I’m a believer in life-long learning. We’re better off when we take the time to learn what we can about personal finance. However, some people seem to believe that if we just taught personal finance well enough in schools, we’d prevent so many people from handling their money poorly. Education is valuable but will never be a complete solution.
The first reason why personal finance education isn’t enough is human nature. We know we should eat well and exercise, but many of us are fat and out of shape anyway. When I eat a donut, it’s not because I lack education; it’s because I had a lapse in willpower and the donut was available. Similarly, personal finance education will help to a point, but even those who know better will often lack the impulse control to make consistently good money decisions.
Another reason why personal finance education isn’t enough is that businesses that make money from our poor choices will adapt. Financial institutions have been remarkably successful at marketing debt to the masses. If their current marketing methods stopped working due to better education, they’d change their methods. Many successful businesses are made up of nine parts providing valuable goods and services and one part exploiting human weaknesses. Maybe their adaptation wouldn’t be fully effective, but it would work to partially undermine any widespread personal finance education.
People are not well suited to making good long-term financial decisions. Better education would help, but we’re still likely to keep buying ridiculously expensive vehicles on credit and keep giving away half our savings to mutual fund salespeople.
To improve the finances of the average person, we need a two-pronged approach. One prong is improved personal finance education. The other prong is better government policies and regulation. We need to make it easier for people to make good choices. Workers should have the option of a simple low cost retirement savings plan. A more difficult challenge is to help people avoid building foolish debt.
Financial institutions are unlikely to worry about personal finance education efforts because they can confidently count on their ability to market their products in different ways. However, any government effort to steer Canadians away from debt and poor investment choices is likely to be met with fierce resistance. But the potential rewards for the average person are enormous.