Financial Literacy: Married to the wrong strategy

By Anita Ward, President Operation HOPE

Traveling to Vegas a few weeks ago I sat next to a lovely woman from Texas.  She sported a big smile, a big drawl, the required big hair, and the biggest (and most beautiful) ring I had ever seen.  

Not one to remain silent when curious, I immediately had to know about the shining, golden, glistening, nearly-screaming-out-to-me gem on her hand.  

“Well, honey”, she smiled and shared, “This is a 9 carat canary diamond from Australia.  My husband proposed with it in Sydney. It’s my engagement ring.”

Pausing, momentarily perplexed that I couldn’t identify a perfect yellow diamond,  I exclaimed “But you’re wearing it on the wrong finger”!

To which she replied without hesitation … “That’s because I married the wrong man!”

I tell this story to share my opinion of the current financial literacy narrative – we are all married to the wrong strategy.  In order to be effective and sustainable, the strategic focus on financial literacy and financial capability must shift to financial wellbeing and financial dignity.  Nearing a financial crisis, the Millennial generation exemplifies this need. An entire generation faces an uncertain future, and the facts are compelling.

• The student loan debt exceeds $1.3T
• The 2014 class graduated with an average of $28,950 in student loan debt
• 40% of Millennials say they are overwhelmed by their debt
• 50% of Millennials live paycheck to paycheck and are unable to save for the future
• 43% of Millennials use predatory and high-cost borrowing methods, including payday loans, pawn shops, title loans, and rent-to-own stores
• 25% admit that they do not pay their bills on time

Financial literacy is an important topic among financial institutions, schools and the government. Like all literacy, financial literacy is a foundation upon which to build the critical thinking skills, yet only 17 states require high school students to take a course on financial literacy.  According to an RBC/CNB survey, 87% of Americans believe that financial literacy is important and that it should be taught to kids in school. Sadly, more than one in six students does not reach the basic level of proficiency in financial literacy.

The pyramid must be flipped; rather than achieving financial literacy the goal should be financial dignity for everyone.

Financial Literacy: the language of money
In its simplest form, financial literacy means learning the language of money. The President’s Advisory Council on Financial Literacy defines it as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial wellbeing.”  A financially literate person possesses the skills and knowledge necessary to make informed decisions related to their financial resources.

Financial Capability: the management of money

Financial capability builds upon the financial knowledge, skills and literacy.  It includes a shift in mindset and attitude that amplifies the skills obtained in literacy programs. If an individual is financially capable, he is confident accessing and engaging with financial institutions, products and markets. 

Being financially capable means:

• Managing money well 
• Planning and saving for the future
• Establishing economic resilience
• Preparing for unexpected events
• Using credit well while avoiding unmanageable debt

Financial wellbeing: security and freedom of choice

Financial wellbeing is a highly personal state that isn’t entirely defined by financial measures.  Wellbeing is looked at over time. In the present, someone who has financial wellbeing has control over month-to-month finances, and has the financial freedom to make choices to enjoy life.  In the future, financial wellbeing ensures that an individual is resilient to financial disasters, and is on track to meet financial goals. 

There are many factors that influence financial wellbeing. Social and economic conditions, like family, community and opportunity, are the first level of impact.  The next level is personal and includes personality, attitude, decision-making and context, knowledge and skills. Behavior and actions define the next influence. All of these contribute to personal financial wellbeing. 

There are some best practices to achieve financial wellbeing.

• Live within your means
  • Develop strong money management habits
  • Eliminate impulsive and mindless spending
  • Use credit responsibly
  • Stay out of debt
• Stay informed
  • Find the facts
  • Engage a financial wellbeing coach
  • Ask questions and get advice from professionals
• Focus on the future
  • Connect aspiration and reality
  • Establish goals
  • Build a budget and action plan to achieve those goals
  • Make a difference in your life

Financial dignity is a basic human right.  It is something we are born with and something we strive to keep. Real financial dignity looks like individuals vested with financial knowledge; self-sufficient with the fundamentals to build their own businesses, raise their credit scores, buy homes, or simply make better decisions with the money they have.  Learning how to effectively handle money, credit, debt, and risk are crucial to economic survival and sustainability. A community empowered with financial dignity asks better questions, demands better products and services, is more aspirational, and is better positioned. An empowered community is a community filled with economic opportunity. 

A truly inclusive economy needs all the players on the field—including those traditionally left to wait it out indefinitely on the sidelines: women, low- and moderate-income communities, young people, minorities, etc. Building an economy that works for everyone ensures that the right conversations are taking place, and more importantly, the right resources—training, empowerment and development—are being deployed to create economically stabilized communities. At HOPE, we offer a hand-up, not a hand-out. We partner with financial institutions, corporate brands, government agencies, school systems, and other community organizations to deliver a message of financial empowerment and independence to a new generation, of all races, from all places, who never received the tools and education to free themselves from a life of financial dependence and debt. We empower young people and adults—teaching them the language of money to help establish new financial mindsets and lead people on the road to financial wellbeing and dignity.