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Tuesday, April 25, 2017

How to Encourage Financial Literacy

Posted by Tim Stobbs on March 1, 2010

A a personal finance blogger I had to admit I got fairly excited about a concept of a task force to look into improving financial literacy that is taking submissions from the public.  In general I think there are lots of great bloggers out there that try to help others as they learn about paying off debt, retirement savings and living in your means.  Yet a national push on helping people learn could be a good thing, but I suspect they might not hear a too many different points of view.  Since I suspect a lot of submissions will be from banks, brokerages and insurance companies.  Hence I’m putting together a submission of my own.

In mine I’m going to suggest a few ideas on educating people in general, but I do want to point out a few major themes such as:

  • Money is an emotional thing.  Lots of plans to educate people about money fail for one simple reason: money is an emotional thing.  If it were not an emotional thing educating people would be easy since most basic personal finance concepts are fairly damn easy to learn: live below your means, compound interest, or don’t try to time the market.
  • Avoid too many ‘rules of thumb’.  Since money is emotional we tend to do all sorts of things that make no sense on a math basis, but do make sense on a personal basis.  So a ‘rule of thumb’ tends to become useless very quickly since decisions always have an emotional part to them.
  • You can’t force education.  I haven’t been part of the education system for long, but I can tell you a common problem is how to engage kids to learn.  That is with them being required to be at school, now image the problem across all ages groups and not being in a school setting.  You get the idea how difficult a task this will be to get people interested in their money.  You will need some plans to engage people.
  • Don’t go to extremes.  Often many personal finance books are geared towards those with higher incomes since they do tend to be the most interested in personal finance.  What people need to see is example for lower incomes as well.  Saving 10% of your income sounds easy, but try doing it with a $40,000 family income with two kids living in Toronto.  Aim examples at many different levels of income for the best results.

That’s just a few themes that I’m planning on discussing.  What would you put in to a submission?

Comments

5 Responses to “How to Encourage Financial Literacy”
  1. Teach people a simple way to monitor their spending. One has no chance at all to make more intelligent money decisions unless they have a good estimate about where the money is going each month and each year.

    Perhaps we should have something in the public school. A math course assignment? Grade 6? Make a simple spreadsheet by hand or on a PC. Collect data from family budget etc. Calculate percentages of income going to different categories…groceries, retirement savings, interest on loans etc. This could be done in a way that keeps the actual dollar amounts confidential. The teacher could calculate the class average and extreme values for different spending categories.

    Most people never have a use for algebra but they could all use some help keeping track of their own spending. How do they even know if they are saving 10 %? Right now only Accounts get this type of education.

  2. pete says:

    i am really impressed by the simpleness of ‘your money or your life.’ http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0140286780

    the writing demystifies the meaning of money to tackle issues you have above.

    essentially, evaluating your spending, setting a budget, and graphically visualizing your income and spending, over time.

  3. Robert says:

    Tim, I think you’re right to make a submission and I’m considering doing the same. My thoughts can be summed up in two points.

    -School-age is the best time to teach financial decision-making. After age 18, people are already making choices with huge financial consequences.
    -At school is not the best place to do it, because it could ruin the school experience by alienating kids who don’t grasp the skills. We already find that kids from well-off families do better in school than “disadvantaged” families. We’d be poorly served by exacerbating the disparity.

    And so I think that we, as a society, are left with no choice but to make sure the information is available and wait for people to take the initiative to learn it. As Tim pointed out, you can’t force anyone to learn.

  4. Canadian Dream says:

    CM,

    I think education will have to be mult-tier approach. Some elementary, high school and then adult based. Getting them while they are young is ideal, but not practical to get everyone.

    Pete,

    Good point. There are some excellent themes in YMOYL.

    Robert,

    I think you could do it at school, just teachers would have to adjust the material to suit the class. Ie: don’t talk about owning a house that much when most of the area rents. You will always have some class differences. It’s nearly impossible to remove.

    Tim

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