Why financial literacy fails (and what to do about it)

Why financial literacy fails (and what to do about it)

April is Financial Literacy Month in the United States. This is a pure and noble thing. I think it's great that there's one month each year devoted to promoting smart money habits. That said, it has become increasingly apparent over the years that most financial literacy programs fail. They don't work. And this isn't just me speaking anecdotally.

In a 2014 paper from Management Science, three researchers conducted a “meta-analysis” of 201 prior studies regarding the efficacy of financial literacy. Their conclusion?

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.

To put it in plain English, financial literacy education makes no discernible difference in behavior. People who take personal-finance classes manage their money no better (and no worse) than the general population.

We're pumping tons of money and time into a fruitless endeavor. All of this push to promote financial literacy accomplishes nothing. Zero. Nada.

Why is that?

Why Financial Literacy Fails (and What to Do About It)

It probably won't surprise you to learn that I have some strong opinions on this subject. Today, let's talk about why financial literacy fails (and what to do about it).

Note: This afternoon (April 24th) at 4 p.m. Pacific (7 p.m. Eastern), I'll be part of a Facebook Live interview about this very subject. If you're free at that time, you should join us! Update: Here's the entire interview.

Why Financial Literacy Fails

Financial literacy fails because it almost universally addresses only one part of the problem: math and mechanics. FinLit (as it's sometimes called) focuses on facts and figures while largely ignoring behavior.

This is insane.

This is like promoting sex education that talks about penises and vaginas while never discussing what it's like to be madly in love with somebody, so in love that your brain stops working. For sex education to be effective, it has to deal with real-world circumstances and behavior. It has to teach about psychology and emotions, not just body parts.

The same is true with financial literacy.

In fact, the same is true with actual literacy. The National Assessment of Adult Literacy says that working literacy has two components.

  • The operational piece of literacy focuses solely on knowledge. It involves word-level reading skills such as recognizing words.
  • The conceptual piece of literacy focuses on everyday tasks: “Literacy is the ability to use printed and written information to function in society, to achieve one's goals, and to develop one's knowledge and potential.”

The first part of literacy is about mechanics. The second part is about practical application.

Modern financial literacy efforts spend nearly all of their time on the knowledge piece. I've reviewed maybe a dozen FinLit programs over the years. Most pay no more than lip service to behavior, to the conceptual piece of financial literacy.

Let me give you an example from my own life.

When I was in high school (w-a-y back in the mid-1980s), every senior in our district was required to pass a class in personal finance. It covered topics like compound interest, the Federal Reserve, how to write a check, and the dangers of credit cards.

I took that class. I aced every test. And five years later, I had the beginnings of a debt habit. I'd mastered the knowledge but not he behavior. The behavior was never taught.

From what I can tell, the kids from my high school grew up to be no different than the rest of Americans. We learned the basics of financial literacy, but it had no perceivable impact on the way we saved and spent and earned. We still made stupid mistakes. We still spent more than we earned. Why? Because facts and figurs are only one-half of financial literacy. (And I'd argue they aren't even the most important half.)

The solution to financial literacy isn't to feed people more facts and figures. It isn't to teach them how bonds work or to explain the sheer awesomeness of a Roth IRA. If we want to boost financial literacy in the United States, what we really need to promote is behavioral education.

Behavioral Finance

Personal finance is simple. Fundamentally, you need to know only one thing: To build wealth, you must spend less than you earn. The end. That's it. We can all go home now. Everything else simply builds on this.

Why, then, is it so hard for everyone to get ahead?

For some people, the problem is systemic. There's no doubt that some people are trapped in a cycle of poverty, and they truly need outside help to overcome the obstacles they face.

But for most of us, the issue is internal: The problem is us. In other words, I am the reason that I can't get ahead. And you are the reason that you can't get ahead. It's not a lack of knowledge about compounding and credit cards that holds us back, but a chain of bad behavior.

The math and mechanics of personal finance are easy. It's the psychological side of money that's hard.

One of the key tenets of this site is that money is more about mind than it is about math. That is, our financial success isn't determined by how smart we are with numbers, but how well we're able to control our emotions — our wants and desires.

There's actually a branch of economics called behavioral finance devoted exclusively to this phenomenon, exploring the interplay between economic theory and psychological reality. There's a new wave of folks who are exploring the gamification of personal finance; they're trying to turn money management into a game. More and more, experts are seeing that our economic decisions aren't based on logic, but on emotion and desire.

It's time that financial literacy programs incorporated these new(-ish) approaches into their curriculum.

For years, I struggled with money. I knew the math, but I still couldn’t seem to defeat debt. It wasn’t until I started applying psychology to the situation that I was able to make changes. For instance, I used the debt snowball to pay down my debt in an illogical yet psychologically satisfying way. It worked. And I’ve learned that by having financial goals — such as travel — I’m much more inclined to save than if I have no goals at all.

Behavioral Literacy

The Money Boss ManifestoTo me, the answer to our country's crazed consumerism and poor financial skills has nothing to do with traditional financial literacy. (Okay, maybe it has a little to do with traditional financial literacy.) Instead, I see two fundamental problems that need to be addressed.

  • First, we soak in a bath of the mass media. We're constantly exposed to a barrage of programming in which we're given subtle messages about what people do (or should) consume. We cannot help but be influenced by the power of marketing. (I've talked to many people who think they're immune to marketing. I just shake my head and think, “You, my friend, are the most influenced of all.”)
  • Secondly, we don't think about our spending. We spend on impulse. Or we spend to subconsciously keep up with our family and friends — to keep up with the Joneses. We spend to make ourselves feel better when we're down and blue. We spend to show off. We spend on things we think we want instead of the things we actually use and do. We spend because spending is a habit.

Instead of teaching Americans about credit cards and rates of return, we need to be teaching them about behavioral finance. We need to be showing them how to break free from the marketing messages that are all around. We need to be showing them how to set (and achieve) personal goals, especially financial goals. We need to teach skills like conscious spending.

There's a reason that my core message doesn't start with math and mechanics. It starts by asking people to think about their goals and purpose. This is the piece of financial education that's missing in our society. This is what financial literacy education ought to be teaching.

Note: For a clear demonstration of how I'd approach financial literacy if I were to design a program, check out my Money Boss Manifesto. It's a free ebook that outlines the financial philosophy I've developed after nearly fifteen years of reading and writing about money.

The Bottom Line

Sometimes people wonder why we don't spend more time on the nitty gritty of money around here. Why we don't cover more topics like where to find the best credit cards or how to create a budget?

It's because deep inside, I believe these things are secondary. I believe behavior is more important. Building a better budget isn't going to change your attitude toward saving and spending; but changing you attitude toward saving and spending could very well lead you to building a better budget.

Ultimately, if we want Americans to be smarter with their money, we need to encourage them to consume less media — to avoid advertising — and we need to teach them to master the emotional side of personal finance. We need to show them how to change their behavior. We need to appeal to their self-interest. We need to help them find intrinsic motivation to save.

Each of us needs to dig deep inside to find what it is that's important to us, what it is that brings us joy, and we need to prioritize that instead of all the other garbage.

I'm not suggesting that we abandon traditional financial literacy completely. But I think a constant push for more financial education is a waste of time if it's only going to focus on mechanics, to stick to facts and figures. To truly be successful, financial education has to address the behavioral side of money because that is absolutely the biggest piece of the puzzle.

More about...Psychology

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BB
BB
8 years ago

My TV is a 19 inch cathode ray tube model. My computer is 8 years old. One of my cars is 17 years old, the other 8 1/2 years old. I’d say I’m pretty immune to consumerism.

Anonymous
Anonymous
8 years ago
Reply to  BB

What percentage of the world population do you think owns at least one TV, computer, or car?

Carla
Carla
8 years ago
Reply to  BB

I don’t know if I see the connection between owning older electronics and cars and being immune to consumerism. My TV is new (no have cable, just a DVD player) – it was a gift anyway, my computer is 3 years old and my car is newer, but that’s only one small part of me and who I am financially. How do I know you don’t have a mad comic book collection, three closets full of clothes, and travel for pleasure every other month? This “I have less than thou” attitude gets a little old sometimes when it comes to… Read more »

VangoCambo
VangoCambo
8 years ago
Reply to  BB

A lot of time is the new thing that are so tempting. It forces us to want to buy the sh*t we don’t need.

Lindsay
Lindsay
8 years ago
Reply to  BB

There’s a difference, too, between immunity and an unusual allergic reaction. The old saying, “The virtue is in the mean,” may apply here. An outright rejection of new things or an aversion to them, even when they would add extremely significant benefit to your life, would be just as much a problem of consumerism as an insatiable drive to acquire more new things when they don’t benefit your life. Note: I’m not saying you have old things because you have a consumerism problem. I’m just saying don’t take the fact that you have old things as foolproof assurance that you’re… Read more »

Andre
Andre
8 years ago
Reply to  BB

Consumerism and personal finance is not living owning as little as possible. It’s about knowing what you can afford.

If everyone live the way you live, we need a new governing system, because capitalism won’t work – and that’s a discussion I won’t be going into.

JanBo
JanBo
1 year ago
Reply to  BB

You did not mention if you had Facebook, Instagram or Amazon accounts. The idea that TV is STILL the culprit is amusing. I am over 60 and just got rid of my Amazon account. It advertised to me constantly. So easy to buy- just one click. Consumerism is alive and well on our computers (and immediately at our door).

Emily Hunter
Emily Hunter
8 years ago

I’m in agreement with you on this one. I think that it all has to do with the attitude toward money, rather than the money itself. I think that the mindset can be changed, though it will be with one mind at a time.

The issue that I’ve got with the whole thing is that people are becoming desensitized to the solutions that are available. It’s definitely about attitude – the same things that go into being better with debt are the ones that go into doing better personally.

You’re on the right track, keep it up. 🙂

Nicole
Nicole
8 years ago

We’re doing a better job of working on these behavioral projects in developing countries rather than in the US. Until very recently the push in the US has been on literacy. It’s as if we think Americans just need more math but people in developing countries, it’s ok to say they have behavioral problems. When, in reality, it may even be the other way around given the relative levels of financial literacy. There’s probably some people that once they get compound interest, they’re fine. But most of those people already get compound interest in the US! (Because they got it… Read more »

Nicole
Nicole
8 years ago
Reply to  Nicole

I should add… the literature on financial literacy shows: 1. People who are more financially literate have more money (but correlation is not causation). 2. Mandatory financial literacy doesn’t seem to work that well, at least not high school classes. (Though some more recent programs are showing small increases in outcomes compared to earlier work on the subject.) 3. Voluntary financial literacy seems to work for folks who volunteer to get it (compared to control groups who volunteer but don’t get the literacy). (At least among people who work at a certain anonymous large company.) So increasing financial literacy helps… Read more »

Tony
Tony
1 year ago
Reply to  Nicole

When I quickly looked into this recently this seemed to still be the current position.

The things that seemed to make a difference were good quality early years maths teaching (which is expensive so hard to get people to sign up to politically) and specific financial training before making a financial decision. E.g. Tutoring on credit cards, mortgages, investments,pensions shortly before the person needed to make a decision on them.

EZFL
EZFL
8 years ago

It is too easy to get credit, too many people buy on impulse and delayed gratification is not being taught very well at home. Wants and needs are too often reversed in priority. People should work on saving to buy something rather than buy it now and pay for it later. How to instill that is the issue. Either you learn it the hard way or it can be instilled at home when you are young.

Jim
Jim
8 years ago
Reply to  EZFL

Many parents TRY to instill smart spending and frugality to their young children, but it doesn’t always work. There are too many outside influences on us today.

Anatol
Anatol
1 year ago
Reply to  EZFL

And this is huge problem, that nowadays we have no patience at all, we want everything now, at every cost.

Marsha
Marsha
8 years ago

As a high school math teacher, I’ve taught financial literacy for several years. From what I’ve experienced and observed, the mathematics is the easy part–yes, compound interest is an exponential function, but that’s about as hard as it gets. The rest of the math is middle school level. The difficult part is understanding human thinking and behavior toward money, and learning how to overcome your emotions and deal with your finances rationally. So many adults struggle with this; how can we expect teenagers to do any better? I’ve seen adults who “know” a lot about finances but have terrible self-induced… Read more »

Beth
Beth
8 years ago
Reply to  Marsha

I hear you there! When I taught a careers class, (mandatory for high school kids in Ontario) we did a lesson on student loans. The attitude I got from kids was that “we’re going to end up in debt, so why does it matter how much?” They just couldn’t grasp what it meant to have a loan — they were more interested in the maximum amount they were entitled to each year and what it would buy them.

When debt is seen as “normal” in our society, the numbers don’t always matter.

Karellen
Karellen
8 years ago
Reply to  Marsha

The exponential function isn’t that hard to understand in a purely mathematical sense, but it is actually rather hard to internalise and intuitively grasp on a “how it affects your life” level.

“The greatest shortcoming of the human race is our inability to understand the exponential function.”
— Albert Bartlett

http://www.youtube.com/watch?v=F-QA2rkpBSY

JanBo
JanBo
1 year ago
Reply to  Marsha

I taught consumer finance to lower middle class middle schoolers. That is the age to catch them! They have not made enough money, yet, to seriously get into trouble. The entire class was on opportunity cost rather then dwelling on math. After the class was going for a bit I had some of my students’ parents ask me to help THEM during our parent teacher conference. Fascinating. We start too late. JD hit the nail on the head- talk about the emotion. Still, I had a friend and her husband sit with me to talk through basic finances. They were… Read more »

Andrea
Andrea
8 years ago

Dickens had Micawber explain it pretty clearly; however, I guess few people read Dickens now-and just explaining spending more than you earn leads to unhappiness isn’t enough.
I don’t ask people why they have to have an Iphone, IPad, Kindle, whatever- but it seeems people want to convince me(not salespeople- friends and family) why I need to have these things.

Claire
Claire
8 years ago
Reply to  Andrea

I hear you Andrea! I am bugged constantly as to why I don’t have a cell phone. Finally my MIL actually bought me one and paid for a year subscription on it! I don’t ever use it, I don’t need it, my life will not become fraught and complicated without it! I’d rather put that money towards things I enjoy and appreciate, please.

Lindsay
Lindsay
8 years ago
Reply to  Claire

I had a friend in college who refused to have a cell phone. Every time we went anywhere and he needed to make a phone call, he’d just ask to borrow mine. If people wanted to know where he was, they’d call the last person anyone saw him with. I finally started refusing to let him use my phone, and saying right in front of him that he wasn’t there when people called to try to talk to him. I told him if he wanted the convenience of talking to people whenever he or they needed to, he needed to… Read more »

Amanda
Amanda
8 years ago
Reply to  Lindsay

I’m not disagreeing with you at all…that sounds like lousy behavior on his part, and a sensible response on your part. I just want to add that since the advent of cell phones everywhere, it’s become practically impossible to find a pay phone…drives me nuts, because it basically forced me to get a cell phone for back-up.

Claire
Claire
8 years ago
Reply to  Lindsay

Good for you for standing up to him Lindsay but I can safely say that is not my situation. 🙂 I did not have a cell phone because I did not need one (still don’t). I have a phone on my desk at work. I have a phone in my house – with an answering machine. If I am not available to answer those phones and someone wants to speak to me, they can leave me a message and I will call them back when it is convenient…not while I’m walking down the aisles in the grocery store – or… Read more »

RichardP
RichardP
1 year ago
Reply to  Claire

Exactly. For many years, I did not have a cell phone and it was fine. I constantly had to explain to people that being reachable at all times was not a convenience to me – it was an imposition. I did not see a need for having a cell phone, no matter how much other people thought it was vital. I had a fine job and bought a home without having a cell phone. However, when I was planning to SELL my home, I saw that having a cell phone would be a great convenience to me and would facilitate… Read more »

Ru
Ru
8 years ago
Reply to  Andrea

Urgh, I get this all the time too, from people at university with Macbooks and iPhones asking why I have a PC (and why I never bring my laptop to school) and why I don’t use the internet on my phone. And so so many other things. Why can’t you drive? I couldn’t afford lessons and it’s not necessary for me right now and even if I could, I couldn’t afford insurance. Why aren’t you coming out tonight? I didn’t budget for it, and I don’t want to drink my money away. How come you have to work over the… Read more »

Mark
Mark
8 years ago

One of your very best articles, JD! I couldn’t agree more. As Dave Ramsey says, “Personal finance is 80% behavior and only 20% head knowledge.” Like you, this has rang true in my personal financial life. Only when my behavior changed was I able to apply my financial literacy in order to begin to have success with money.

El
El
8 years ago
Reply to  Mark

Yes, very true. Dave Ramsey’s books were a wakeup for me too; a psychological reason to take steps I logically knew I should have done long since. And when I actually started doing those logical things (spend less, save automatically), of course they worked.

I will say that there were no financial literacy classes in the late ’70s in my high school, and it was never discussed much by my family. Changing your spending habits for some people can be like losing weight. You have to be ready to make the change.

Brad Moore
Brad Moore
8 years ago

I had a thought while reading. Interesting post, by the way. It’s hard (at least for me to do away w/ all TV. (and this may sound stupid) What about talking to the TV When I recognize that an ad is trying to sell me something, then deliberately speak to the TV..”quit trying to sell me this item…it is not something I need…and I am trying to win with my money.” Yeah….I know it’s a little off-the-wall. But it gets the message to me mainly & also my wife and kids. Anyone done something like that to fight against the… Read more »

Beth
Beth
8 years ago
Reply to  Brad Moore

I don’t talk to the TV so much as snort in disgust at it.

One thing that helped was studying marketing and communication — I know all the tricks. I usually fast forward through commercials, but when I do see them they’re sort of an academic exercise. I can’t help but think “oh, they’re using that picture or this line to manipulate my emotions”.

I agree the problem isn’t about numbers — it’s that people need to know how to think for themselves.

fruplicity
fruplicity
8 years ago
Reply to  Beth

Glad to see I’m not the only one who does this. The other person in my household will never let our TV go. I insist on muting commercials if I’m in the room, which drives him crazy (but having them on drives me crazy!) Anyone heard of (or tried) the un-TV experiment? I just heard of it recently and recommend googling/reading up on it, it sounds very interesting. One part of it is to just sit in front of your TV for a 1/2 hour and watch it – while it’s turned off! Just to prove what an unproductive time-waster… Read more »

mikey
mikey
8 years ago
Reply to  fruplicity

I don’t know, I spend way more on books than I do buying Chanel perfume. I need to mute Amazon!

Christine T.
Christine T.
8 years ago
Reply to  fruplicity

We turned commercials into a game to test my theory that everything advertised is crap. If they are spending such a large amount of $ on ads to convince you to buy it A) it cant be that good and B) you’re not getting a good value because they are still making a profit even after spending all that $ on ads, what does it actually cost to make/provide what they’re selling?? Obviously there are exceptions but I can go a whole show of stuff that is total crap. Sugar, sugar, low quality for the price bras (VS), chemical air… Read more »

Andre
Andre
8 years ago
Reply to  fruplicity

@Christine – While I respect your opinion, I think you’re not looking into the full picture. Advertising, like credit cards, are tools. The problem isn’t in the tool, it’s in the person who wields it. Advertising is an integral part of a free society. Want zero advertising? Head to North Korea. Without advertising, old products prevail and new innovation will never take hold. This very blog wouldn’t exist without J.D’s marketing. And the very fact that you argue advertising is unnecessary if the product is good shows just how much you need to catch up on human behavior. There’s a… Read more »

KAB
KAB
8 years ago
Reply to  fruplicity

I agree that TV is a time waster – so I moved the couch and put an excersize bike in front of it. If I want to watch a show, I need to be on the bike. Now at least I am getting fit when I watch TV and not just sitting like a lump. It helps me think about which shows I actually want to watch. And as for commercials – I took some marketing courses in college and I think if more people thought about the point of commercials they wouldn’t be so effective. People need to think… Read more »

Christine T.
Christine T.
8 years ago
Reply to  fruplicity

@Andre
Strawman much? I neither said advertising is unnecessary, inherently bad, or should be illegal. It is necessary, *particularly* when you want to sell [email protected] And I’m not sure what JD’s marketing has to do with anything, his marketing and a company paying millions of dollars for a TV ad exploiting the use of subliminal messaging are not the same thing. I haven’t seen any Get rich slowly commercials during X factor lately, although it would be cool if I did.

Andre
Andre
8 years ago
Reply to  fruplicity

@Christine – Thanks for your clarification. Not sure how your strawman reference applies here though. Your original comment said, “If they are spending such a large amount of $ on ads to convince you to buy it A) it cant be that good…” and I merely pointed out “And the very fact that you argue advertising is unnecessary if the product is good…” I’d also disagree that advertising is necessary “particularly when you want to sell [email protected]”. Illegal drugs, cigarettes, marijuana, pornography, etc thrived despite the lack of advertising. If advertising sugar-filled products is banned tomorrow, I believe those products… Read more »

Rosa
Rosa
8 years ago
Reply to  Beth

Ditto marketing study. I think it’s marketers (and psychology of spending folks) who have the keys to changing consumption behavior.

It’s not the TV, though – or only indirectly, through changing peer expectations. It’s friends, colleagues, peers, family. My BIGGEST consumer experience of the year is Christmas – all because it’s important to family members. Not self- or marketing-driven at all, emotional reasons that go back to their own childhoods in the ’50s and ’60s.

Carla
Carla
8 years ago
Reply to  Rosa

You hit the nail on the head when it comes to where some of our influences comes from. I don’t watch TV aside from a movie on DVD, but I recognize influences *outside* of a television set, even aside from blatant advertising such as billboards, buses, or even shopping centers and malls. (Even during the few times I watch TV, 95% of what’s advertised doesn’t appeal to me. ) This time of year depression, loneliness, isolation can drive people to spend even without the typical influences. I know I’m not immune to it. A new body care product or lipstick… Read more »

Steven
Steven
8 years ago
Reply to  Brad Moore

I talk to the TV, yell at the commercials, talk sh!t to the spokespeople (especially that crazy Target woman) and laugh at product placement in the shows themselves (Biggest Loser is the most blatent culprit.) I actually find myself annoyed and irritated…probably not such a good way to feel, but I think it helps.

Kevin
Kevin
8 years ago
Reply to  Brad Moore

We have a good TV show in Australia called “The Gruen Transfer” (the also “Gruen Planet).

Don’t know if it’s accessible outside Australia, but here’s the website:
http://www.abc.net.au/tv/gruentransfer/

It’s looks at advertising and picks it apart in terms of techniques used, why some ads work and others fail, etc. The panel members work for advertising agencies so provide an ‘insider’ view.

I’ve found it to be very educational and I find myself critiquing more and more commercials now.

PsychoMoney
PsychoMoney
8 years ago

That is a tough one. I am still thinking society needs more education. Your right that the education that we are currently getting is not working. I am thinking it needs to be mixed with more of a psychological aspect of money as well.

chamoiswillow
chamoiswillow
8 years ago

We have somehow internalized the message that credit cards are our safety net, rather than savings – be it money in the bank or food in the cupboard. We are so disconnected from what it takes to really survive in the bigger world that, for most people, the process of buying things has replaced every other form of effort that normally goes towards ensuring survival. Breaking the cycle of money/stuff is the key, and an ongoing battle in my own life. I killed my TV and have been without for over a year now, I have no plans to replace… Read more »

getagrip
getagrip
8 years ago

How many kids a year or two after they graduate can tell you the formula for the quadratic equation or the number of lines in a sonnet unless it was something of interest to them? I know high school dropouts who can quote me odds on horses at the track, piston displacement requirements if you want to bore out your engine, or what the cost of an item is 10% on sale with a 15% off coupon. It’s not lack of ability, it’s lack of interest or perhaps more lack of being able to or being willing to connect it… Read more »

Megan
Megan
8 years ago
Reply to  getagrip

I just hope this serves as a very expensive wake-up call to your child, and they turn things around from here on out. I made some dumb financial mistakes when I was first out of college, and I’m glad I learned from them at the age of 23 instead of 33 or 43.

getagrip
getagrip
8 years ago
Reply to  Megan

I’m hoping it wakes them up as well. Get this though, because they’ve been paying on the card on time and carrying a balance, the card company upped the card’s credit limit. Talk about deepening the trap, it’s like they’re luring you in until you hit the point of no return.

Spencer for Hire
Spencer for Hire
1 year ago
Reply to  getagrip

I was thinking the same thing. This is more of a cultural issue than an educational one. People can be educated as much as they want on this, but if it doesn’t interest them then they will mindlessly fall trap to what our consumerist society wants them to do, spend. We come to this site because we want to be educated in this or enjoy the conversation about it. I will say though that the more people care and try to influence others and lead by example, the more others will be influenced by it. After all that is where… Read more »

Molly (Mike and Molly's House)
Molly (Mike and Molly's House)
8 years ago

When I think back to my neighborhood as a child and see how each family spent money and see how those kids now spend money there are many connections. We all played together, watch TV together and went to the same schools. The next door neighbor was your quintessential’cheapskate’. His 4 kids all have great jobs and they are all ‘cheapskates’. The family down the street always had the best toys at Christmas and new cars. That kid is now deep in debt as an adult. I think we do need to educate our kids but I believe behavior is… Read more »

Beth
Beth
8 years ago

I agree that we pick up a lot of our attitudes towards money from our parents, but I also know families (my own included) where siblings have very different attitudes towards money even though they were raised the same way.

Sometimes people rebel against their parents’ spendthrift ways, and sometimes they rebel against their parents’ frugal ways. I think the influence of friends also plays a big role.

Adam P
Adam P
8 years ago
Reply to  Beth

Definitely. One of the reasons I became a CPA was because my parents were spendthrifts and I felt insecure about money as a child. My parents went from a new Mercedes to a Ford Tempo in about 3 years. I wanted control of money and it lead me to becoming an accountant. Children definitely rebel against both overspenders and oversavers.

Diane
Diane
8 years ago

Great article – I agree, it is more about habits and behaviors than it is about the math.

What we experience as children we often follow as adults. It is the job of the parents to help shape our behaviors as adults. What is fascinating is when siblings have very different views of money. But that is a whole other topic of discussion.

James
James
8 years ago

This post is right on the money! 🙂

It’s just like obesity. People are not obese in this country because they don’t understand or know how they get fat. And it’s not because they are rich or poor or stupid. It’s lack of discipline and self control, which ties in very closerly with consumerism and finances. It’s a state of mind not head knowledge that is causing these consumerist problems.

Lisa
Lisa
8 years ago
Reply to  James

You are DEAD ON. It IS a lack of discipline and self control. IMO, we teach neither in society. We respect neither in society.

Jeff
Jeff
8 years ago
Reply to  Lisa

@lisa I respect what you’re saying, but I’d encourage you to read up on the latest neuroscience research on these issues. It is more complex than the Calvinistic perspective that dominates the U.S.

This is not to make excuses, I just find the reality of the situation more interesting than “lack of self discipline.”

Lisa
Lisa
8 years ago
Reply to  Jeff

Jeff, I’ll take your word for the latest in neuroscience….there is nothing on the latest on my bookshelf and I’m not going to run out and buy it. Although I’d hardly call myself ignorant, mine is admittedly a layperson’s approach based on what I see/do/hear/read. All I know is that I am extremely disciplined, have gotten rich slowly and am not obese. I have been presented with numerous opportunities to do the opposite and consistently rejected them. When I can not avoid seeing mainstream media…like at a party last evening….I don’t see being self controlled and disciplined in finance or… Read more »

Katelyn
Katelyn
1 year ago
Reply to  Lisa

For people who have always been disciplined, it’s easy to see self control as an on/off switch. However, there have been a number of studies conducted that show self control/discipline is more akin to a muscle: it can be strengthened over time, but it can also be exhausted if overtaxed on a given day. At the end of a long stressful work day or week, it is significantly harder to follow through with disciplined behavior (like going to the gym or eating a healthy meal) and say no to instant gratification, whether it be food or spending. Living in debt… Read more »

Jeff
Jeff
8 years ago
Reply to  Lisa

@lisa, I’m right there with you. But us being that way does nothing to help those who aren’t. Just like no matter how hard I study, I will never have Einstein’s IQ. We all have limitations. *I think* part of JD’s thesis is that we need to do whatever works to help folks be financial sound, not just wish it away with more education.

babysteps
babysteps
8 years ago
Reply to  James

not to mention plenty of ‘immediate gratification’ products (both food and financial) with no lasting positive impact. Junk food, junk financial products, junk consumer products. Hm, I sense a trend 😉 Catalog behavioral aside – we moved recently & now are getting a bunch of catalogs (I’d de-listed us to almost zero catalogs at our old address). This morning I realized that the fact an item is in a catalog almost guarantees that it is a ‘want’ item, not a ‘need’ item. Mentally/emotionally this realization gives me permission to ignore the catalogs – I feel more ‘responsible’ and less ‘scrooge’… Read more »

DreamChaser57
DreamChaser57
8 years ago

I think the critical piece that financial literacy is missing is the human element. Numbers in a vacuum simply don’t resonate with most people. It’s important to put a human face to debt. Explain why and how it takes a toll. Parents too often abdicate their responsibility to schools and fail to stand their ground. Dave Ramsey readily shares that his children attended a state college. He is a multi-millionaire. However, middle class families across America support their child’s choices to attend a four year institution that will cost upwards of $150K. It boggles the mind. When I completed my… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  DreamChaser57

If student loans were regulated and consumer protections restored, students would not be able to take on so much debt, and tuition would not be allowed to inflate to match the huge amounts of the usurious loans. That is a simplistic view of the problem, but something needs to be done on the loan/lending side — as well as on the borrower side. State schools are great — but I am offended to hear that they are a “bargain” when the same state school I attended 25 years ago for $1,000 a year (tuition as a freshman) to $2,000 a… Read more »

Bella
Bella
8 years ago
Reply to  Elizabeth

What you’re missing is the thta state schools are a *bargain* because they are subsidized. Teh difference in price betweena state school and a private school is LARGELY(not all) due to subsidization from tax revenue. When states have to cut taxes an easy place to cut is from higher education, because at any given time on a fraction of the states residents are actually paying tuition and care about the increases that will be a result. Yes private tuition costs have risen to match the loans – and likewise state costs so something must be done about the predatory lending… Read more »

JT
JT
7 years ago
Reply to  Bella

Bingo! State schools and community colleges are not necessarily inherently cheaper. Rather, they’re a way for people to benefit from marginal cost consumption. If EVERYONE went to these kinds of schools, tuition would skyrocket, as would the total public cost of education.

Beth
Beth
8 years ago

I can relate to this post on so many levels 🙂 As a female, the message I’ve been getting my whole life is that I’m supposed to enjoy shopping ans spending on clothes, hair, make-up, etc. Shopping is a fun thing I’m supposed to do with my friends on the weekend. I’m supposed to treat myself to “something pretty” when I’m feeling blue. As a career woman, the messages are pretty much the same. I’m supposed to be living the glamourous lifestyle of a single woman who can spend her disposable income all on herself. Thankfully, I have as many… Read more »

Stephanie
Stephanie
8 years ago
Reply to  Beth

Beth, You are absolutely right about how difficult it can be to stand up to the pressure from friends and family regarding your own financial decisions. We live quite frugally since we’re trying to get rid of student loan debt. Yet, every time we see my husband’s friends or family we hear about how we need to get the next greatest video game system, tv, blu-ray, etc. We were criticized for not having more than 12 channels of tv, for not having the internet for a couple of years, and for driving old cars, etc. We certainly don’t owe them… Read more »

Megan
Megan
8 years ago
Reply to  Stephanie

Stephanie, I’m in your shoes. The extended family doesn’t understand why we are cable-less, or why we drive old cars, or why we don’t go out all the time. They tell us we “have to” buy new things; I think they tell us this because *they are uncomfortable with our choices*. Seeing someone who is careful with their money makes them feel insecure about their own spending. At least, I think. And it stinks about being told at every turn to buy, buy, buy. I hate malls; why the heck would I want to spend a perfectly good afternoon trudging… Read more »

Becky+P.
Becky+P.
8 years ago
Reply to  Megan

I have to admit that this is why I couldn’t be a good Tupperware lady when my DH was in college working on his PhD.

I was trying to sell Tupperware to other poor student wives. I just couldn’t do it, as I felt strongly that they needed to be using recycled margarine tubs instead of expensive Tupperware.

So I quit. I loved Tupperware and still do, in fact, but couldn’t convince myself to try to convince my friends they needed to buy it when what they needed to do was pay their school bill!

Andrea Travillian
Andrea Travillian
8 years ago

Fantastic post! It is so true that money is much more emotions than math. If it was math we would all be rich! I know that for myself it took many years of digging into why I spent, reading books, getting coaching and therapy and doing some in-depth soul searching. I did not just wake up one day and decide I was done with the emotional hang ups. The biggest thing I learned when going through this process was that our beliefs about money impact our behavior and that it is not one layer. Once you address one level, you… Read more »

Adam P
Adam P
8 years ago

While I think this post is certainly correct, it is very difficult to “learn” behavior in a traditional sense. It is either there to begin with or you learn it the hard way (many of us here I think went through that stage of overspending before we “found” personal finance). Those marshmallow tests that showwed 3 year olds with the ability to delay gratification became successful later in life while those who couldn’t wait were less likely to be successful sort of bring this point home. It may be an inherent trait, too. I just read an article today (I’d… Read more »

Liz
Liz
8 years ago

Excellent, excellent article.

vivek
vivek
8 years ago

Other Day i was talking to my wife about what i would like to change, i told her, i would like to limit the hours of TV like old times when we were growing up. (In 80’s India, we used to get 3 hour morning, 2 hour afternoon and 3 hour in the night). No broadcast after 10 PM.

And in this limited time of TV, we had compulsory 2 hour news and 1 hour informational stuff.

Neither consumerism through TV serials nor through advertisement.

Robyn
Robyn
8 years ago

You could teach people all day until you’re blue in the face, but until you are FORCED to change, it probably won’t happen. The best success stories arise from people who were on the brink…and they were forced to either sink or swim. The worst I had it was after my first layoff 10 month out of college, but I was still okay because I grew up with frugal parents and learned some great life skills. I dislike that consumerism has turned us into the selfish, show off society we are today. If we had less to buy less, maybe… Read more »

Troy
Troy
8 years ago

We don’t need more literacy or behavorial education. It wouldn’t matter anyway. People only learn one of two ways. By watching someone else or by doing it themselves. And they only REALLY get the point when they see the bad side themselves. And the only way to really see the bad side is to feel it. The only way to really know why you shouldn’t touch a hot stove…is to touch a hot stove. This isn’t some new revelation that we figured out because we are some superior generation. We are not. A lot happened before we were born, and… Read more »

phoenix
phoenix
8 years ago
Reply to  Troy

ummm . . . by this advice, if I want to know that crack cocaine is bad, the only way I’ll know that is if I use it. I can think of numerous things in my life where thankfully I learned a lesson through education, as opposed to learning by doing. A recent study found that the key to long-term success was not a child’s intellence, but their ability for self-control. It’s an interesting and eye-opening idea, to me. We teach our children to study hard in school, but we rarely teach or stress self-control, believing to be something iniate… Read more »

Beth
Beth
8 years ago
Reply to  phoenix

Back in my teaching days, I saw smart kids fail simply because they didn’t have the self-discipline to do the work and they wouldn’t accept responsibility for their actions. When they blamed others for their problems, they also expected others to fix those problems for them.

Beth
Beth
8 years ago
Reply to  Troy

I disagree. Sometimes you do have to let people make their own mistakes, but that isn’t how EVERYONE learns. (I managed to learn drunk driving was a bad thing without doing it myself or knowing someone who did, and many drunk drivers go on to be repeat offenders.) I don’t know what the solution is, but I do know it isn’t “one size fits all” — as many financial literacy solutions tend to be. Different people have different personalities, learning styles, motivations, etc. Some people never learn from their own mistakes because one crucial piece of the puzzle is missing:… Read more »

Holly
Holly
8 years ago
Reply to  Beth

And there it is: accountability! Just like the spouse who spends the other spouse’s hard-earned money without a second thought or the child who hands in a project having had someone else do their work, there is no consequence.

We think we can change our own or someone’s bad behavior simply by suggestion, but often the impetus to make that change must be felt on a personal level, often as a result of irresponsible behavior. And sometimes more than once.

Well Heeled Blog
Well Heeled Blog
8 years ago
Reply to  Troy

I see your point, but I disagree to a certain extent. I think parents are really the first line of defense against bad financial decisions. But so many adults are bad with money, that it’s unrealistic to expect them to teach their kids how to use money wisely. It’s true that many people turn their lives around once they hit the “financial” bottom, so to speak, but think about all the time and resources and pain they could have saved if they could avoid that. Plus, many more folks, once they hit the bottom, find it extremely difficult to climb… Read more »

Claire
Claire
8 years ago

I was also fortunate to have the same good lessons taught to me by my parents but my husband? Not so much. Marriage brought me debt and it is still something we are battling to overcome – mostly because of emotion.

Once the debt is created it is almost too late for most lessons to have an effect – a different attitude has to be found to recover from debt than is needed to avoid debt in the first place.

phoenix
phoenix
8 years ago

JD, I think you’re right about this one. However, in my opinion, I think you should add a new category on your book list addressing this very topic–about behavorial education (like how to make change and how to improve willpower). I realize that this subject is not just about financial goals, and perhaps that’s why the topic didn’t make the list, but to me, this is the hardest part.

I REALLY loved the article posted a few days ago about willpower. It would be great to have more on this subject.

Rosa
Rosa
8 years ago

Maybe this is why you like Adbusters so much, JD. Have you read Juliet Schor’s work? Mentoring is more effective than general “financial literacy” – I have had great luck demonstrating the joys of an emergency fund with friends who had me hold their savings. Lots of people lose all their cushion to overdraft & other bank fees – so I’ve had friends who asked me for help give me $10 or $20 out of each paycheck, with receipts & everything, and then had that cash on hand to bail them out when their cars got towed or they had… Read more »

Dean
Dean
8 years ago

Great post — I think it gets to the heart of the matter. Another example of how behavior affects us is that it appears as though work ethic and the do-it-yourself mentality are reduced with each generation. I’ve observed in my own life that when I need something, my default position is to just run out and buy it, though when I think back to my childhood, to shell out cash was my dad’s last resort. His approach was to build it, fix it, grow it, etc. My dad made considerably less than me by today’s standards yet he paid… Read more »

Bella
Bella
8 years ago
Reply to  Dean

Dean, In this legislative age we are often taught that rolling up your sleeves and getting your hands dirty will get you killed. I grew up on the East Coast – and wouldn’t have considered fixing ANYTHING myself until a few years ago. I mean – fixing something yourself is what hillbilly wacka dos do. If it should be fixed there is someone to ‘take it to’ if not – it should be trashed and replaced. I totally agree with you that we do way to little of the “use it up”, “wear it out” and “make it do” parts… Read more »

PB
PB
8 years ago
Reply to  Bella

I have felt the need for experts as well, and have overcome it by asking myself if there was any way I could make the item worse by trying to fix it. If I couldn’t, I would go ahead and try. Sometimes I could, sometimes not, but it always felt good to give it a shot!

barnetto
barnetto
8 years ago
Reply to  Bella

You mean litigious age, not legislative age?

Bella
Bella
8 years ago
Reply to  barnetto

Duh, litigious!

Rosa
Rosa
8 years ago
Reply to  Dean

There were two crucial differences when your dad was growing up. One was, it was harder to buy things. Credit was hard to come by. So rolling up his sleeves might have been the easier choice often enough that it got to be a habit, without him putting much mental effort into it. The other is the economy was structured much more equitably and suffered fewer crashes (I guess I’m making assumptions about your age here – my parents are Baby Boomers so this was true for them.) He had every expectation that work and thrift would pay off for… Read more »

Dean
Dean
8 years ago
Reply to  Rosa

My kids say I’m old but I say fiddlesticks to that! OK maybe I am old… I appreciate your comments but I’m not sure they quite reflect his situation. My dad was born in the 40’s so he’s seen a number of booms and busts over the years, went to college, held a management position in the medical system for 30+ years, had a decent salary and sufficient access to credit. He could have spent his way into oblivion but that just wasn’t the way he operated – back then or today. My grandfather experienced the great depression first hand… Read more »

cathleen
cathleen
8 years ago
Reply to  Dean

While I agree with this post to some extent I think it paints with too broad a brush IMO. I know plenty of hands-on 20 and 30 somethings who make/fix all kinds of things. My parents always hired experts and they’re in their 70s and 80s so hard to generalize. (And I’m thinking back to my aunts and uncles; pretty much 50-50 proposition there.) But there’s a flip side too. Don’t try something you clearly can’t do. I have a family acquaintance, very well-off, who is now a widow with four children because her husband decided to install the home… Read more »

pwcashier
pwcashier
8 years ago

My little niece and nephew hemmed and hawed about potty training. Then they got into school and saw that everyone else was potty trained. End of discussion. The ERE guy wrote: if you spend $30k per year, then reading about someone who spends $20k/$15k is inspiring, $10k is nutty, and $7.5k is crazy. My takeaway: So reading about Ghandi and working among the poor may not raise your percieved wealth if you are not already very frugal. But having a slightly better income relative to your coworkers and social circle would. Watching commercials, entry level jobs and wealthier friends would… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  pwcashier

I started blocking updates from my Facebook friends who announce every little thing they buy. I guess because Facebook and Twitter are so immediate you can tell the world about your purchases right away when you’re in that “just bought it” euphoria. The funny thing is that if I called them or went to visit, they wouldn’t brag about their stuff. I guess the novelty wears off?

Becky+P.
Becky+P.
8 years ago
Reply to  Elizabeth

This is strange. I can’t think of a single friend of mine who posts about what she buys on FB. Hmmmm.

Carla
Carla
8 years ago
Reply to  Becky+P.

I find that strange too. NONE of my Facebook friends (many of them family) post about what they’ve just purchased. Can’t say its a generational thing because they are between the ages of 16 and 60.

Bruce Sellery
Bruce Sellery
8 years ago

I agree 100%. We need to move beyond building “knowledge” and focus instead on developing “insight” in how we as individuals behave when it comes to money.

I’m a big fan of GRS. Keep it up.

Bruce Sellery
Host, “Million Dollar Neighborhood” on OWN

Afi
Afi
8 years ago

This is a great post, so I tweeted it. It’s given me much to consider. I’ll work on creating behaviors to follow so I can reach some goals.

PB
PB
8 years ago

It is a matter of discipline, but you can also make it fun. Back in the late 70s/early 80s, we had 5 student loans for 3 graduate degrees. Once we were both employed full-time (huerray!) we continued to live on my salary and use my husband’s to pay off all our debt. This was in the days before the internet, when the banks would give you enormous coupon books to use for debt repayment. It was so fun to go into the bank and tear off PAGES of these things to hand to the clerk! (who was usually rather annoyed).… Read more »

Jacq
Jacq
8 years ago

PsyBlog had a great article on how to improve self control a few years back. http://www.spring.org.uk/2008/09/how-to-improve-your-self-control.php Basically says the same thing you are here J.D. – that mechanics are secondary. You need the “why” and then you’ll either find the way – or make one. That’s why a book like YMOYL was so instrumental to so many people in turning things around. You don’t even have to follow the 9 step process totally (I certainly didn’t) although it is a good process. The power of it is in the inspiration to see how much more choice you can have in… Read more »

Kurt from Money Counselor
Kurt from Money Counselor
8 years ago

Based on my work as a credit counselor, I have to mostly disagree. I think a foundation of any behavior is education, knowledge, and training. Does this mean every person who receives a good education in financial matters will behave responsibly with respect to money? Of course not. But many will who would not have, absent the education. While working as a credit counselor, I met clients daily who showed complete ignorance of the most elementary principles in finance, such as What is Interest? To expect responsible money behavior without education–whether it be self-education or public education (a different question)–is… Read more »

Peter Bülls
Peter Bülls
8 years ago

But don’t you, as a credit counseler, get mostly the worst cases. The ones that failed and do not know how to get up?

I think J.D. was more concerned with the the many, many more average consumers, who do not fall that far, but who would likely be off better if they managed their finances better.

Kurt from Money Counselor
Kurt from Money Counselor
8 years ago
Reply to  Peter Bülls

Peter–not at all. My clients reflected the spectrum of humanity. I would say the typical credit counseling client is the typical American.
Thanks.

Tom
Tom
8 years ago

I agree with you, as human beings we have the intellect and rationality to act responsibly with our money. However, we have been wired from birth, and possibly before, to consume. We live in a society which promotes the acquisition of consumer goods. We are taught from an early age to buy certain things. We are constanly bombarded with the message that our self worth and the value of our life is based on the type and quantity of goods we consume. I don’t think anyone is totally immune to these feelings. We treat people who don’t buy into the… Read more »

Saskia
Saskia
8 years ago

Funny. I consider myself financially literate, but I’m realizing I’m really not. (And yes, I aced Consumer Education in the mid-70s.) I’ve alway been frugal to tightwaddish and have “managed” my money by living under my means. To the extent that we were able to buy a condo last year with a 70% downpayment. The problem is that I “manage” money by letting it accumulate in my bank account into the four (sometimes five) figure range before shoveling it into savings accounts. I have CDs but I’m scared to death of the stock market. Recently, in an attempt to act… Read more »

Cat
Cat
8 years ago

I think it’s a 2 pronged approach – you need to learn about facts and figures (what kind of mortgage can you really afford, how long it will take you to pay off your credit card if you only make the minimum payment etc.), but you also need to learn how to live within your means. It’s much easier to learns facts than it is to modify your behaviour.

LaTisha @YoungAdultFinances
LaTisha @YoungAdultFinances
8 years ago

I try my best to stay away from advertising and constantly seeing this rampant consumerism but ad agencies are becoming increasingly adept at inserting their message into the programming. Reality shows with specific restaurants selected, movies with subtle product placement, etc. Really it’s hard to get away from advertising so changing our thoughts on how we spend and save really is the answer.

Christina
Christina
8 years ago

“And I’ve learned that by having financial goals – such as travel – I’m much more inclined to save than if I have no goals at all.” This was the thing that finally spurred me to work on building a savings now, at the age of 27. I realized I wasn’t getting much of anywhere just spending my paychecks as soon as they came in (I’ve had a lifelong feeling of money burning a hole in my pocket as soon as I’ve had any.) Numbers don’t do much for me. But goals — the bigger things that I can do… Read more »

El Nerdo
El Nerdo
8 years ago

JD – Okay, I’m going to take you along on a little mad ride if you don’t mind. You say that ads are the problem and they should be avoided. But the ads will find you. They will get you. They are everywhere. You can run but you can’t hide. So you need self-defense. And your weapon is MEDIA LITERACY. Once you can decode ads, it doesn’t matter how many you get– you become immune to them. Even allergic. Me, ads make me NOT want to buy things. Put it in an ad today and it’s off my shopping list… Read more »

Claire
Claire
8 years ago
Reply to  El Nerdo

LOL. Yes, the statement “My top tip? Kill your TV. Watch your shows some other way.” was the ONLY thing about this article I completely disagree with. Last night the TV hooked up to the DVR was being used, so I turned to the internet to watch a free stream of a TV show. Apparently, I had never done this before because I was FORCED to watch the ads at the commercial intervals in the show! There was no way around it; there were two commercials at each interval that had to be played. If I had access to the… Read more »

El Nerdo
El Nerdo
8 years ago
Reply to  Claire

I watch on Hulu and Netflix so I have no DVD. I try to make Hulu give me the most amusing ads. Of course I don’t buy from them. Only suckers believe in commercials. But hey, commercials make it possible for me to get Hulu so I won’t complain. Here’s one commercial that made me laugh yesterday: some guy who claims to be “average” (has average job, grills average steak) but is by all appearances a privileged 1 percenter gets a gift of a bottle of scotch with an inscription on it– apparently Johnnie Walker can engrave your gift bottles… Read more »

El Nerdo
El Nerdo
8 years ago
Reply to  El Nerdo

that was “no DVR.” DVRRRRRRRRRR. aghhh.

Rosa
Rosa
8 years ago
Reply to  El Nerdo

You can’t eliminate the hierarchy, but you can shift which part of it you’re in. There are less consumerist subcultures to belong to and get social validation from.

El Nerdo
El Nerdo
8 years ago
Reply to  Rosa

Yep, that’s absolutely right. There are many ways out of the high-school hierarchy mentality. I was just poking holes at the “ads” argument. 😀

Rosa
Rosa
8 years ago
Reply to  El Nerdo

Yeah, ads are the least of it. Though, media literacy doesn’t really counteract the underlying issue of media images affecting our idea of “normal”, either directly by making really rich, thin, white people look like a bigger share of reality than they are, or indirectly by changing the behavior of the peers you get your direct pressure from. I feel like a broken record, but Juliet Schor and others have done a lot of accessible research on what affects spending behavior (so have a lot of other people who translate it into sales tricks or trade secrets, but Schor presents… Read more »

El Nerdo
El Nerdo
8 years ago
Reply to  El Nerdo

Media literacy IS learning about those images. One of the many things I learned (it was a college class) was how the bookcases that appear behind the host in “serious” shows (you know the kind) are a special small size, as normal bookcases are too big. Just like that you learn about all the smoke and mirrors, and then you just keep looking– So every time we watch a tv show my wife and I say things like “wow, how can they afford that huge apartment in New York” or “look, they never wear the same thing twice” or “notice… Read more »

Rosa
Rosa
8 years ago
Reply to  El Nerdo

I read her first two popular books in deadtree edition back when they were new – The Overworked American and the Overspent American. I haven’t read her newest book, Plenitude.

She blogs here http://www.julietschor.org/blog/
and publishes articles at the New American Dream website. Her recent work is more about sustainability than the older stuff, which was a lot of research on what people buy and how they make buying and saving decisions.

hutchie
hutchie
8 years ago
Reply to  El Nerdo

In India, Till now we compare on how much education and wealth one has got. But sadly things are changing there but not to American extent.
We still compete on number of houses a person has and the gold he/ she can accumulate

Elizabeth
Elizabeth
8 years ago

Great post and discussions so far! One thing I’ve noticed is that we haven’t really gotten into what financial literacy is and who is responsible for delivering it. I was surprised to see that the recommendations from Canada’s Task Force on Financial Literacy isn’t just aimed at individuals and schools. Part of its that employers have to offer appropriate education about retirement options, and financial institutions have to provide clear, plain-language information about their products and services to help people make informed decisions. I don’t know if or how these recommendation will play out — some of them seem a… Read more »

phoenix
phoenix
8 years ago

In thinking about the anti-ad message, to me, I don’t think the ads are as much of the problem as the shows themselves. For example, the movie, High School Musical, has the star basketball player living in an AMAZING house and having everything he wants, even though his dad is a high school teacher and coach. It makes me laugh because teachers have such a small salary-the only teachers who I know who live like that are the ones who have husbands that work very good jobs. (My husband is a teacher) Most of the shows that are popular all… Read more »

Laura
Laura
8 years ago
Reply to  phoenix

Agreed. I don’t watch t.v. anymore, but the ads for shows that I do see, as well as movies that I watch, all show people who are supposed to be average living in mansions, wearing designer clothing, eating at expensive restaurants, and surrounded by more Stuff than you’d find in a mall. I always attributed it to the shows being produced by rich people reflecting their own lifestyle as “normal”.

Amanda
Amanda
8 years ago
Reply to  phoenix

Yes. I think most people know the ads are trying to sell them something, which makes them easier to resist, but the “this is what your house should look like” message that is indirectly conveyed through the shows is a lot sneakier.

Christine Wilson
Christine Wilson
8 years ago

Great post! I agree with you too. Behaviour is incredibly important. However it is not tied to attitude very strongly. From studies the correlation becomes stronger when attitudes are tied with a high sense of self awareness. Hence your idea of becoming aware of advertising affecting your behaviour is needed. Maybe kids should also keep a finance goals journal. The goals would be small personal goals they set for themselves. They could mark the steps they take throughout the week to save for these goals and sacrifices they made to keep on target? Also areas that where they failed and… Read more »

Jaime
Jaime
8 years ago

I pretty much agree with everything except that I have a TV and I like it. I don’t get cable on it, we use it for DVDs and video games. I do feel like I’m less exposed to ads by not having cable. As far as behavioral education I do agree with it, but like some others said, not everyone needs to suffer through trial and error. I’m in college getting a degree, but some classes I want to take are finance classes. Even though I have read more than a few books on personal finance, I feel that by… Read more »

Mike H
Mike H
8 years ago

Agree entirely with your points, but I do feel that one of the two “action items” you outline is more important than the other. Avoiding advertising will prove to be nearly impossible, given its ubiquity. Consumers are presented with around 5000 brand messages per day, according to one study. Even if one chooses to remove TV from their daily routine, I believe that consumerist temptations will not decrease in any significant way. Resisting or eliminating that temptation internally – what you call “mastering the emotional side of finance” – is a much more powerful notion, much like the man who… Read more »

Becky+P.
Becky+P.
8 years ago
Reply to  Mike H

I don’t watch tv since we don’t have one here in Poland. I use adblocker. However, when we visit the states, I am often exposed to tv. I notice a huge difference. I NOTICE the commercials and they do affect me. I find myself wanting more and more–even if not the things they are actually advertising–just “something else.” I find I’m much more content living here in Poland. Probably because people have less and electronics in the stores are more expensive, so they are not really an impulse item, but must be planned for. And they don’t have the fabric… Read more »

Claire
Claire
8 years ago

GREAT article! I 99% agree (except the comment I posted as a reply to El Nerdo). Anyway, I think a fundamental issue to your points, JD, is that MANY Americans have a very embedded sense of entitlement. They feel like they deseve this, that and the other, so they spend, spend, spend. How do you fix that? I have no idea. Not only that, but this is getting worse. People in my generation (Gen X’ers) and younger who are now parents seem to give their kids anything and everything, especially if it makes the child behave. This is going to… Read more »

barnetto
barnetto
8 years ago
Reply to  Claire

I was reminded of this onion article: “Nation Waiting For Protesters To Clearly Articulate Demands Before Ignoring Them” http://www.theonion.com/articles/nation-waiting-for-protesters-to-clearly-articulat,26353/ My impression is that they’re only very loosely organized, so it is inaccurate to describe them as having a demand that precise (forgiving their college loans), but it would be accurate to say they’re angry about the financial system and the continuing lack of accountability. Education was a bubble, and it has burst. I saw an idea I found intriguing. That Universitys and colleges should be responsible for loans (in the future, not the ones already issued) if their students can’t… Read more »

Elizabeth
Elizabeth
8 years ago

Claire, the student loan problem might make you angry, as it did me, before I researched it some and my research changed the way I look at it. It is a complicated problem. Tuition is too high for most people to afford. So they need loans. OK, loans were around 30 years ago, too (when I went to school). The problem is that student loans are granted to folks who cannot afford that much debt, and tuition rises to match — it is simply assumed that students will just get the loans. I suppose people don’t need to go to… Read more »

Sally JPA
Sally JPA
8 years ago
Reply to  Elizabeth

Amen. School tuition has risen far faster than inflation, and it is loans on the backs of students that have propped up those tuition hikes. Meanwhile, students taking out the loans often don’t really have a concept of how the payments will add up VERSUS take-home pay. I remember thinking I’d be doing well after college if I made $25k after graduation; that’s over two thousand dollars a month! Ha. Ha ha ha. (And I’d had a PT job since I was 14, so money wasn’t totally foreign to me. But salaries versus bills wasn’t real.) Also, the underlying question… Read more »

Carrie
Carrie
8 years ago
Reply to  Sally JPA

Unfortunately, students not understanding the implications of paying back student loans is often the failure of their parents. Paying for college is actually an excellent time to teach teenagers about finances.

Elizabeth
Elizabeth
8 years ago
Reply to  Carrie

I agree that many parents do not, themselves, understand the implications of student loans. But I would not take that a further step and “blame” parents (I’m not sure that you were). I think most people do not understand how student loans work (that they are predatory and that consumer protections have been removed). I think if more people understood what they really are, then there would be more of a protest against them. Having said that, I think student loans tie in very nicely to this article on behavioral finance. As it appears to me, we currently live in… Read more »

Claire
Claire
8 years ago
Reply to  Elizabeth

Wow, I am glad that my comments generated some interesting discussion. I guess part of my point is that for many people, in the process of getting what they want (such as a going to school or buying a house), they seem to blindly do whatever they need to do (like obtain a loan) to get it. They almost seem to unconsciously sign the paperwork without thinking about it. More people need to stop during the process, be more conscious, and say to themselves, “Wait a second, exactly what am I about to sign? How much is this really going… Read more »

Rachel
Rachel
8 years ago

I agree wholeheartedly it is important to pay far less attention to advertisements and the marketing of products. It is still valuable to know about the products and this can be achieved through reading news accounts (the development of the Kindle, for example). And yes, the psychology of economics is very important. BUT, once people actually begin to save, they do need some know-how about bonds and stocks and interest rates, retirement accounts, etc. – – i.e., financial literacy—to manage their savings.

chacha1
chacha1
8 years ago

I’m not trying to hijack the discussion, but as I was reading J.D.’s post I couldn’t help thinking “all this applies equally to weight management.” And the more I thought about it the more I thought “this is actually a manifestation of a systemic *cultural* assumption, in the U.S., that we can have anything and everything we want, at the exact moment we want it, and that the consequences will either pass us by or we can deal with them later.” We want extensive public services, but we complain about taxes. We want instant highly palatable food, but we complain… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  chacha1

These are interesting ideas, but they didn’t resonate with me. I am wondering how universal they are (I like to challenge ALL assumptions, and I like it that you are speaking about “cultural assumptions” and making an assertion that these are common enough that we all share them… I really don’t know. It would be great to find out what the majority REALLY wants and REALLY thinks. For instance, yes I want smart and useful public services, and absolutely I am willing to pay for them through my taxes. I’m scared of fake and processed food and although I’m very… Read more »

Laura
Laura
8 years ago

Excellent post, JD. I can’t wait to see where this “epiphany” takes you.

Sandra Micken
Sandra Micken
8 years ago

I’m a psychologist and I really enjoy your column becuase I think it speaks often to just this issue. Being healthy, finaancially or otherwise, is not usually a problem of a lack of knowledge these days – it’s a lack of ability to put what we “know” is best into practice.

Laura
Laura
8 years ago

More on the behavior/psychology aspect of money, how many financial decisions do people make without having emotion attached to it? Especially when it comes to opening statements, making decisions how to invest, deciding how you’re doing compared to the Joneses. A lot of neglect of financial issues probably has more to do with trying to avoid the emotions around it than anything else.

Aaron
Aaron
8 years ago
Reply to  Laura

Laura- this is well put. I would agree.. using money and other things as an avoidance vehicle.

Jaclyn Schell, CFP®
Jaclyn Schell, CFP®
8 years ago

Learning behavioral finance is the key. As a financial planner and adjunct professor of finance, I have had the opportunity to see how different types of people react to and handle money. Through this experience and my experience working as an adjunct professor, I have developed a course for teenagers focused on behavioral finance. Using real life examples from past clients and students, we explore why people make the decisions they do as well as strategies on how to trick yourself into making the right decision. http://www.moneymindedlearning.com Seeing the change in the the way the students think, at least initially,… Read more »

Emily Guy Birken
Emily Guy Birken
8 years ago

Great article! I’m fascinated by the field of Behavioral Economics, because I have found myself often making irrational money decisions (and dieting decisions and dating decisions and education decisions…) despite my knowing better. Once we understand that we need to be in control of our decision making process–and that control sometimes means keeping outside influences at bay–then we tend to make decisions that are actually in our self interest.

If you haven’t, please read Predictably Irrational by Daniel Ariely. It’s a fabulous discussion of how our decisions are motivated by completely irrational forces.

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