About a year or so ago I noticed a cliche spreading among a certain set of prominent investors and money managers: that a key obstacle to success among young people today is a lack of personal finance erudition. Today’s entry in the genre came from Ben Carlson at Ritholtz Wealth Management, who wrote:
“I wish high schools and colleges would teach personal finance. They could show young people things like how to do their taxes, which it seems like maybe 3-4% of the population knows how to do (and that’s being generous).
“The U.S. federal tax code is around 4 million words and almost 75,000 page long. To say it can be confusing would be an understatement. Changes from the latest tax overhaul throw another wrench into this equation because now people must figure out how it affects them.”
This is an unusually clear example of the role “personal finance education” plays in this ideology. You can clearly identify a problem (people can’t do their own taxes), you can clearly identify the cause of the problem (the tax code is too complicated), but instead of demanding that the cause of problem be solved, and the tax code simplified, you demand that teenagers receive specialized education in tax preparation!
“Personal finance education” dodges all the hard problems we face
The beauty of the personal finance education meme is that it allows you to acknowledge real-world problems, without having to undertake any of the effort required to solve them:
- wages are too low;
- housing is too expensive;
- health insurance is too expensive, and leaves even insured individuals vulnerable to catastrophic medical expenses;
- Social Security’s current financing stream is inadequate to pay out its present benefits, let alone the benefits that would be needed to permanently eliminate elder poverty;
- the Family and Medical Leave Act covers too few workers, with too few protections, for too little time;
- occupational licensing regimes pose too many obstacles to entry for too many professions.
These are problems with solutions. But a higher minimum wage, more housing construction, single payer health insurance, higher and uncapped FICA taxes, comprehensive family leave, and occupational licensing reform are hard.
There are interests on the other side who will do everything in their power to fight against efforts to solve these problems. Businesses want to pay low wages, homeowners want to keep housing scarce, insurance companies want to keep earning record profits, high-income individuals want their FICA taxes low and capped, and every licensed occupation wants to minimize the number of new entrants.
So why would a genteel financial advisor, money manager, or financier want to take on those fights? High-income homeowners with occupational licenses are the bread and butter of the upper-middle-class economy! They already have workplace retirement plans, gold-plated health insurance, and generous family leave.
“Personal finance education,” on the other hand, is easy. Sure, it might take a few classroom hours away from actual education, but that’s the teacher’s problem, not your problem. Plus, once it’s up and running you might even be able to sell your consulting services on the side to school districts that, for obvious reasons, don’t want to hire a full-time “personal finance educator,” because there’s no such thing.
Let me be clear about one thing: ignorance is also a problem. Educating people about how things really work is an important and valuable service, indeed one I try to perform here to the best of my limited abilities.
The fact that IRA’s, for example, are privately marketed means there’s an incredible scope for abuse by savvy marketers, with both the victims and the government ultimately paying the price. An education campaign about what to look for in an IRA would be at least as good a public service as the “National Responsible Fatherhood Clearinghouse.” Even better would be strict limits on the kinds of assets eligible to be held within IRA’s.
But “personal finance education” is just a savvy marketing technique for inaction, insisting that we need do nothing to fix the actual problems we face, because the problems were inside us all along.