Why aren’t people getting smarter about their finances?

Why aren’t people getting smarter about their finances?

Turns out people don’t know a lot about budgeting, saving, credit reports and credit scores — important areas needed to be successful money managers, says the National Foundation for Credit Counseling.  So what’s your financial IQ? Could you explain how credit scoring works? What’s in your budget? Or do you even have one? Sixty-one percent of U.S. adults, the highest percentage in six years, admit to not having a budget, according to the foundation’s recent financial literacy survey timed for release this month. Forty-one percent of survey participants gave themselves low or failing grades based on their knowledge of personal finance. “This year’s survey once again confirms what we already know: the need for financial education is great,” said Susan C. Keating, president and chief executive of the foundation. “Without a solid foundation on which to base everyday financial decisions, Americans are on a slippery slope as they begin to rebuild their financial lives following the Great Recession.”

But there’s a fallacy to financial literacy month, said Jill Schlesinger, a certified financial planner, who writes the blog “Jill on Money.” “Despite millions being spent on financial education projects, people are not that much wiser about the subject,” Schlesinger wrote in a recent blog post. She bases her conclusion on revelations she found in Helaine Olen’s book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Olen’s book was the Color of Money Book Club selection in January 2013.Here’s my review.  So why, with so much effort and money being spent on financial literacy, aren’t people getting smarter about their finances?

The Consumer Financial Protection Bureau found that spending on financial education by nonprofit, corporate, and government organizations came to $670 million per year, or roughly $2 per American, reported Kelly Holland of CNBC. “But financial services firms also spend $17 billion annually on marketing consumer financial products, the bureau found — an amount equivalent to $54 per American,” Holland wrote recently. “With that kind of disparity, the simple educational messages may simply get drowned out by marketing pitches offering quick profits and improbable returns.”  A lot of the money spent on the efforts comes from big financial institutions, Schlesinger wrote: “Many of these big companies promote their public education projects, while at the same time, [they] continue to sell murky and complicated products.”  But could it also be that it just takes time to educate people about what has increasingly become a complicated financial life? That’s part of it, Annamaria Lusardi, professor at the George Washington University School of Business, told Kelly Holland of CNBC, who wrote recently about why it’s hard to get financial education to stick with folks. “We don’t give financial education lessons and people run back to their offices and change their financial behaviors,” Lusardi said. “That’s not how it works.”

J.D. Harrison 4:08 AM ET   April 25, 2014

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