I’ve worked in finance for most of my career but until recently I’d never heard of the term “financial literacy”. Now, I’m seeing it everywhere and it appears that if we increase people’s Financial Literacy all our problems around debt, money, and stress will be solved. Problems like:
- 46% of us live pay check to pay check
- Older women are the fastest growing group of people experiencing homelessness
- Nearly 1 in 3 respondents (30%) said they had missed at least one After pay payment.
The only logical solution, I am reading, is to become more financially literate, but is this really the only option? Do you even want to become financially literate?
Firstly, what is financial literacy? Is it learning about financial concepts? Or is it about reaching “financial wellness”? Fundamentally, do we just need to make smarter decisions with our money?
Cleanliness is next to godliness
I understand the value of keeping my home clean. It’s healthier, makes me more productive, it’s great for my mental wellbeing and it just feels great. But you know what, I detest cleaning. I’m happy to wash my dishes and hang out my freshly washed clothes, but ask my Mum how often I would clean my bathroom (about as often as Haley’s Comet enters our night sky).
So, according to my statement above, the logical thing to do here would be to become “life admin literate”, in other words, learn all about how to keep my house clean, maybe even read the best book about “the best ways to sweep?”, or “How to achieve a clean bathroom in 30 seconds”? and then put this to practice… if I become “like admin literate” would I all of a sudden enjoy doing it? … I don’t think so…
Filling a leaky bucket
Imagine if you had a bucket of water. And every time you attempted to fill the bucket, 90% of the water would leak out instantly. Every time, all you’d retain was a measly 10%. How many times would you keep filling the bucket? I believe the correct answer is just once. You see the only way to retain new knowledge is to use it instantly and there’s a good reason why. When you implement, you instantly make mistakes. So as soon as you run into difficulty and start to make mistakes, you have to learn how to correct the mistake. This forces your brain to concentrate.
So if you read a book, we retain only 10% of what they learn when they’ve learned from reading, (Sorry The Barefoot Investor) take a financial literacy course but we don’t use/implement our new knowledge we will forget 90% of it.
How many times do we want to fill this bucket? Or read another book on money?
Where will we find the time?
Even if improving financial literacy is the only answer, where will we find the time? We are all time-poor, and when we come home at night, after a long day at work, the last thing we want to do is to think and particularly to learn about financial literacy and as far as I know, MAFS isn’t focusing on increasing society’s financial literacy skills.
Dollars and Sense
So, increasing our financial literacy will really solve our current money issues (and according to the BFF money survey only 6% of respondents do not have any concerns about money)? Are these the kind of things that come to mind when you hear the words “financial literacy”:
- What is compound interest?
- How much life insurance do I need? And should it be held in my superannuation?
- How do I create a personal Profit & Loss and balance sheet?
- How do I come up with a personal budget?
- What is a comparison rate?
- What are the pros and cons of property investment versus shares or managed funds?
- What is the difference between agreed value vs replacement value?
Like most Australians, your eyes may be glazing over just reading these points above. Unfortunately, we live in a society were managing your money seems to be becoming increasingly complex. Just think about how difficult it is to select a Health Insurance product with confidence!
Coaching and support
So, if along the way of this article I have managed to get you to agree with me on that becoming financially literate might not be the answer, what then should be the answer to this problem?
To prove my point I will stick to the example I gave before, I hate cleaning but I understand, in fact, I appreciate the value of a clean house so I do the only logical thing I can think of, I outsource it. My flatmate and I pay $70 (each) per month for our apartment cleaning. This is practical and within my budget. If I can afford to pay $79 per month on the gym and $75 per month on Stan/Netflix/Spotify/YouTube, I see great value in the $70 for our fabulous cleaner. But even so, I still do have a fundamental role in keeping the apartment tidy (different to ‘clean’), and doing day to day chores like dishwashing and clothes washing. Like my financial situation, I still feel in control and ‘own’ the situation, but outsource some of the detail to help keep me on track.
Nearly all of us understand the importance of having our financial house in order. It reduces stress, improves relationships and helps us to achieve our goals. But more than 80% of us think about money management the same way I think about cleaning my bathroom.
I believe we should look towards financial wellness rather than financial literacy. It is about setting goals, having a plan and taking action to reduce or remove the monetary stress from our lives and to regain control. For the vast majority of us, it is far more likely to achieve our goals if we ask for help from a coach (a cleaner) or maybe even a BFF. It is not about handing over control, but about having support and accountability.