A Better Conversation About Money

Financial literacy teaches people how to navigate the system. True financial education would show us how the system works.

Source: Artvee.

I once interviewed a financial advisor who had written a best-selling book telling people to build wealth by forgoing little luxuries like lattes. When he called me for the interview, he said he was in line at a Jamba Juice, cheerfully adding that he was flagrantly violating the central tenet of his best-selling books.

I’m not sure why he volunteered this information to a reporter. Maybe it was his equivalent of driving to the interview in a luxury car or flashing a diamond-encrusted watch. Follow my advice and you can live like me! Jamba Juices all day long, baby!

Still, I basically agree with his advice. If you skip treats like cold brews and cinnamon rolls and instead stash that cash in an IRA, you can amass a healthy nest egg over time.

This was the kind of advice I repeated often in the personal-finance stories I wrote during the 2000s and 2010s. I took the advice, too, and I’m glad. But my stories were limited. My job was to provide counsel on how to navigate the system, but not to question it.

I see that same limitation in the financial-literacy movement, which has exploded over the past five years. Twenty-five states now require students to take personal-finance education to graduate from high school, up from eight in 2021.

The idea behind financial literacy is that if schools teach young people to do things like make budgets and calculate mortgage interest rates, the students will make better decisions and live more financially secure lives. While the evidence backing up this theory is shaky at best, I still think it’s a good idea. If I had received this training, I might not have needed to play catch up by getting myself on the personal-finance beat.

But truly educating people about finances goes beyond doling out service-magazine primers, as Loyola Law School professor Lauren Willis explains in a paper outlining alternatives. Traditional financial education teaches people to maneuver through the system. True financial education would also provide historical context on how the system works and how it got that way. It would consider factors that go beyond individual behavior, like wage discrimination and generational wealth. And it would challenge students to consider alternatives to the current system rather than simply accept it as a godlike baseline reality.

Willis discusses the case of a U.S. primary school where educators took students to a local bank, and each child received $5 to start a savings account. The point of the lesson was to teach kids the value of saving and instill trust in financial institutions. But after another financial institution acquired the bank, it started charging fees on low-balance accounts, and the kids' savings were wiped out. “The children may have learned a more important lesson about the financial sector than the school intended,” writes Willis.

This month a federal judge blocked a Biden administration regulation that would cap credit card late fees at $8; the current average is about $32. Those fees add up to $800 million a month in late fees for consumers.

While this setback is infuriating, it’s encouraging that the federal government is even attempting to rein in the siphoning of American bank accounts that has gone on for decades. And it’s great to see the Biden administration cracking down on junk fees in general, including the hidden charges we find on airline and concert tickets.

I hope this signals a shift in the way Americans think about our financial system and leads to more productive discussions about our relationship with it. Real financial education could help. A few suggestions:

Lesson 1: How does the financial services industry see you?

Pop quiz: In the financial sector, what does the term “deadbeat” mean?

A person who doesn’t pay their bills? No—the opposite. A “deadbeat” is a person who pays their credit-card bill in full each month—the one not paying $32 late fees or 21% interest.

In our current system, the interests of consumers and financial firms are frequently at odds, which is why it’s problematic that a lot of financial-literacy curriculums are funded by the industry.

Real financial education would teach students to see transactions from all angles, says Willis. For example, a lesson on purchasing a car would require kids to understand the perspectives of the dealer and the lender as well as the buyer.

Lesson 2: Why does everything cost so much?

When I was writing about personal finance, I followed many of the penny-pinching tips I gathered in my reporting. My favorite advice came from a wonderful writer and all-around good egg named Jeff Yeager, who wrote cheerful missives about living cheap. (I say “wrote” in the past tense because Jeff is now fully retired and traveling the world with his “poooor wife” Denise, enjoying the cash he saved cooking from scratch and never owning a cell phone.)

I followed a lot, but not all, of Jeff’s advice. I got a crockpot and started making bean-and-veggie stews. I started gardening with a focus on crops that are easy to grow and expensive to buy (herbs, lettuce, tomatoes). And I stopped paying fees at out-of-network ATMS, following Jeff’s tip to instead get cash back at drugstores after buying a bar of soap or some such.

But penny-pinching can only take you so far, especially now that grocery prices have spiked more than 36.5% in the past five years.

Supermarkets say that the higher prices are due to increased costs for ingredients, transportation and labor, but the Federal Trade Commission found that large food and beverage chains have enjoyed record profits since the pandemic. Their costs did increase, but their revenue went up even more.

Real financial education would teach us to do more than just shop the sale aisle. It would also provide the full context of how retailers set prices.

Lesson 3: How much is a person’s work worth?

Many people have expressed outrage that WNBA star Caitlin Clark’s salary is $76,535, compared to the $10.5 million salary of the top NBA pick. Is this pure sexism? Or just neutral market-based capitalism?

Neither. It’s true that the NBA makes more money than the WNBA. On the other hand, due to Clark’s star power, tickets to the Final Four games that she played in cost more than tickets to a men’s Final Four game.

NBA players are paid vastly more than their WNBA counterparts because they receive a higher percentage of the league’s revenue. NBA players collectively bargain and receive 50% of the league’s overall revenue, while WNBA players receive only a 10% share.

This is a concept called  “labor share of income,” and its implications go far beyond elite athletes. In 1947, U.S. workers were paid about two-thirds of the value that they generated for their employers; today they make a little more than half. From 1979 to 2019, the productivity of U.S. workers rose nearly 60%, while workers’ pay grew less than 16% during that time. If those rates had grown in tandem, the median worker would be making an extra $9 an hour.

That’s a lot of lattes.

How do you feel about your level of financial literacy? What do you wish you knew more about?

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Update: Thanks to all of the people who accepted my request to like and repost my last piece—I’ve received more than 50 new subscribers since that post, so it looks like it worked! Please keep liking if you .. well, like. Another way to keep this newsletter going: Please consider sending it to two people you think might enjoy it. If it worked for Faberge Organics shampoo, maybe it will work here!

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