Financial literacy is a great idea. The reality, though, is that it's probably not enough. In fact, the people who supposedly “need” it are probably better at money than you think.
Ah, April. I wouldn't be a “good” personal finance blogger if I didn't write about financial literacy during Financial Literacy Month.
We're in the middle of a pandemic as I write this and there's a lot of personal finance schadenfreude going around. You don't have an emergency fund — SHAME! You're shaming people for not having an emergency fund — SHAME!
Honestly, there are ways to talk about creating a solid financial foundation without making people feel bad that they haven't done it so far. And, really, financial progress should be the goal, no matter where you were when this pandemic slowed everything down.
No, what I'm really interested in talking about right now is how financial literacy might not be quite the exciting cure-all to consumer money woes. That's because, if we're being honest, we know, deep down, that financial literacy won't solve some of the very real systemic issues we have.
The Poors Know How to Manage Money
OK. So not everyone who's on the lower end of the socio-economic scale knows how to manage money. For real. But the point is that many folks with limited financial means actually pay a lot of attention to where their money goes.
I know that the times in my life when I was most stressed for money, a little more financial literacy wasn't going to make a difference. In fact, I budgeted like a ninja — and I hate budgeting. I knew where every penny went. I had a grocery list, a fistful of coupons and the knowledge that this week we could afford a $3 loaf of focaccia bread as a treat.
When I was a newly wed pregnant lady in college, and later a grad student with a toddler, I knew where every penny went and exactly how much we we spend at the grocery store. I’m less vigilant now.
— Miranda Marquit (@MMarquit) March 17, 2020
Not too long ago, I spoke with a friend about her budget. I literally went through every transaction on her bank statement for the previous three months. There was no room to cut. She doesn't have credit cards. She budgets to the penny, and every penny goes to necessities. If something goes wrong, that's when she'll end up in debt. And it'll probably be medical debt because she has a high-deductible health plan because she can't afford the premiums on a plan with a lower deductible.
Let's take a look at the upper-middle-class
I'll tell you who needs financial literacy refresher courses. The upper-middle-class. I have the luxury of not being forced into budgeting. I also have the privilege of not needing to account for every penny. If I feel like whipping out the credit card to buy a dagger that's caught my eye, I don't need to agonize over how I'm going to pay for it. That credit card bill will still be paid off in full at the end of the month.
In fact, I'm much less connected to my money and how it's being spent than I was when I had less of it. Because I don't need to be in touch with it. Those with more wiggle room are probably more likely to spend on frivolous items and not track their spending. At least, that's what I get from my non-scientific, purely anecdotal observations. The upper-middle-class people I know are far more likely to carry a credit card balance than those of fewer means. Indeed, of the folks I know, they're more likely to have a credit card in the first place.
The Type of Financial Literacy That's Actually Needed
That's not to say that financial literacy is a total waste of time. However, simply teaching people how to budget and manage their pennies isn't going to change the fortunes of those who, quite frankly, just need more money.
Instead, financial literacy should focus on items that might actually be useful. Concepts like how money works and the types of trade-offs you make depending on your educational attainment and the jobs you do. Hell, my son is benefiting from discussions about how going to community college will reduce his potential student loan debt burden. He's also considering going the trades route. Because a marketable, in-demand skill can go a long way.
These types of discussions that focus on practical applications to life are likely to be more helpful in the long run. (Side note: My friend Scott offers great financial literacy courses aimed at kids and teens. These focus on practical money lessons in a way that does more than just teach them how to budget.) It's less about learning about wants vs needs and more about talking priorities and how money can help you make the most of your situation.
Too much of traditional financial literacy skips over the idea of investing and putting your money to work on your behalf. But, it does go back to the idea that you need to have extra money to invest before you can, well, invest it.
What about this idea of work?
Modern approaches to financial literacy also need to address the idea of work, how we view it and the way it fits into life. A realistic discussion about how much you can make at certain jobs is essential. Talk about how many hours you need to work at $X per hour to afford a certain lifestyle.
When I talk to my son about his plans, we start with the kind of life he hopes to live. That's where we start. Lifestyle goals. He wants things pretty simple. So we talk about how much money he'd need to make and how much he'd need to work to accomplish that lifestyle. But we also explore things like:
- What kind of work does he want?
- Is it work that can be left at work?
- Does he want to work with his hands? Or sit at a desk?
All of these things are part of a more holistic approach to life and money — and should be part of financial literacy.
Too often we just talk about getting a “good” job, getting the “right” education, paying your bills. We talk about the things to be done and throw in lessons about budgeting and how debt can cause problems. But we don't talk about life. Sure, let's add “how to do your taxes” to the financial literacy curriculum. But let's not do that and neglect to encourage people to think about how they want their money to create the life they want.
Like so much, it's not really about the money. It's about everything the money can do — as long as you're treating it like a resource.
And Now, Let's Talk About The System
Look, I'd have to turn in my SJW card if I didn't at least mention The System. The stats paint a fairly stark picture. Most of the gains in the stock market since the last recession have gone to the top of the socio-economic ladder. Worker productivity has skyrocketed, but wages have remained largely stagnant in recent decades. There's a growing income-rent gap — you can't afford a modest rental on minimum wage in any state. And the households in the bottom income decile spend 24% of their income on health insurance. Health insurance.
I'm sorry. But if you're spending almost a quarter of your income on health insurance, and you can't really afford rent, exactly what are you supposed to be “wasting” your money on? Beyond food, I mean. There's a reason the United Way has a special measure just for the working poor. It's called ALICE, and it stands for “Asset-Limited, Income-Constrained, Employed.” I live in a town where 46% of the population is ALICE (see p. 20, if you really care). Nearly half of these folks are working and they still can't really afford to live.
I've been volunteering at the food basket. Many of the folks who come in don't qualify for SNAP. They're working. But they still can't afford food each month. That's not a financial literacy issue. That's a systemic issue. No amount of budgeting is going to fix the fact that some dude's car ran out of gas while he was in the drive-through line waiting for his food. He was afraid of missing the food basket hours and hoped that his gas would last until he got through the line and he could go to the gas station and put in $5 that would hopefully get him to work the next three days until payday.
And I haven't even touched on issues related to race.
Telling people to just get better jobs isn't the answer, either
Not everyone can do high-paying work. We still need fast-food workers, laborers and janitors. That's something we've learned during this pandemic. My town is full of “essential” workers who stock grocery shelves and “nonessential” small business owners who were shut out of the Paycheck Protection Program. We don't have a safety net adequate to address these issues. Or the bills they'll rack up if they get sick — even if they have health insurance.
We're bending over backward, policywise, to ensure that the Dow doesn't lose a couple thousand points, but we're cool if Main Street just withers and dies? All of the aid meant for “regular” folks is harder to get — and less likely to actually be inadequate. It's not like ordinary workers are getting the benefits from extra tax loopholes in coronavirus aid legislation.
Until we actually come to grips with some of the very real cultural and systemic biases that exist and direct policy from the top on down, financial literacy isn't going to magically solve consumer money problems. Financial literacy is a nice idea. But it's not enough.