I read a story recently about how American kids are statically on par with financial literacy skills. In truth, I thought our kids might be worse than that. Still is bears some thinking about. The article pointed out something that I had heard a few times before that financial education isn’t always very effective. My experience with financial literacy was kind of brutal, but the one lesson I took from it is, there are a few principles that always apply but that financial devices change, sometimes rapidly, and you can’t always rely on either the people you trust to understand the changes or that you can get clear, concise, high-quality information.
This story made me think back to my own financial education, some of which was useful and others outdated by the time I got a chance to use it. The basics will probably always be the same: spend less than you make; avoid debt whenever possible; some debt is good debt but should be taken out prudently; etc.. But others really did change. The Vanguard 500 fund was created when I was a boy, but its rise really didn’t happen until I was an adult, which created a change in investment strategies. As an adult, online banking and shopping has taken off in ways that really were unthinkable in the early- to mid-80’s when I was in middle and high school, was being taught to write a check and peruse supermarket flyers in the name of financial education. Deregulation was just really getting rolling.
Perhaps the biggest changes that happened were proliferation of credit cards (and all the related changes that entailed) and the rise of the 401K over the pension. But these were big changes which basically I didn’t fully know or understand, and I’m not entirely convinced that the responsible adults around me fully understood them either. This isn’t a knock on them, but it is a knock on how these things are rolled out, in other words, how financial education really happens.
The reality of credit cards is a good example. As a kid, credit cards were harder to get, and those chosen to have them had to demonstrate some measure of income and responsibility. When I was in college, the idea of approving a credit card based upon my potential earnings as a college student/graduate was still kind of new. In truth, I wasn’t ready for it, but at the same time, no one was going to say that. This is the insidiousness of having more choices and shouldering more risk in the name of innovation.
Surely there is personal responsibility, but putting someone in a dark room and telling them don’t bump into the furniture is trying to have your cake and eat it too. Are there people who can navigate it without problems, sure. But even a casual glance at the debt situation in America will lead you to see that those are more exceptions rather than rules. Part of this is financial education. Part of this is experience. And part of this is having trustworthy, succinct, and up-to-date information available. This last part is the hardest, mostly because of the way we think. We often make assumptions about what others know, usually based upon what we know. For anyone who has had to train a significant number of people in something, like a job function, and to have done so successfully, you know making assumptions are dangerous. Knowledge is not a stable commodity. The basic knowledge of different people and different generation vary wildly.
As I mentioned earlier, I had my problems with debt, and in the long view, that experience did help me. That being said, I don’t advocate doing things exactly the way I did it. I do think some student debt is okay, but you have to seriously consider it. I’ve talked about that earlier too.
All this is to say while I think the idea of financial education in this country is good, I think most programs are not yet developed to fully handle the situation here. Beyond that, there are serious problems in how we look at money, which is too often ideologically on both sides. We, as individuals, all need to take some time to really come to grips with the reality of money, of the emotions of money, and the limits of money. The same is true for the country as a whole, but starting with ourselves at least gets us moving in the right direction. This being said, I don’t have a good program to offer. That doesn’t mean I won’t, but it does mean I see the problem and it’s food for thought.