Want to fix financial literacy? Focus on billionaires squandering their wealth, not school curriculum
A contrarian look at financial literacy education and its focus on individual responsibility
Editor's Note: The Canadian accounting profession has been a longtime proponent of financial literacy education for Canadians. We present this contrarian view originally published in The Conversation Canada.
OTTAWA – Shortly after the COVID-19 pandemic threw the global economy into a crisis in March 2020, I wrote an essay expressing my hope that the unfolding financial collapse wouldn’t be used to justify a push for more financial literacy education in schools. But this has since happened.
In May 2020, the Organization for Economic Co-operation and Development (OECD) announced its Program for International Student Assessment 2018 results with the following question: “With unemployment increasing and a global recession looming, it’s more important than ever to ask: are adolescents knowledgeable about money matters?”
Ontario recently added financial literacy to Grade 9 math curriculum. Some researchers have emphasized the relevance of financial literacy education amid the current COVID-19 economic crisis.
Financial literacy, as defined by the OECD, is “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.”
My research on high school curriculum documents in Canada and the United States shows that financial literacy education frames financial outcomes in individualistic ways that are rooted in the ideology of merit. Mainstream financial literacy pays little attention to the broader economic and socio-political contexts in which taking control of finances is progressively more difficult for hard-pressed families as the gap between the rich and everyone else continues to widen.
In the aftermath of the 2008 recession, financial literacy gained traction in both Canada and the U.S.
Education scholar Laura Pinto [Ed. Note: Paper refers to Canadian Institute of Chartered Accountants] argues the negative economic effects of the 2008 financial crisis were less pronounced in Canada than in other OECD countries. Yet, the connections made by governments and the media between the state of the economy and the need for financial literacy among citizens led to the development of financial literacy education policy across the nation.
In 2010, a Toronto Star columnist summarized: “After the last stock market crash, the federal government realized that people needed help with spending, saving, investing and — of course — borrowing.”
In both industrialized and emerging economies, the OECD declared that a “lack of financial literacy was one of the factors contributing to ill-informed financial decisions …” It recommended that governments develop financial education programs and integrate financial literacy education into school curricula, and many followed suit.
Such recommendations and government efforts suggested that it was the spending habits of the general public at large that were to blame for the recession, despite the fact that both a lack of government regulation and reckless and illegal behaviour in the financial sector were significant contributing factors.
Today, some financial literacy proponents are focusing on how the COVID-19 recession has unmasked some people’s financial irresponsibility. In the U.S., the Charles Schwab brokerage, whose CEO is a billionaire, is one of many financial services companies that produces financial literacy resources.
Results of the company’s online survey, conducted by the Harris Poll of more than 2,000 U.S. adults in June 2020, are reported on the website Schwab Money Wise, which promotes school lesson plans. The survey found that 89 per cent of people polled agree that lack of financial education contributes to poverty (58 per cent), lack of job opportunities (53 per cent), unemployment (53 per cent) and wealth inequality (52 per cent). According to the company, the findings expose the “grave impact” of the “lack of financial education during COVID-19.”
Economic, racial injustices
Advocates of financial literacy education continue to tie individual financial know-how and behaviour to deep-seated social problems and economic woes even in the face of a financial crisis caused by a pandemic and a year of global civil rights protests following the murder of George Floyd in Minneapolis.
Economists like Darrick Hamilton and William A. Darity, Jr. have shown how deep-seated economic and social structures, such as inheritance and intergenerational wealth transfers benefiting whites, perpetuate wealth inequality and racism in the U.S. Yet, they write, financial literacy narratives imply that poor decision-making or deficient financial knowledge on the part of Black Americans is at the root of poverty.
Political economist Chris Clarke has noted how in response to economic crises, financial literacy education appears to serve as a coping strategy that makes people more resilient in the face of inevitable market failures.
But in positioning financial crashes as inevitable, the contradictory elements of this thinking become evident: Market-conforming behaviour endorsed by financial literacy education cannot ultimately guarantee economic well-being for its subjects.
Recipients of financial literacy education are instructed, as Clarke writes, in “learning to fail.”
Key takeaways from COVID-19
Let’s challenge the idea that if we learn to better manage our money, we can prevent the next financial meltdown or thrive in it.
On the contrary, the pandemic has reminded us that we aren’t self-reliant but part of a collective. What we now see is a powerful case for a strong social safety net that includes paid sick leave, affordable housing, unemployment insurance and a strong health-care system.
Years of austerity policies and a disinvestment in the welfare state prior to the pandemic, however, have only exacerbated the effects of COVID-19 in Canada.
At the same time, the Canadian Emergency Response Benefit (CERB) showed economic restructuring and wealth redistribution are possible once a problem is deemed a crisis.
Poor decisions by those in power
Instead of focusing on financial literacy education for students, let’s reframe the discussion around the profound illiteracy of those in power.
Those working in poorly paid essential industries who could not afford time off bore the burden of COVID-19 infections and deaths.
Today, as the planet continues to burn and many people globally await vaccines, we see the hoarding and squandering of resources. Amazon founder Jeff Bezos, who’s amassed almost $70 billion since the pandemic began, recently made headlines when he celebrated a private space race.
Teaching kids better budgeting won’t fix inequality. Addressing the financial literacy of politicians and key decision-makers who make policies that leave CEOs like Bezos avoiding federal income taxes or allow wealthy Canadians to squirrel funds away in offshore tax havens just might.