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Financial Literacy: More Than the "Flavor of the Month"

May 28, 2019

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April is Financial Literacy Month. While raising awareness is important, it is the everyday work, done day in and day out, that has the potential to effect meaningful change for individuals.

This day-to-day work is nuanced and complex and messy. It requires us to pull back from focusing exclusively on the choices and behaviors of individuals to reveal the context in which those choices and behaviors are being enacted. While financial literacy is essential for individuals to effectively navigate the complexities of their own financial landscapes, the responsibility for the challenges of doing so should not be placed exclusively on individuals.

Complex financial landscape makes financial literacy necessary

The role of players in the consumer financial industry is too often missing in discussions of financial literacy. The information consumers need to make informed decisions is frequently—and sometimes intentionally—couched in prohibitively complex language. Attributing confusion about the fee structure for accounts and products offered by a bank or lack of awareness of a costly exclusion in an insurance policy to insufficient consumer financial literacy does not acknowledge the significant role and responsibility of players in the financial industry. When we acknowledge that part of the need for financial literacy arises from the complexity of the financial landscape, we shift the narrative from one in which consumers are deficient in knowledge, to one in which consumers are empowered to negotiate the murky terrain created by the consumer financial industry.

General financial advice assumes everyone has the same choices

A second key factor that is frequently omitted in financial literacy efforts is the acknowledgement that the same financial choices are not equally available to all consumers. Levels of income and wealth are inextricably linked to people’s financial decisions, effectively defining the range of possibilities. According to a 2017 report by the Urban Institute, over 39% of respondents reported struggling to meet at least one basic need for food, healthcare, housing, or utilities. Too frequently, well-meaning financial advice urges consumers to ask themselves, “Should I really buy that $5.00 latte?” While the more relevant question for many is, “How will I be able to pay for my basic needs this month?”

Educational interventions are crucial to financial well-being

Financial literacy and a thoughtful financial decision-making process are crucial to financial well-being. These skills can be learned and practiced by individuals and are within the scope of educational interventions. Such interventions are critical, given the complexities of the financial system. Income and some amount of wealth are also critical to financial well-being. So, although April is only thirty days, the everyday work of promoting financial literacy goes on all year round. Broadening the scope to acknowledge the context of the diverse and complex financial landscapes that people inhabit will make this work even more impactful and relevant.