Sometimes in life we side-step around the things that we don’t want to acknowledge. We seek out resources that confirm our beliefs and avoid the ones that challenge our thinking. For me this has been avoiding Lauren Willis’ article Against Financial Literacy Education. One reason could be that it is a long one, but I think that deep down I don’t want to know her arguments as she likely has good reasoning for views opposite my own. Despite inconclusive evidence that I have explored so far I have still managed to hold on to my view that students need to learn about financial literacy and have personal finance education be a requirement to graduate. My pre-reading predication is that I am going to meet evidence in Willis’ article that doesn’t align with my current views.
Post-read I have managed to hold on to my views that financial literacy education is still needed- but we may need to modify the way we are doing things. Willis discusses whether it is plausible to expect financial literacy education to create a free market and increased consumer welfare, concluding these are not realistic goals. She starts out her article establishing that what is being done to teach financial literacy currently is not working. She even emphasises the fact that “for some consumers, financial education appears to increase confidence without improving ability, potentially leading to worse decisions”. I think that the most important message I am taking away from the Willis article is that we cannot expect knowledge alone to change future financial behaviour.
At this point in my study of the research I am starting to question all of the results surrounding the effectiveness of financial literacy education. I have had to split education effectiveness in to 2 categories in my mind: effect on knowledge and effect on behaviour. Willis points out that many studies in the area rely on self-assessment and participant self-assessment is not known to be accurate. Willis tells us that “people overestimate how much they have learned and how much their future behavior will change”; which can contribute to the inaccurate results provided on self-assessment studies. It is also hard to expect accurate results from optional-response studies as the individuals likely to respond usually possess certain traits and individuals who believe they are doing better in financial planning are more likely to respond.
Anyone with a belief in conspiracy theories would love Willis’ point that many of the supporters of financial literacy education are companies that profit from consumer delinquency (suggesting that they support financial literacy education to create a false over-confidence that leads to worse financial decisions and more profit for themselves). Perhaps I have too much faith in these corporations, but I don’t think that this is a completely valid point. I think that companies in the financial services world fund education on financial literacy in order to create more informed consumers of their products rather than intentionally trying to create overconfident consumers that will ultimately pay more in service fees.
Willis also brings up the concern that financial literacy education is chasing a moving target that it will never be able to reach because by the time we have educated our students the target will have moved and the financial market students are living in will be different. I think this isn’t an indicator that we shouldn’t be teaching financial literacy to our students, but instead that we need to change HOW we are teaching it and what skills we are focusing on. As with any area of education students need to be taught to be critical consumers of information and learn the basic knowledge pieces of that area of study. As a science teacher I am keenly aware of this. Science, like personal finance, is an ever-changing world, but there are some scientific basics that my students need to learn to create a foundation of knowledge they can build upon in the future. Students also need to be able to be educated consumers of scientific (and personal finance) information using their base knowledge to evaluate new information and consider the validity of it by looking at its source. Students, both in science and finance, need to think critically about where the information they are consuming has originated from and consider what the intent of that publisher was. For example, they should learn to be critical of low introductory rates on credit cards, mortgages, etc. because they are designed to make money from consumers once that introductory rate has expired. Students need to learn to be critical of things that are ‘too good to be true’ because they often are. I also think there are basic financial literacy skills that stand, even in an ever-changing financial market. Our students need a strong foundation in these basic skills in order to learn future information about changing financial products.
Willis spends much of her article discussing how complex the finance world is and uses it to justify why she thinks we shouldn’t be teaching financial literacy in schools. My argument for Willis is how can we ever possibly expect students to understand these things if we don’t teach them the basics and give them a scaffolding of knowledge to add future knowledge to? She may say that we don’t need to teach it to individuals, but that they should instead trust a financial planner, but I think that both need to be used together. I think a better goal for society is to have educated individuals working together with an affordable, independent financial planner to plan their personal finances and work towards planned spending and realistic financial goals. Within the article Willis bring up the concern that a readability assessment of credit card holder agreements are written at a fifteenth-grade level or higher despite the fact that almost half of the adults in the U.S. are unable to read at above an 8th-grade level. To me this says that we need to be teaching these skills rather than leaving individuals to learn by reading and comparing products on their own (and possibly that there are still some serious concerns with reading levels in the U.S.- but that is an entirely different concern I will not address here). I also think this point brings to light the need for companies to ensure the information about their products is accessible to its users.
Being that we are now in the midst of campaigning for the next federal election it has made me think about finance skills beyond the personal level. Who is educating our politicians in finance skills? Is it any wonder that we have federal budgets continuously running a deficit when we have households with similar results? When we live in a culture that doesn’t address finance skills until post-secondary education it seems like we are doing too little too late to try to teach complex behavioural skills. I feel as though our whole approach to money management in our society needs to improve and these conversations need to be started in grade-school.
The final thing I would like to address from Willis’ article is the concept of information overload. When consumers are presented with too many options they are unable to clearly understand what they want and what they are looking for. She states that consumers choose not to engage in financial decision making when there are too many options. I can completely understand this as I recently sat down with my sister-in-law to help her make a decision about which health insurance plan was best for their family as they own a family run business and no longer have health coverage. She had been looking at the different plans for many months and had been unable to decide on which one was best suited for their family’s needs for the lowest premium. One of her main concerns for what she needed in a plan was ambulance coverage to bring her to the hospital to give birth (as she was pregnant at the time and lives in a remote community). It turned out that she took so long to decide that the wait time after starting a policy to have ambulance coverage wasn’t going to be long enough to meet her due date. She had spent so much time comparing plans that she would have been ineligible for coverage for one of the main things she had been considering. I do agree with Willis that information overload can lead to indecision when there are too many options/variables to consider or decisions that lead us to comfortable products- not necessarily the ones that are the best for us.
I find Willis’ suggestions to improve the financial world in her conclusions a bit off the mark. In her article she insists that financial education is not effective and focuses her solutions on regulation of the products available and how they are used in the market. While I can agree with some of her points, such as the benefit of having affordable, independent financial advice, I do not agree that there needs to be excessive government regulation of financial products. She argues that in order for consumers of financial products to be successful we need to simplify the products being offered to them to reduce the choices. Maybe I am biased as an educator, but I don’t think this is the case. I think that if individuals have a general knowledge of the range of products out there the average citizen can navigate a successful path through the world of personal finance. Willis really seems to take the responsibility away from the consumer and place it upon the companies offering the products and I think there needs to be a balance of responsibility with both.
Willis also suggests the general public cannot understand the complex world of finance, but fails to consider that the financial world is seemingly complex due to the fact that we offer so little education in the field. We don’t talk about finances and thus the terms and concepts remain a mystery to most. If we build these concepts in to our education at every level then the complex world becomes accessible. I am not naïve in thinking that all of society will be able to understand all of the details of complex calculations, but I do think it is possible to give the average Canadian (American) the tools needed to be their own financial advocate and teach them where to seek additional financial advice. We need to build the scaffolding in grade-school that they can use to build knowledge and change their own future behaviour.
“Financial literacy provides the foundation to build wealth and fully participate in the economy…. By understanding basic financial principles and putting them to use, you can be on the road to improving the lives of your household and your community…” – NAACP Financial Empowerment Guide