Hanna Horvath · Follow
5 min read · Sep 13, 2023
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I’ve spoken with thousands of people about money. Sometimes I’m interviewing someone for an article, or I’m talking to a stranger on a plane, or I’m catching up with a friend over coffee. The vast majority of them struggle with money in some way.
Google “financial literacy,” and you will see hundreds of articles lamenting the sorry state of American’s personal finances. The savings rate has fallen. Consumer debt is at an all-time high. Most people don’t have enough money to cover a $400 emergency.
Why is no one getting it right? The problem is simple, experts say: It’s a lack of financial literacy.
Most people (88%) graduating high school today say they’re unprepared to handle money. 60% of Americans can’t pass a basic financial literacy test. Not knowing how to manage your money is expensive: 15% of adults said their lack of finanical literacy cost them $10,000 or more last year.
Experts decry these results and offer canned, overused advice on how to improve your financial situation (As a certified financial planner, I’m not exempt here): Create a strict budget and stick to it. Cut back on all unnecessary expenses. Look how easy it is to save! Discover how simple it is to invest!
States have passed laws requiring students to take financial literacy classes. Start-ups and large companies alike have spent millions and millions of dollars designing products that make it easier for people to save, to budget, and to get out of debt.
But none of it is working.
Merely teaching someone the basics of personal finance often won’t change someone’s behavior. It also avoids the real issue.
I’m a certified financial planner and have written about the same personal finance topics for almost six years. I’ve worked with dozens of fintech startups designing products to address income inequity and financial barriers to access.
Many of these companies are well-intended. I would like to think I’m well-intended, too.
Telling someone information does lead to a rise in awareness, but awareness alone does not influence behavior. This is one of the most well-researched facts in social science. And yet we keep thinking it will work when it comes to money.
While you need financial literacy to achieve financial wellness, actually having financial literacy doesn’t translate to improved financial health. You can lead a horse to water, but you can’t make it drink.
Money is an extremely emotional topic for most people. In fact, our emotions, social conditioning, and cognitive behavior all influence how we handle money.
Our money — the way we think about money, handle money, talk about money, and act with money — is directly influenced by our lived experiences. And in turn, our attitudes and emotions towards money will shape our behavior and, ultimately, our entire lives.
For example, someone who is impulsive may have trouble saving for retirement regardless of how many financial books they’ve read.
We’re also influenced by those around us — our parents, our peers, those we look up to — and by our direct experiences with money.
Financial trauma is a thing — you can actually develop PTSD from certain negative financial events, like medical debt or financial insecurity. Financial trauma can cause anxiety and hurt your relationship with money. It can even carry forward to future generations.
On top of this, our brains may be hard-wired towards certain behaviors, known as cognitive biases, and we therefore don’t always make “rational” financial decisions. There’s a whole field of study on this called behavioral economics.
In order to truly understand our finances, we must first look to the “why” behind our financial decisions. But that’s not all.
This country, for better or for worse (depending on who you ask), is extremely individualistic. We have a tendency to assign personal responsibility to systematic problems.
This not only avoids the solution, it also shifts blame away from the structures in place that allow the problems to flourish in the first place.
I’m talking about our government, of course.
On top of our own personal attitudes and beliefs about money, the legislative policies we live under and the financial products we use also affect our money. These both directly impact our ability to access money and often (huge shocker!) disproportionally affect historically marginalized groups.
Most financial advice today doesn’t match up with our reality. American’s finances are in terrible shape, maybe because we’re spending too much on $5 lattes, but probably because the cost of higher education, health insurance, child care, and rent have all increased far faster than paychecks.
You can be the best budgeter in the world, but if you’re making federal minimum wage, it’s nearly impossible to afford housing, on top of all your other expenses. How can we save for a home when the median home price is more than 5X the average annual salary? How can we save for retirement when we’re not making enough to afford our essential items?
We are raised on the idea of the American Dream, — that hard work, sacrifice, and steady saving will lead to financial security. But for many people, that dream is incredibly out of reach, even when they’re doing everything right.
I think it’s safe to say what we’re doing right now isn’t working. But what can be done?
This is a question I’m dedicating my blog (and newsletter) to. I believe the answer lies in how we teach people about money and the policies and products we design to help people access and manage their money.
What if we brought awareness to people’s money attitudes and helped them become more attuned to their behaviors? Technology could help tremendously with this, helping people identify the triggers and drivers behind their money decisions.
What if we designed a financial literacy that met people where they were at? For example, we could align information at the moment someone is making a money decision, whether it’s signing up for student loans or starting their first job.
What if we passed policies that better restrict predatory financial behavior and target marginalized communities? What if we designed products that were more accessible and inclusive? Many of today’s financial products, created by both financial institutions and start-ups, are designed for higher-income people, leaving low-income individuals to rely on predatory lenders and lower-quality products.
These ideas may sound big, but just taking the time to think about what could be possible is the first step to getting there. There are habits and behaviors we can adopt ourselves, and there are programs, policies, and products we can demand in the future.
If you’re interested in this topic, I’ll be writing much more about it. You can check out the rest of my posts here. You can also sign up for my newsletter here.
