- Aug 11, 2024
Financial Literacy is Not Enough
- Moni Eaton
Each April, us money enthusiasts churn out articles, tipsheets and toolkits in celebration of Financial Literacy Month. Not only is it a great time for us to remind the public about the importance of financial education, it’s also an excellent opportunity for us to promote the many books, courses and products we’ve created for that very purpose.
The core argument behind promoting financial literacy goes a bit like this:
People across the country are struggling with financial problems.
Most financial problems result from poor financial decision making.
People would make better financial decisions if they were more knowledgeable about personal finance.
Therefore, improving people’s knowledge of personal finance will lead to better financial decision making.
It’s a reasonable argument on its face, but it relies on a big assumption: that education is enough to change behavior.
The Knowledge-Action Gap
We live in a society that promotes the idea that knowledge is power. However, where behavior change is concerned, knowledge without action is fairly useless.
Anybody who has ever tried to lose weight or kick a habit can confirm that knowing the right thing to do to meet a goal and actually doing the thing are two entirely separate issues. It is one thing to know that you should quit smoking. It is another thing to actually put the vape down. Similarly, it’s one thing to know you should budget. It’s another thing to actually build a budget and yet another thing to stick to it.
The financial literacy movement relies on education to solve what is, at its core, a behavioral issue. Education is absolutely an important factor in improving financial decision making, but it’s only one piece of a larger equation. Reducing the equation to a matter of education diminishes the outsized roles our beliefs, experiences, and environments play in the way we choose to handle our finances. Reducing the equation to a matter of education dismisses the other factors that can move a person from ‘knowing’ to ‘doing’, namely access to resources, skills, and mindset.
It’s a unique combination of knowledge, resources, skills, and mindset that empowers people to confidently and consistently make financial decisions that are in their best interest. Each of us needs these four factors in different quantities and financial education alone can’t make up for limitations in the other three areas.