This (Actually Last) Week in Financial Literacy

  • Wall Street Journal article about highly paid professionals living beyond their means led to quite a bit of commentary. Cautionary tale to demonstrate that it is not what you earn but rather how much you save and spend that determines your financial health. Here were a few comments that stood out:

“Peer pressure or, in other words, comparing oneself with others brings lots of sorrow. One is rich when one is free from this. The happiness in frugal (but balanced) living is highly underrated by many.” — Sam Kumar

“I make six figures (barely), but I’ve always lived by the rule to live as if I made half as much as I actually do. Keeps me out of trouble, and yet I still live a comfortable life.” — Adam Hendricks

“Expensive houses are an item that can be cut. When I was a partner with seven other doctors, I had by far the cheapest house. It was a very comfortable residence in a less prestigious neighborhood. Now I am retired and have the last laugh.”—Mark Jordon

“It is not how much you earn. It is how you manage it. My auntie was a working-class Scot and left me a fortune in inheritance.” —Robert Scheppy

  • Why hasn’t the “Quantified Self” in the financial domain helped change behavior (Huffington Post)?

The quantified self health enthusiasts should consider the cautionary tale of the financial services and retirement planning industry experience with “data.” Few domains of life are as quantified as your financial self — you have your credit score, savings and checking balances, 401Ks, stocks, bonds, funds and more aided by countless apps, reports and plans provided by banks, employers and financial advisors all available online, on the phone, in person and at your local ATM. Does the question “what’s your number” ring a bell? However, the abundance of information and data on personal finance hasn’t translated into healthy financial behavior change. There is record low financial literacy, savings rates and retirement planning. EBRI indicates more than 50 percent of Americans have less than $25K saved for retirement. Bankrate.com suggests that nearly 36 percent of Americans 18+ have not even started saving for retirement.

  • Seniors at Rockford (MI) HIgh School required to take personal finance class in order to graduate starting with Class of 2016 (MichiganLive)

“Several districts offer financial literacy programs. Principal Dan Zang said Rockford thought it was important enough to build into the schedule to give students the tools to make solid financial decisions.

“Our students are going to have to take control and navigate very quickly their own finances,” he said about graduates. “We are very confident our kids are academically college-ready but there are so many other components to being ready.”

  • MoneyThink partners with Higher One (Digital Journal); the announcement provided the following specifics:

“This partnership will expand the reach of Moneythink’s peer counseling initiatives and explore how to bolster the use of mobile technologies to reach students.”

  • H&R Block teams with Budget Challenge to reach 200,000 students with the Budget Challenge game (Wall Street Journal)

‘Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers’ financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just in time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker’s mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.”

  • To close the knowing-doing gap with financial literacy, is coaching a better model than teaching (Christian Science Monitor):

It may very well be that our second personal finance hurdle may be best overcome with a “coaching” mentality rather than a “teaching” mentality. When we teach, we show someone how to do a thing until we can see that they know how to do it themselves. Then we move on to another lesson or another person.

In coaching, we start with teaching what needs to be done and then we do the action right alongside the other for a number years or until the individual turns the coached behavior into a habit. In coaching, we hold the individual accountable for their actions. We help them bridge the knowing and the doing. We help them solidify their knowledge into action and habit. What could be more important than that?

  • Another idea to boost financial literacy:  Simplify language in financial disclosures (Financial Times):

“Financial services companies must reduce the use of complex jargon, express costs for credit products in simple to understand pounds and pence figures rather than percentages and offering increased support to boost financial literacy levels, a new report has argued.