Financial Literacy and Literacy

Interesting article in The Economist about an economist who goes to volunteer teaching financial literacy to poor women.

This sort of thing is an under-examined subject. It’s clear from everyone who looks at it that a huge proportion of the people who can least afford to be making bad decisions about their personal finances are doing so, and they’re doing so in large part because they don’t really understand the decisions they’re making or the options available to them. Finding ways to increase the knowledge base of this part of the population would significantly improve their economic prospects, their ability to be good parents to their children, etc. How to get that done is less clear. But one thing I would say is that these issues are an under-appreciated cost of the bad job America does of educating poor children. Basic math and literacy skills aren’t the same as financial literacy. But financial literacy is built out of reading stuff (terms of contracts, fine print on ads, etc.) and doing a little math with it. And an awful lot of people lack “financial literacy” because they’re basically illiterate:

That’s from A First Look at the Literacy of America’s Adults and though there’s some sign of improvement the absolute levels are bad. An example of “basic” level quantitative literacy is “comparing the ticket prices for two events” and they’re saying 22 percent of the public isn’t up to the challenge. An example of “intermediate” level quantitative literacy is “calculating the total cost of ordering specific office supplies from a catalog.” An example of “basic” prose literacy is “finding in a pamphlet for prospective jurors an explanation of how people were selected for the jury pool.”

Lacking these kind of basic prose and quantitative literacy skills doesn’t just hurt your potential earnings as a worker, it makes it extremely difficult to make your way financially through a complicated world. Of course if these skill deficits were distributed randomly throughout the population it might not be so bad — people could just ask a friend for help. But they’re not distributed randomly — instead you have communities of people with only minimal ability to amass the factual information they need to make informed decisions about what to do with their time and money.