledge.” A 2015 study of financial literacy that covered adults in 148 different countries found that we rank 14th, just behind Singapore and the Czech Republic and slightly ahead of Estonia and Bhutan. Only 57% of the Americans surveyed could pass a basic financial literacy test.

Financial illiteracy promotes financial delinquency.  There are three parts to this problem. The first is that historically, there has been very little attention given to financial education in this country. A 2012 study of financial literacy among teenagers indicated that one in six failed to reach baseline proficiency. Even today, only 17 states require any form of personal financial education in high school, according to the Council for Economic Education, and California is not among them.

Another part of the problem is that becoming financially literate requires mastering a range of technical information that is boring, uninteresting and inaccessible to most people. The Financial Services Industry has done nothing to solve this problem and, in fact, has made the problem even worse. Its use of jargon and its love affair with complexity has made the topic of personal finances seemingly impenetrable. It doesn’t seem to want people to understand how money works.  The industry likes maintaining its air of mystery.

The third and most difficult part of the problem is that people in general are not wired to be good savers and judicious investors. Academic researchers in the area of behavioral finance have documented this problem exhaustively over the past several years, but none have done much to recommend solutions.

Financial illiteracy is a major societal problem.  The lack of financial education amid the population at large affects each one of us personally no matter our individual level of knowledge. The problem cannot be solved simply by making more information available to people. There is no shortage of information about investing and personal financial management. The problem is that most of the information is useless when it comes to knowing how to apply it. It may take the form of academic articles that are far too technical for most people to understand; it may be sales literature masquerading as advice; or it may be the talking-head type of offering on a TV channel like CNBC, which is generally worthless and usually designed more to entertain than to educate.

With our soup-to-nuts educational approach to sustainable homeownership, and our holistic approach to shepherding people toward making sound decisions based on comprehensive financial planning, Pure Hearts R Us is dedicated to being part of the solution to the problem of financial illiteracy and delinquency.  Our Youth Financial Literacy events can put children and their parents alike “on the yellow brick road” leading to the Emerald City of financial health and well-being.  And our How Money Works workshops can expose the “wizards of Wall Street” as simply the “man behind the curtain” manipulating a few principles and concepts of wealth-building that are just as available to the rest of us on Main Street.

We don’t have to be financial wizards to control the forces of our personal economics.  We just have to have a grasp of what is going on around us.  At the end of the day, when the smoke clears, financial literacy is mostly about dispelling the myths and illusions that have been created by a self-interested industry and shining a light on what turns out to be mainly common sense.

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