# Financial Literacy Programs

How Financial Literacy Programs Can Do More Harm Than Good

I thought it might make for some interesting discussion here - particularly in that it related to mathematics education.

In summary, the author seems to be arguing that the evidence suggests that financial literacy programs (or at least those studied) have little to no impact on students' financial behaviour. He furthers his argument by taking the position that a person's financial status has little to no relevance to his or her own decisions and is instead predetermined external factors - such as being born into poverty.

For the record I disagree with a lot of what is said or implied in the article.

Borg
Gold Member
Consumers generally do not serve as their own doctors and lawyers and for reasons of efficient division of labor alone, generally should not serve as their own financial experts.
I have to disagree with a view like that. Should a person contact their doctor every time they decide what to eat for dinner? Of course not - even though those decisions can greatly affect your quality and quantity of life. A doctor is there to give general advice and to fix problems that you can't handle yourself. It is up to the individual to educate themselves in order to make the day to day decisions because financial well being is often due to those decisions.

Several of the examples that I read talk about being born into poverty or coming down with an expensive illness. From my experience, most people have financial difficulty due to their own poor choices. I have pleaded with people who insisted that they couldn't contibute to their 401K because insisted that they couldn't do without the extra 1 or 2 percent of after-tax money. So instead, they missed out on the equivalent of an 8-10% raise with the employer contribution. It doesn't take a financial expert to figure out what that means to a person's long-term financial security - just a small amount of common sense. Unfortunately, this appears to be pretty common. The last set of statistics that I remember seeing showed a median of $50,000 in 401K assets for persons between 50 and 60 years old. The people in the lower half are headed for financial disaster and will have to work well beyond retirement age. Choppy and scottdave scottdave Science Advisor Homework Helper Gold Member I can follow the thought process that they used to arrive at the conclusions, but I also do not agree with all of their conclusions. russ_watters Mentor mheslep, Dr. Courtney, jim mcnamara and 3 others Vanadium 50 Staff Emeritus Science Advisor Education Advisor 2021 Award It is difficult to put into words just how abhorrent I find the idea of advocating to keep a populace ignorant in order to justify a political action based on their resulting failure. Bah. Why should we allow the proles to make any decisions at all? They'll only screw it up - better to have we wise men decide for them. mheslep and russ_watters Dr. Courtney Education Advisor Gold Member I've always viewed information and education as providing opportunities for better decision making and outcomes. They are never a guarantee of better outcomes. If we demand a guarantee of better outcomes to take certain actions, I don't think we'd take many of those actions. russ_watters MarneMath Education Advisor I don't think the author is saying other people should make decisions for you, rather that financial literacy, on it's own, won't allow someone born poor escape poverty. My parents were a frugal bunch. All my brother and sisters lived in a 2 bedroom house in the southside of Houston. We all worked to help provide for each other. Nevertheless, they remained poor, because when all you're able to save is 100 dollars a month, and your youngest daughter gets a genetic autoimmune disease, that 100 dollar saved quickly becomes negative hundreds per month. If it wasn't for my financial success, my parents would still be in thousands of dollars in debts with half their paycheck going to pay off that debt per month. As someone who grew up immensely poor, I would also say that their story isn't unique. Are there people who are poor because of consistent bad choices, sure. Are there people who are poor because one bad choice? Yep. Either way, financial literacy is rather meaningless if at the end of the day your savings account is wiped out once a year from an unforeseen events that tend to occur in this thing called life. In the end, I think the author's main point was that sure do financial literacy but don't expect it to be the end poverty and don't use it as a justification for your apathy. Borg Science Advisor Gold Member In the end, I think the author's main point was that sure do financial literacy but don't expect it to be the end poverty and don't use it as a justification for your apathy. The author also stated that financial literacy programs could actually hurt people financially by making them over-confident in their abilities. The problem is that any subject of learning can theoretically have this effect at some point in a person's education. The answer shouldn't be to cut back at that point. MarneMath Education Advisor I work in finance and I don't disagree with that assessment. People read a little bit about finance and pick their own stocks. Often times you can find them bragging online about how their genius got xx% returns which is so much greater than their previous finance manager could do. Often times, upon a closer inspection, their risk portfolio is highly skewed. Naturally riskier portfolio should generate that kind of returns, but most clients should not subject themselves to that kind of leverage. Nevertheless, I agree that that shouldn't discourage people from learning in general. However, I said main point. I'll admit his sub points and arguments may be shaky as stated. russ_watters Mentor In the end, I think the author's main point was that sure do financial literacy but don't expect it to be the end poverty and don't use it as a justification for your apathy. I think the author stated his main point in the title/subtitle of the article and later highlights It with "most importantly." It most certainly did not advocate for providing/improving financial literacy. Indeed, I see nothing in the article even rising to the level of begrudging acceptance of others' efforts to improve financial literacy (among the poor). MarneMath Education Advisor The author did stated that financial literacy makes sense when an individual has income to apply the principles of it. russ_watters Mentor The author did stated that financial literacy makes sense when an individual has income to apply the principles of it. Right; that's why I said "among the poor". The article is about providing financial training as pertains to its impact on the poor. MarneMath Education Advisor The author provided support as to why they believe that financial education is ineffective towards underprivileged individuals. You're more than welcome to present your evidence of the opposite. russ_watters Mentor The author provided support as to why they believe that financial education is ineffective towards underprivileged individuals. You're more than welcome to present your evidence of the opposite. You're changing the subject and asking me to prove something I haven't claimed. [late edit] I'll try to be more explicit: I didn't object to the author's secondary argument - that since financial literacy training for poor people doesn't work it should not be attempted - because I didn't feel sufficiently strongly enough about it....though I do actually disagree with it. I did focus on and object to the author's main point because I find it morally repugnant. For your part, it is fine to agree or disagree with whatever point for whatever reason, but I would appreciate it if you would try to focus more and address both the author's and my arguments for what they are. There is no need to try to twist my or the author's arguments to fit your view; just make your own point separate from them. Last edited: russ_watters Mentor A more detailed take on the OP: My own opinion on financial literacy is simply that a lack of financial literacy is a problem and that anything that people need to become productive members of society that can be taught in school should be taught in school. The fact that financial literacy courses don't work (caveat: I haven't dug deep into the studies yet) but math classes do implies to me only that we need to design better financial literacy classes and/or pound them in by annual repetition and progressive growth like we do with math classes. It doesn't imply that we should just give up on the idea/people. That's it -- that's all that was really required for a response to the general topic. Unfortunately due to its take on the issue, the article linked in the OP requires opening a moral Pandora's Box and examining the moral foundation of Western Civilization. So here's some of the moral foundational ideals upon which Western Civilization are based, as relevant here: 1. Education is a good unto itself and a responsibility of the state to provide and right and responsibility of the people to receive and take advantage of. 2. People are in some part responsible/accountable for the outcomes of their choices/decisions. 3. People have the freedom to make their own decisions and live with the outcomes. 4. People are assumed to be equal in the eyes of the state, but that does not mean they are equal in ability or luck nor therefore is any particular outcome guaranteed by the state as a result of their choices or luck. The article argues against all of these fundamental moral principles of Western Civilization and for good measure adds that it is ok to purposely harm people and misrepresent the arguments of others in order to promote your vision of a common good. Or to say it another way, the author would rather deny people an education in order to forward a political vision based on their resulting failure than even deal with the logical consequences of the outcome of their (assumed) failure after providing them an opportunity to succeed. So when I say have difficulty putting into words just how morally repugnant I find that article, I really mean that -- it's eye-popping/jaw-dropping moral terpitude. Science Advisor Education Advisor Financial literacy courses offered in schools are fine especially for the more advanced services that are available but the basics should start at home well before HS. https://www.americanfunds.com/indiv...kids-the-value-of-money.html?cid=sy_tab_11427 I certainly agree, but there is an element of the blind leading the blind that needs to be considered. As a case in point, from within that linked article: Show, don’t tell The power of compounding is a fundamental lesson your child should learn. There’s no better way to demonstrate this than by running the numbers together using a compound interest calculator, Kobliner writes. Try this example: If your child set aside$10 a month starting at age 10 and her account earned 7% a year, she would have $69,111 by the time she turned 65. However, if she waited until age 20, she would have just$34,290.

Looking at these numbers, there seems to be a problem. The first number seems reasonable (although I'm not sure who's offering a 7% interest rate these days). If I calculate it out, putting away $10 every month into an account that pays 7% interest for 65-10 = 55 years, I get$79053.18 (if the interest is compounded daily) and $71704.82 (compounded annually). So the quoted value of$69,111 doesn't seem too far off to me - maybe there's a few months knocked off to account for the daughter being half way to 11 or something.

But it's that second part that jumped out at me. $34290 at age 20? That would mean squirreling away that$10 each month for only ~10 years. For that I get between $1742.87 and$1720.19.

I can't help but wonder if instilling financial literacy starts with basic numeracy. I'm not saying people necessarily need to be able to perform such calculations in their heads. (I certainly didn't.) But there's a difference between plugging numbers into a calculator and understanding the meaning behind them that comes with repeatedly working with them.

gleem
I would leave investing and other such financial activities for a course if offered. Parents can instill the everyday basics like ' Do not spend more than you have or can afford. Avoid borrowing as much as possible explaining its cost . Prioritize your purchases, you can't always get what you want. Put something aside for emergencies or the future. Most things in life are not free and become less so as you get older. All these are simple concepts and can be reinforced through childhood providing a strong financial responsibility foundation.

russ_watters and Choppy
russ_watters
Mentor
The first number seems reasonable (although I'm not sure who's offering a 7% interest rate these days).
It's not an interest rate, it is [roughly], the average growth rate of the stock market. It is predominantly where retirement saving should be, which is the reason for the age range selected (65 is roughly when people tend to retire):
http://www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/
But it's that second part that jumped out at me. $34290 at age 20? That would mean squirreling away that$10 each month for only ~10 years. For that I get between $1742.87 and$1720.19.
No, not at age 20, from age 20. The point of the exercise is to demonstrate the importance of starting early.

These are indeed some of the most critical lessons for people to learn with respect to how to save for retirement.
1. The power of compounding interest/growth.
1a. The growth/reliability of the stock market.
2. Start early.

Here's a good book discussing a lot of similar, basic but powerful advice:
https://www.amazon.com/dp/0547447256/?tag=pfamazon01-20

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Choppy
WWGD