I graduated from the U.S. Naval Academy in 2007 and I was financial illiterate.
Think about that for a second.
U.S. Naval Academy is a perennial top public institution with the academic difficulty of a traditional Ivy League institution yet I accomplished that feat and can honestly say, I was financially illiterate at graduation.
I didn’t understand how money works and here’s the thing I wasn’t alone.
The United States is ranked 14th in the world for basic financial literacy, yet we have the largest economy in the world. That’s insane.
In fact, it is estimated that only 57% of adults in the U.S. are financially literate. We can all agree financial literacy rates are a problem but yet, no one has designed or implemented a solution that truly addresses the issue. What we have done is try the same things over and over. Again, that’s insane.
Commonly proposed solutions such as teaching children as young as three financial concepts have been suggested, however this doesn’t get implemented because there is no consensus on the best format to deliver the information.
Others have suggested financial literacy at the high school level? Well, this won’t work either. Why? Because when is the last time you were able to get a high school student to focus on something that has no immediate impact on their life. Unfortunately financial literacy is akin to the foundation of a house. You didn’t know you needed it until the house is in the midst of a hurricane and your house is rocking like a concert.
Well how about reading books? There are plenty of options out there. Whether you recommend Rich Dad Poor Dad, Ramit Sethi’s I will Teach You to Be Rich, or even the dreadful Dave Ramsey The Total Money Makeover. Having that many options tells you immediately that there is no great option.
We read these books once we have the motivation to change. They aren’t a preventative solution. Trust me I know. My financial literacy journey started in response to me asking for help and being told I didn’t make enough money. The reality is we have a reactionary approach to financial literacy and we need to reframe how we approach financial literacy in this country.
So what do we do?
I am proposing we take a different approach. In fact I am proposing five different solutions or tactics to attacking the financial literacy problem and here they are:
1. Utilize Problem Based Learning
We learn best by solving problems. Whether that problem is installing a new vanity, like I did a couple weeks ago or figuring out how you’re going to afford paying your student loans. Problems force our brains to learn something new or utilize prior learned concepts to arrive at a viable solution.
WE problem solve every day in our lives and are naturally used to it. Think about how many times you’ve asked Google, “how to do something,” or watched a YouTube video to explore a thought.
We can utilize our natural learning tendencies and teach people financial topics like budgets, interest rates, or investing, via using common scenarios and starting with a normal question, like “How do I afford a car?”
2. Teach the Teachers
A typical U.S. student spends 8,884 hours over nine years to complete primary and lower secondary education. That is a lot of contact hours in which the sole focus is to learn. School teachers are well versed in Math, English, Science, Art, History, so why not finance? Our kids spend majority of their waking hours with their teachers, so let’s maximize that time and teach financial concepts as well.
However we need to ensure teachers are financial literate before this could be done. Remember 57% of Americans are financially literate (see above) and its not unreasonable to think your average teacher is in the other group.
So lets teach the teachers, then watch the problem start to work itself out. I call that a win-win.
3. Stop teaching jargon and teach concepts.
The financial industry is full of jargon yet everyone refuses to cut back on it. Jargon is intimidating. Jargon is not inclusive. Jargon doesn’t convey intelligence.Jargon is a way of keeping those around you uninformed and out of the conversation. The goal with financial literacy is to be inclusive and create an environment conducive to learning.
The over-utilization of needs to stop.
Let’s take a concepts first approach. Instead of giving someone the definition of a bond yield, help them understand in the context of their everyday life, what a bond is and what the benefit is in owning one.
Memorizing lists of dictionary words aka jargon does not commit the knowledge to your long term memory. Our goal is to have a long-term solution so jargon is not helping.
4. The conversation needs to start and end with compound interest.
If I was to say anyone was my idol, it would be Warren Buffett. His understanding of compound interest is what created his long term plan of building wealth aka his “Snowball”.
I can’t remember learning about compound interest until I was well into school at the Naval Academy. Yet, compound interest is a tool that is given to all of us to serve as a mechanism to lift our economic situations. I mean it is the eighth wonder of the world according to Albert Einstein. A thorough understanding of compound interest can be life changing and we can teach the financial literacy topics necessary to be successful from that baseline understanding.
5. Be a human.
I can’t say this enough, we often forget to be human. Think about your reactions when you see something that isn’t pleasing to the eye. Think about your reaction if you see a homeless person living on the street.
I don’t care, if you’re rich or poor, we all forget to be human. Having empathy and compassion for someone in a situation unlike yourself goes a long way. Being a human, can allow us to empathize with someone else’s situation and can serve as fuel to help drive a solution to a problem like financial literacy.
Start with being a human and treating people how you would like to be treated. If you didn’t understand money, wouldn’t you like someone to teach you?
In conclusion, I am challenging us all to come up with 5 potential solutions which are different from what has already been done. Because quite frankly it isn’t working. The wealth divide is increasing and its not slowing down unless we make a radical change. I am tired of the financial literacy problem, so I am committed to finding a solution. Can you help me?
As always if you have questions or concerns regarding creating an emergency fund, investing, real estate, insurance, or planning for the future, don’t be afraid to speak with qualified financial advisor. Smart Asset has a great tool to find an advisor in your area or feel free to email me (contact@surgifi.com) to help you on your path to financial independence.
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