{"id":113952,"date":"2019-04-24T10:33:29","date_gmt":"2019-04-24T17:33:29","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=113952"},"modified":"2023-12-05T14:18:36","modified_gmt":"2023-12-05T21:18:36","slug":"why-financial-literacy-fails-and-what-to-do-about-it","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/why-financial-literacy-fails-and-what-to-do-about-it\/","title":{"rendered":"Why financial literacy fails (and what to do about it)"},"content":{"rendered":"

April is Financial Literacy Month<\/a> 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.<\/p>\n

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

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<\/strong> 20 months or more from the time of intervention.<\/p><\/blockquote>\n

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.<\/p>\n

We’re pumping tons of money and time<\/a> into a fruitless endeavor. All of this push to promote financial literacy accomplishes nothing<\/em>. Zero. Nada.<\/p>\n

Why is that?<\/p>\n

\"Why<\/p>\n

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).<\/p>\n

Note:<\/strong><\/em> 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.<\/a><\/p><\/blockquote>\n

<\/span>Why Financial Literacy Fails<\/span><\/h2>\n

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.<\/p>\n

This is insane.<\/p>\n

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.<\/p>\n

The same is true with financial literacy.<\/p>\n

In fact, the same is true with actual<\/em> literacy. The National Assessment of Adult Literacy says that working literacy has two components<\/a>.<\/p>\n