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Plan Well, Retire Well

Saving and investing your money

In the news: Give up on financial education

Posted by Karen Chan - Karen Chan

Paging through the September issue of Money Magazine, I came across an interview with Lauren Willis, associate professor of law at Loyola Law School in Los Angeles. The teaser reads, "Law professor Lauren Willis suggests that we just give up on financial literacy."

Since financial education is what I do for a living (and do it somewhat passionately, according to colleagues and participants in my workshops), you can imagine that this statement caught my attention.

In this short interview by Stephen Gandel, Ms. Willis makes several points:

  • The educational efforts by non-profits and government are ineffective because they're up against the well-funded campaigns mounted by companies peddling financial products.
  • Financial products are not static - they keep changing and evolving.
  • Financial education turns people into do-it-your-selfers who ought to be getting professional help, and they make bad decisions as a result of the false confidence they got from the education. It would be better to teach consumers that sellers of financial products "often don't have your best interests at heart."
  • Regulation of financial products is a better answer.

I agree that I'm outgunned and outmanned by everyone from cell phone providers to sellers of variable annuities and banks sending out preapproved credit card offers. But here are some additional thoughts to consider:

Financial products do change. So when I teach about evaluating credit offers, I don't just teach what the Annual Percentage Rate. We talk about reading the fine print and questioning what you don't understand. That's a trasnferable skill that will apply no matter what the newest twist in consumer credit is. We don't just teach facts and figures, we teach how to question and protect yourself.

Will the same legislators who passed the Bankruptcy Reform Act at the behest of creditors pass the kind of pro-consumer regulations that Ms. Willis recommends as the alternative to financial education? And even if they do, will the resulting paperwork be so overwhelming that consumers will just sign without reading or benefitting from the required disclosures? Look at the stack of papers homebuyers must sign at closing as an example.

False confidence? I teach participants in my workshops to be suspicious of everything from the life insurance salesperson to the telephone company. I've had people reply on my evaluations that they feel less confident about their ability to manage their finances - because they know more! I consider that to be a success. But then there was the young woman who was ready to buy a car and had been told they were getting the best price. But using information I gave her, she re-negotiated and saved $2000. I've had people file amended tax returns to claim deductions they didn't know they were eligible for. In one series, people come back to the second class and for the first time realize how much they're spending on, say, lunch and how much they were able to save by making different decisions.

Financial education isn't just about "turning everyone into a financial planner." Many of my workshops include - or even focus on - how to recognize when you need help and how to select that help. For example, check out our tools for Choosing a Financial Professional. But hiring help isn't the answer for the immigrant family living on $25,000 a year.

The last question in the interview was, "Should parents stop teaching their kids about money?" Willis responded, "Of course not...families can do a much better job of teaching than government can." Yes - if your parents had those skills themselves and were willing to talk about it with their kids. But if they weren't, I'd like to give you the chance to learn some of that with me.

I realize that not everyone who comes to my classes and workshops is going to make major changes in their financial behaviors. But to give up? I'm not ready to go there.

What do you think? Click on my name below and send me an email with your thoughts on the value (or failure) of financial education.

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