Experts are weighing in about the fundamental ways in which the world will transform after the Covid-19 pandemic and its accompanying economic recession. Here’s one thing I hoped wouldn’t experience a comeback: calls for traditional financial literacy education, with a focus on teaching students to responsibly budget, save, and invest.

But it’s already happening.

The old financial literacy refrains are already here. “The monetary fallout of COVID-19 — business closures, job losses, declines in tax revenue — still is being determined. To recover, we need financial literacy more than ever,” the Richmond Times-Dispatch editorialized earlier this month. Others are already pointing fingers. “Coronavirus reveals financial irresponsibility of Americans,” proclaimed The Hill in March.

The push for more personal finance in schools picked up in the aftermath of the Great Recession. Government officials and policy pundits alike decided that improving personal finance was the moral of the economic meltdown story. In many cases, this pocketbook education comes with a side of moral judgement. In Maryland, a 2016 state curriculum document implicitly attempted to make the case financial literacy could prevent another economic crisis:

With the nation currently in the midst of a financial crisis, far too many people are deeply in debt and are faced with the reality of losing their homes and their financial security. The events of the last decade point to the need for a more focused approach to personal finance instruction for students, both while they are in school and in the future. The state standards lay the foundation for a new generation of competent, confident, and financially literate adults.

Despite numerous studies which cast doubt on the effectiveness of financial literacy education, forty-five states now include finance literacy education in their standardsNorth Carolina recently removed one of two required U.S. history courses to make room for a state-mandated financial literacy class.

An analysis I conducted of curriculum documents across the United States and Canada showed that financial literacy standards frame economic well-being primarily as a personal practice, overlooking the various mechanisms that generate inequalities. They ignore the role of Wall Street, the lack of government financial regulation, and a financial system in which crises are par for the course.

Financial literacy standards extol the virtues of attaining personal wealth but in forty-one of the forty-three curriculum frameworks I examined, the word “capitalism” does not appear. Financial literacy is silent about the need for decent working conditions, unemployment insurance, paid leave, a living wage. It also leaves unmentioned the subject of rising economic inequality marked by income volatility and unaffordable housing. Mounting student loan bills are presented as a problem of financial smarts, not skyrocketing college tuition. Instead, a financial literacy narrative endures which maintains that people are in debt because they spend their money on luxuries like lattes and avocado toast.

Yet we know from research that those who prosper in our world do so not just because they’re hardworking, disciplined, or financially savvy but also because the system works in their favor. Family background and birthplace matter significantly. Individuals who grow up in middle-class and upper-class families benefit from intergenerational transfers of wealth, inherited advantages based on class and race, and the transmission of social capital, including opportunity hoarding, when parents secure the best schools, internships, networking opportunities, and employment for their children. 

But financial literacy standards neglect these crucial lessons about money. Students are expected to make the “right” financial decisions and behave responsibly while the curriculum keeps mum about the misbehavior of the rich and powerful. There is nothing, for example, about moneyed interests rigging the system through corporate lobbying, political action committees, and deregulated campaign contributions to win economic advantages such as offshore tax breaks and domestic tax loopholes. Nor do the curricula ask hard questions about who deserves a big paycheck and who does not. So-called “low skill” workers are typically undervalued in our society, both economically and socially. Yet the cleaners, cashiers, and delivery drivers are currently the acknowledged “essential workers” who are ensuring our very survival while we isolate under shelter-in-place orders.

The distinctive character of the current crisis puts the lie to the supposed lessons of the last: if we only worked harder, improved our financial conduct, and made better money decisions, we could have avoided a financial collapse. Many people, as a result of the current crisis, will suffer immense economic losses for which no amount of financial knowledge and disciplined behavior could have prepared them.

As the economic system comes to a grinding halt, it offers an opportunity to rethink our obsession with financial literacy education. We deserve more honest narratives about the distribution of wealth and power in society and the extent to which individual financial know-how can do anything about it.

I’m not suggesting that more critical teaching will fix the economic system. Too often, the education system is tasked with solving inequities that are structurally entrenched in our society. But what a critical approach can do is educate a citizenry more truthfully about what it takes for individuals and societies to flourish.

Young people need a new, more critical economic literacy which illustrates the historically constructed nature of our financial system. Public problems like economic insecurity and financial crashes can’t be solved with personal finance education. We need to stop pretending otherwise.

Agata Soroko is a PhD candidate and part-time professor in the Faculty of Education at the University of Ottawa. Her doctoral research examines critical approaches to financial literacy education. 

7 thoughts on “The Financial Literacy Delusion

  1. Instead of requiring courses in financial literary, require financial institutions to provide appropriate information to potential customers. One of the mandates in the North Carolina law was that the course must teach the “true cost of borrowing”. Instead, borrowers should be required to provide the information on clear standardized forms, including the total amount of the repayment. Financial literacy courses are simply justification for corporate misleading.

  2. What gets left out is that debt is not just a byproduct of capitalism, but its foundation.
    We are linear, goal oriented creatures in a cyclical, reciprocal, feedback driven reality, so while markets need money to circulate, people see it as the signal to extract and store, from the noise of society and the economy. Requiring more to be added and ever more metastatic methods of storing what has been extracted.
    Since much of it functions as a contract, with the asset backed by a debt, this means sufficient debt has to be created.
    One way is to squeeze the money flowing through the general economy, requiring it to run on debt and pulling that investment money back into circulation.
    Another way is making the government debtor of last resort. The capital markets couldn’t function, without the government siphoning up now trillions in otherwise surplus capital. Which might explain why we can have endless and strategically inept wars, if their real function is to spend the money, in order to borrow more. The federal debt really ballooned with World War 2 and has been building ever since.
    Money functions well as a medium, but not a store. It’s like blood, not fat. It has to circulate. It’s a lubricant, not a fuel. We own it like we own the section of road we are using, or the air and water passing through our bodies.
    It’s a public utility and should be treated as such. The problem isn’t so much injecting it where it’s useful, but pulling out the surplus. The government should tax out what it currently borrows, then people will learn to store value in more tangible and productive assets and leave finance as an accounting system.
    We do save for many of the same reasons, so if we developed the premise of the public commons, as a store of value, we wouldn’t have such an atomized culture.

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