Arguments for and against financial literacy education

I ended last week with 3 fairly statistics-heavy articles (Bernheim et al., Tennyson & Nguyen, and Peng et al.).  It was nice to have a bit of a mental break after tackling these articles (if you can call travelling with a 1 & 3 year old a break!!).  I decided to jump back in with a shorter article that contained fewer numbers (and, yes, I am shocked by this as I love Math and am usually a numbers person).

I looked at Arguments for and against financial literacy education: where to go from here? By Liezel Alsemgeest.  While there were a lot of good discussion pieces brought up in the article, I was left a bit disappointed by the for and against arguments.  I was hoping for the article to be a bit more of a comprehensive list than what I got (but I guess that is fitting when I opted for an “easy read”).  In summary the article establishes the for argument by emphasizing the need for improved financial behaviour to combat “…the credit crisis, consumer over-indebtedness, and bankruptcy…”.  The against argument brought up the concern for a “one-size-fits-all” education for a subject that every individual will manage in their own way and concerns over the effectiveness of personal finance education. Another point brought up in the against financial literacy education argument is that education can create a false confidence that leads consumers to think they know more about finances that they actually do, causing them to get themselves further in debt.

One of the things I think the article did well was present a more realistic expectation about what can be expected from providing financial literacy education.  She recognizes that a person’s financial decisions are more complex than simply cognitively understanding the finances: “The first and most important starting point would be to settle on the notion that blaming financial illiteracy as the sole culprit of the global financial credit crisis is naïve”.  The article also recognizes that family influences and economic socialization may outweigh the efforts put in by educational institutions to teach financial literacy.

Hill climb

At this point I am feeling that there is an undeniable need to change the economic socializations and the way money is viewed by our culture.  It is a view that makes me feel like I am at the bottom of a valley when I need to climb a mountain to accomplish something as complex as financial literacy and teaching future members of Saskatchewan society to live debt-free. We have become such a ‘buy-now, pay-later’ society that we are not used to delaying gratification for anything anymore.  Having phones with instant access to an endless amount of information and services isn’t helping with this shift in lifestyle and I think this is a big part of why Canadians (as well as others throughout the world) are finding themselves in a financial crisis. I think this is also important to remember when we look at the results of studies gauging whether personal finance education works- there will be a lag in effectiveness.  Changing spending habits won’t happen immediately- as was shown in the Bernheim et al. article- there was about a 10 year lag period before results were noticed.  This makes we feel that time is important and we need to start now to benefit our Saskatchewan youth and work to change the mentality around spending.

This article brought up an interesting point about the root of the debt problem.  She suggests that a lack of financial literacy may not be the main part of the problem, but instead an access to too much debt.  Is it possible that we are facing a lending problem rather than an education problem? “The severity of indebtedness seems to increase as access to credit increases”.  I think this is a valid argument that needs to be explored- and perhaps taught to individuals as part of a personal finance course.

A term I encountered in this article that I was not previously familiar with is ‘predatory lending’. I think it is a fitting term that the general public would benefit from using so that access to money isn’t always seen as a good thing and people will learn to protect themselves from overspending.

“The basic consumer financial equation comprises money that an individual generates throughout his/her lifetime, as well as spending either more or less, which would result in either debt or savings.”  This quote from the article made me laugh at just how simple of a concept spending is and just how complicated we have made it in our society.  We don’t necessarily have a money issue in our society, but instead a psychological and social issue.

This article definitely reminded me to proceed with caution and not expect mandated personal finance education to be a simple solution to a complex problem.  I do not, however, think that this means that pursuing personal finance education in Saskatchewan is not a worthwhile venture, I just think it is important to keep realistic expectations about the outcomes and not immediately expect a debt-free society.  Social norms, such as spending, take time and continued effort to change.



“The gulf between the knowledge, comprehension and skills of most American adults and those needed in today’s market cannot be bridged by financial literacy education.” –Lauren Willis, Associate professor of Law, Loyola Law School, Los Angeles




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