The Problem With Financial Literacy—And A Proposed Solution

The problem with financial literacy is that it gets off on the wrong foot. The very moniker is condescending, implying that those it serves are financially illiterate, that they have no idea whatsoever how to use money.

Thus, in addition to condescension, we must add inaccuracy to the list of financial literacy’s foibles, because having a lot of money certainly is no prerequisite – or guarantee, as it so happens – for understanding how it works. Even the poorest of the poor are embracing entrepreneurship through the advent of micro-finance to raise their standard of living from critical to stable. Even the 10-year-old kid buying a candy bar at the corner store is successfully completing a transaction. And even the 50-something who spends 110% of his annual income with the aid of a home equity line of credit may be demonstrating a more dangerous lack of money mastery than those generally labeled financially illiterate.

And besides, who among us is quick to embrace a solution that requires the admission of complete ignorance?

A person leads a finger on the lines in the book, but instead of letters only question marks on the page in the textbook
Financial IlliteracyGETTY

We shouldn’t be surprised, because there is a long and storied history of paternalism exhibited by those who’ve reached self-proclaimed mastery across the span of personal finance instruction. Stock brokerages horded information and sold it for a premium prior to the introduction of low-cost brokerage firms and mutual funds, and the remnants of that still exist today, as many still purposefully use industry jargon and proprietary language to lead investors to the conclusion, “Well, I guess I’d better work with you, because I have no idea what you’re talking about.”

At the other end of the spectrum, the personal finance “gurus” who claim to serve the 99% are just as culpable. They use name-calling and intimidation to motivate their followers, thereby only attracting those who are truly at the end of their financial ropes. More schtick than substance, their “advice” is riddled with conflicts of interest and too often objectively misguided.

Unlike these household names, the financial literacy movement, I’m convinced, is well-intentioned. But regardless, it’s been deemed “an epic fail in America.” So what’s a proposed solution? This is just a start:

1.    Refrain: First, we need to eliminate the whole condescension and judgment vibe. We start by acknowledging that none of us knows it all—and more importantly that none of us acts on 100% of what we know regardless. Because personal finance is more personal than finance, we’re *all* prone to err on the side of spending that appears to improve our present rather than investing to help secure our future.

Therefore, money management is more about mistake minimization than the pursuit of perfection, and this applies just as much to those who possess the knowledge as it does to those who lack it. Let’s drop the us-and-them dualism and acknowledge that we all fall somewhere on a continuum—from those who are cashing unemployment checks to those who are buying a home for the first time to those who are deciding between a Roth or traditional IRA to those who are blessed with the challenge of minimizing their taxable income through a variety of deferred compensation arrangements.

Lastly, to all high-horse, holier-than-thou personal finance gurus: STOP CALLING PEOPLE STUPID. I don’t care about your questionable claims that your “tough love” schtick works. It’s simply unkind, and it’s not evidence of the fruit of the Spirit you claim as your Guide.

2.    Reengage: Once we’ve eliminated the patronizing barrier between teacher and student, it’s time to reengage with a touch more humility and vulnerability. I’ve always loved the example set by Carl Richards, a genuine financial authority and New York TimesNYT columnist, who told the story of the biggest financial mistake he’d ever made. If the comments were still live, you’d see that he actually faced a backlash from a number of financial professionals—but his vulnerability actually endeared him to his audience, compounding his reach and deepening the impact of his counsel.

A coalition of tech geniuses, financial advisors, and behavioral economists might be giving us an example of what this reengagement could look like in the future through the creation of a high-tech nonprofit platform powered by evidence and a host of experienced and educated Certified Financial Planner™ practitioners. It’s called AdvisersGiveBack, and they invite those with questions to receive “goal-based action plans” from “real, unbiased experts,”—oh, and “at no cost.” The Foundation for Financial Planning has also been providing solid pro bono financial advice for more than 25 years.

But this is where I must call on my fellow financial advisors: We can’t complain about what financial literacy lacks if we’re not willing to be part of the solution. Personally, I feel a sense of conviction that when we are well compensated helping those  blessed with means, we need to also dedicate a non-trivial portion of our time to helping those in much greater need.

3.    Rename: And yes, I believe we should rename what is a mistaken moniker.

In the event that you thought I might submit an entirely new name that I received etched in stone by an unseen hand, I cannot. I can, however, suggest that a couple serviceable phrases for this good work already exist—phrases that don’t do any inherent damage to the cause they serve: financial wellness and personal finance.

There are those who’ve sought to slice up the various gradations of money mastery with numerous and descending titles: family office, wealth management, and financial planning, for example. Somehow personal finance, financial wellness, and financial literacy feel stuck on the bottom of the pile.

But it’s all personal finance, and financial wellness is the goal for all. Here’s to its continued, and improved, pursuit.

Please note, I do not want to see the work of the financial literacy movement stopped—and nor would I want any of its dedicated workers to feel that I have a quarrel with them. Indeed, I consider myself to be one of them. I’m with you and for you and only believe that it is through a greater coordinated effort, and a touch of rebranding, that your aspirations can be better pursued.