Comments on The Psy-Fi Blog: Financial Education Doesn't Work

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Hi Elisabeth You're quite right. The problem...

2010-02-01T20:29:48.321Z

Hi Elisabeth

You're quite right. The problem I have with virtually all training programs, no matter whether they're good or not, is that they're outdated almost as soon as they're finished given the constantly mutating nature of viral financial products.

While even relatively simple financial products need to be accompanied with a small book of fine print there's not much chance of the woman or man in the street keeping up. Unpalatable though it may be we either have to regulate advisory separation from financial providers or regulate the complexity of financial products. Only then will our kids stand a chance of being educated.

We keep thinking that financial literacy is about ...

2010-02-01T17:58:58.347Z

We keep thinking that financial literacy is about teaching people to SAVE. That's just one tiny piece of the behavior puzzle that people have to learn in order to end up financially savvy and secure.

It's takes saving AND investing AND thinking about money and investing in the right way to really make a difference and I agree that financially ignorant people who DO save are often in a prime position to be taken advantage.

The problem with financial education is that it is compartmentalized when it is taught. There's no foundation laid first of right thoughts, beliefs and attitudes about money and wealth creation.

The other reason financial education generally doesn't work is that it is BORING and not relevant, especially for kids. It is generally taught auditorilly, people take a ton of notes, have no visceral experience of what they are learning so that it doesn't stick.

There are ways to empower people with financial skills and there are powerful strategies to teach kids about money but for the most part, none of these strategies are used.

What a shame...

Using the Wharton study as support, you have decid...

2010-01-26T20:56:44.409Z

Using the Wharton study as support, you have decided that "Financial Education doesn't work"?

And of course, a loon or two like noted crank Rob Bennett use that to jump on the bandwagon ("The article is brilliant!") to tout their own special brand of lunacy.

How about we back up just a bit.

Here is a quote directly from the study itself:

"Differences in financial knowledge across education groups (Figures 2a-c) confirm our expectation that financial literacy is highly correlated with schooling. Most importantly, financial illiteracy is acute among those with less than a high school degree."

The more education you have, the more financially literate you are likely to be. Pretty much the OPPOSITE of what you are claiming.

So, with regard to your ridiculous premise as well as it's conclusion... frankly, there is "nothing to see here, move along..."

Here are the literal last words of the study:

"... if financial illiteracy is widespread among particular employees, a one-time financial education lesson is likely to be insufficient to influence planning and saving decisions. Similarly, education programs targeted specifically to particular subgroups may be better suited to address large differences in preferences and saving needs."

So rather than claiming that financial education will not work, they are instead stating that it likely needs to be better targeted and more sustained in order to increase effectiveness! Hardly the conclusion you draw in your blog.

Whatever happened to critical thinking AND reading?

Small Business owners are largely forgotten. Thats...

2010-01-04T05:07:38.382Z

Small Business owners are largely forgotten. Thats why I only focus on them. I have experience several members of my family file bankruptcy due to small business failures. I also I suffered through 2 destroyed businesses due to failure however, in my failings I have learned some of the secrets to success. (Who can say they know it all?)

www.onlineuniversalwork.com

Hi Susan You're stealing my (future) thunder ...

2009-10-10T08:08:21.096+01:00

Hi Susan

You're stealing my (future) thunder :-)

But it's a good point - see Bernheim, Garrett and Maki (2001) on the effects of high school financial curriculum mandates, for instance. It seems to work, but it takes a long time to be seen.

Buried in the middle of the post is a nugget of cr...

2009-10-09T23:27:46.424+01:00

Buried in the middle of the post is a nugget of critical information...that educating people under 16 seems to lead to higher financial literacy. Perhaps we can't fix the adults and the short-term future but we can educate the current student population and benefit the long-term.

Susan

There’s ‘knowing about’ things: so we know that...

2009-10-08T12:56:48.352+01:00
There’s ‘knowing about’ things: so we know that Washington is the capital of the USA and that 2 + 2= 4. However, there’s also ‘knowing how to’ do things – such as how to operate a word processor or how to calculate compound interest. Mandel’s research suggests that the most financially literate college students are not economics or business graduates who ‘know about’ financial matters but engineers and scientists who ‘know how’ to solve problems.

The article is brilliant and balanced.

I believe the words quoted above are the key to developing a solution to the problem. Most people don't care to learn about money topics. The problem is not that they are dumb. The problem is that they are unmotivated. But everyone is forced to save and invest. So lots of people who don't want to be engaging in money actions are engaging in them anyway and have little interest in learning how to do so effectively. What to do, what to do?

The answer that most have come up with is -- put your faith in "experts." But the people we think of as "experts" in this field generally possess only a limited understanding of what works. They have developed the skills needed to appear to possess expertise. They cite "studies." They use fancy lingo. They practice sounding confident of their views. That's about it. If you ask hard questions, they run. They do not possess the deep knowledge that in other fields qualifies one as an "expert."

Our knowledge of how saving and investing works is primitive. There is lots of good work being done (this blog is one example of a place where good work is being done, in my assessment). But a lot of the good work is ignored by the "experts" because they feel that it makes them look bad for them to acknowledge that they did not always know everything there was to know. What the investing world needs now is humility, sweet humility. That would open us up to all sorts of wonderful advances.

The sad reality is that it is going to take a lot of pain to open people up to the benefits of humility. I believe that our economic crisis is in the process of supplying the needed pain. What is unclear is whether as a society we will act quickly enough in developing the humility we need to stop our economic and political system from going over a cliff.

We are a richer people than we ever were before. On the surface, that sounds like a good thing. But being richer is like being stronger. There are dangers involved if you don't approach attaining more power in a responsible way. It is only now beginning to dawn on us that we don't know it all and that we have put ourselves in horrible circumstances by pretending to ourselves that we did. If we act,though, I think it could be that our knowledge of how saving and investing works could advance dramatically in a small number of years.

The rule is: Humility first, then knowledge.

Rob