JUST PLAIN TALK: Financial literacy, personal finance, COVID-19 recession

Buz Livingston
Buz Livingston

Study after study indicates Americans favor making personal finance a high school graduation perquisite. Popular social media memes frequently lament the time wasted taking geometry in place of life skills. While the memes may be cute, the rationale behind teaching higher math classes is they encourage critical thinking. More importantly, they are required for college admission. Besides, in Florida, an economics course with an emphasis on personal finance is mandatory for graduations.   

Recently, Helaine Olen slammed the financial literacy movement in a scathing Washington Post editorial on May 3, 2021. It's not Ms. Olen’s first time shattering a golden calf. Her 2012 book, "Pound Foolish," carried the subtitle "Exposing the Dark Side of the Personal Finance Industry." In it, she argues the financial services industry uses financial literacy as a wholesome-sounding ruse. To an extent, the industry's argument has taken hold with overwhelming support for mandatory financial literacy courses.  

Individual Americans, so the story goes, spend frivolously and save insufficiently. The personal financial-industrial complex blames individuals making poor decisions, but it's not that clear-cut. Here's the fallacy. Most people who take a class in financial literacy forget practically everything within two years. Financial dilemmas are complex; sometimes, the correct answer is not apparent. What works for one individual may not for another. Even Noble Prize in Economics winner Richard Thaler labels financial literacy "impossible."  

For example, when the economy shut down last spring to stop the spread of Covid-19, financial pundits warned people would run up debt. Instead, the opposite occurred; the personal savings rate soared. The amount of money owed on credit cards dropped, credit scores rose, and overdraft fees fell. First, there was no place to spend money if you still had a job. Second, the investing class and homeowners saw their assets increase. Finally, the 2020 Cares Act included direct payments and supplemental unemployment benefits, along with a government pause in student loan payments.   

Don't get me wrong, while many benefitted, others struggled with the gap between the haves and have-nots worsening. However, Olen argues people used stimulus for immediate needs or to make long-term improvements to their finances. In other words, they handled their money well. 

Another point she makes is people, in aggregate, struggle because of a lack of finances, not financial illiteracy. Women aren't paid as much as men; that's a fact. Plus, women chop up careers to care for children or elderly relatives. Ergo, they have fewer assets. Minority populations face discrimination that inhibits earnings and intergenerational wealth-building. Olen writes, "… the wealthiest Americans bought themselves a government that for decades took care of their financial interests ahead of everyone else's."   

We should teach personal finance in high school, but Americans’ financial worries aren’t because they are financially illiterate.  Importantly, a single financial literacy class doesn’t make you an expert any more than one welding class makes you a journeyman pipefitter. 

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.