In 2004, Congress designated April “Financial Literacy Month”. The idea behind it was to raise the public’s awareness around financial literacy and education. We can’t confirm this but based on job performance and soundbites out of Washington, it would appear Congress then made themselves exempt from participating. Much like they do with healthcare and insider trading laws. Joking aside, it is an important subject and one that does not get enough attention. Whether it is in elementary schools, preparing teenagers for the cost of college, or adults trying to provide for their families and save for retirement, financial literacy is something that could be improved across the entire age spectrum (while we’re here, we’ll throw in a shameless plug in for our age-based planning series).

The world of finance is constantly evolving and moves fast. As the saying goes, there are no patents in finance, so you better keep learning. For example, if you go back just two generations, people didn’t have to worry about retirement planning. Not because it was easier back then, but because most people didn’t really retire. Until World War II, the labor force participation rate for people over 65 was well over 50% and life expectancy was much shorter. When you step back, retirement as a basic goal for everyone is a fairly new idea in the scheme of things.  

Retirement isn’t the only place change happened rapidly. College was not very expensive a couple generations ago, and most people didn’t even go. Most got good jobs anyway and many households only had one parent who worked. In 1940, one in twenty-five people had a bachelor’s degree, while in 2015 that number was one in four. Meanwhile the cost over that period of time exploded. We were told you needed to go to college to be successful, and many fields all of a sudden needed master’s degrees. The result was millions of people who took on huge sums of debt without understanding the long-term impact of their decisions.

These are just two examples of a common theme: as the world evolved and got more complex, our education and resources around topics of personal finance and investing mostly did not. Overall, the developments are great for the economy and quality of life, but people need better tools to navigate the world as it changes around them. Educating yourself to make better strategic decisions with your money is more important than ever, while at the same time there is more noise out there than ever. It is not easy. The financial industry does itself no favors in this regard.

If you google “Financial Literacy Month” plenty of helpful resources will pop up. However, sorting through the differences between a traditional IRA, a Roth IRA, and a SEP IRA, and which is best for you can be nuanced and confusing regardless of how many articles are written on it. Understanding how interest rates, compounding, and debt can affect your ability to create wealth are not intuitive and could be a yearlong course. A blog post can only help so much (although we try pretty hard). Understanding your household’s balance sheet isn’t taught often enough in school. Add in the fact that as a society we tend not to talk about money, and it’s no wonder so many of us struggle financially today.

Money issues aren’t just caused by a lack of formal education though. Learning about finance and investing are not clearcut like spelling or math class as a kid. It is not information that can be memorized, regurgitated, and written down cleanly. Decisions around money are personal, and based more on emotions than logic. For example, most people know carrying credit card debt is bad. Still, many of us have it. Why is that? Financial literacy is important, but so is understanding how we think about our finances. Everyone has a different “financial psychology” based on early experiences in their life. Much like a fish doesn’t know it’s wet, we often don’t know we have a specific style of behavior.

Regardless of each person’s unique thought process, most of us stress out about our finances. A recent Harris poll showed over half of Americans feel anxiety, fear, and insecurity when it comes to money. What is interesting is these numbers were consistent regardless of level of income. Stress around money can then bleed into every other area of life. Money isn’t everything, but it can make life harder. Our relationship with money is like any other relationship: sometimes messy while taking a lot of work to be successful.

Most financial questions should be answered starting with “it depends”. If someone is giving you a quick product-based answer, chances are they are trying to sell you something. The point of an advisor should not be to sell you products. It shouldn’t be to give you hot stock tips. Your advisor should be able to help you with all of the above: financial education to make better decisions, serve as an expert when it comes to the technical blocking and tackling of investing and financial planning, and understanding how you think about money and why. They should do all of this while taking the administrative burden off your hands so you can focus on what you care about. All of these things create a process and drive behavioral changes while removing stress. That is what really drives better long-term outcomes.

Disclosures

Citations

National Financial Literacy Month: 30 Days To Celebrate, Learn And Share, Kevin Payne- Forbes, April 2nd 2021

Psychology of Money, Morgan Housel, 2020

The Behavior Gap, Carl Richards