April is Financial Literacy Month and to mark the occasion, the National Foundation for Credit Counseling released a new survey about our money habits and our feelings about our financial lives. The survey found that 41 percent of respondents would grade themselves a "C" or lower when it comes to financial know-how; and 61 percent of U.S. adults don't have a budget, the highest percentage in six years. A third of households carry month-to-month credit card debt; and about two-thirds have not checked their credit scores or reports in the last 12 months. In other words, we stink at this money stuff. To help, the folks at the nonprofit Money Management International (MMI) created a 30-step path to financial wellness, which sounds like an awful lot of work to me, but isn’t financial wellness is worth it? If you are sensing a hint of sarcasm, you are spot-on. You probably expected me to jump on the financial literacy bandwagon, but I actually have some problems with the financial literacy movement.
Five years ago, when I left the financial planning and money management business and became a financial journalist, I had hopes that with a clear, easy-to-understand message, I could somehow help inform the masses. While that may be true, my view of financial literacy changed dramatically after I read Helaine Olen’s fantastic book, “Pound Foolish”. I was fortunate to interview Olen last year and thought the occasion of Financial Literacy Month would be a perfect time to check back in with her.
I asked Olen how she felt about financial literacy and she quickly responded “it takes an incredibly complex and complicated financial services world, and thrusts all responsibility for navigating it safely on the customer. It presumes that the reason we can't save is that we lack the skills, and doesn't even deign to acknowledge the fact that the cost of health, education and housing has skyrocketed as our salaries have stagnated and fallen.”
It’s tough to argue against financial literacy – after all, it sounds like a good idea, and if you argue against it, Olen says that it “sounds like you are against apple pie, but the fact is that it doesn’t work.” Sure, it’s better to have an understanding of basic financial concepts, just like it’s a good idea to understand rudimentary health care to be physically fit. But here’s the eye-opener: data indicate that financial literacy simply does not work. Despite millions being spent on financial education projects, people are not that much wiser about the subject. Olen says, “Students who study the subject seem to know no more or less than those who do not.” And plenty of financially savvy people do dopey things with their money all the time.
That it doesn’t work should not be surprising, because Olen notes that much of the financial literacy effort is financed by big financial institutions, whose motives may be suspect. Many of these big companies promote their public education projects, while at the same time, they continue to sell murky and complicated products.
If you are feeling insecure about your financial prowess, I urge you to seek guidance only from those advisors who adhere to the fiduciary standard, which requires that advisors put the interests of clients first. Those financial professionals with the CFP® certification from the Certified Financial Planner Board of Standards are fiduciaries, as are CPA Personal Financial Specialists, and members of the National Association of Personal Financial Advisors (NAPFA).
Both NAPFA (NAPFA.org) and the Financial Planning Association (plannersearch.org) have tools to help you find financial professionals in your area, who are fiduciaries. NAPFA advisors are fee-only, meaning that they do not accept any commissions, while FPA members include fee-only, fee-based and some who do accept commissions.
Perhaps one way to celebrate Financial Literacy Month is to acknowledge that you need help from someone who puts your needs first; can separate emotions from the equation; and who can guide you through life’s financial milestones.