Financial Literacy — Protecting Who?

September 16, 2021
Posted by Jay Livingston

My high school offered a course in drivers ed. I didn’t take it, but it was available. Today, some high schools offer courses in “financial literacy.” Behind these two seemingly different courses lie the same assumptions:

  • bad things happen largely because of individual shortcomings — bad driving, bad financial decisions
  • the road to less suffering lies in education

These two kinds of programs share one more similarity: they don’t work.

Financial literacy courses are not yet widesp4read, but there is a movement to get them into the curriculum. Who would be behind such a movement? Elizabeth Warren? Paul Krugman? You’re way ahead of me. It’s the people inside the world of finance — the banks and brokers and their attendant media. Here’s the graphic that came up when I searched for news of  “financial literacy.” 

CNBC, Financial Times, Fast Company, Charles Schwab, and so on. We don’t know for certain why these organizations have gotten into the fin-lit game. Their official goal is to keep people from making bad financial decisions. But it’s hard to ignore the own self-interest. The implicit message in these programs is that the banks and others are good, reliable, public-spirited institutions so long as you are careful. But beyond that, as Felix Salmon says,

Such curricula also tend to reinforce a libertarian view of financial wellness, based on individual rather than collective action — one where poverty and debt are less a societal problem and more a consequence of bad individual financial decisions.
Do Hispanics have financial problems, and if so how can these be solved? The CNBC link
 in my Google results has this:

During Hispanic Heritage Month, CNBC will highlight individuals who are working to teach others about personal finance and empowering them to strive toward a bright financial future.

The Financial Times link  yields a video of a panel discussion. It begins with moderator asking what are the most important things the FT financial-literacy charity can do. The answer:

The sorts of schools that we work with, about half of the children live in poverty. Their aspiration is to have their lives not in poverty. Money is so beyond important to all of them.

The idea that the government might regulate these institutions in order to protect consumers is simply not part of the discussion. Read all the fine print before you sign or click “Agree”; pay no attention to those lobbyists hard at work fighting against consumer financial protection laws. Fin-reg no; fin-lit yes.

I don’t know the history of drivers ed, but I wouldn’t be surprised to find that it was promoted, supported and perhaps designed by the car companies, the AAA, and the oil industry. The focus on good driving frames automobile safety as a problem whose cause and solution lie entirely with individuals.  Meanwhile, Detroit vigorously resisted regulations requiring them to include safety features like seat belts and airbags.

Eventually safety improved. The number of highway deaths declined. But it wasn’t because of drivers ed. The evaluation research on those programs is hardly a ringing endorsement of their effectiveness.

The same is true of financial literacy education. Felix Salmon again:

A 2014 meta-analysis of 169 papers and 201 studies, however, found that “interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied” — and that low-income students had even weaker correlations.

It may be a bit too cynical to ask cui bono? (who is it good for?). But at the least, let's just say that  organizations do not promote programs that go against their own interests