4 reasons financial education isn’t working

by Heather Anderson, FinancialFeed

It’s generally agreed that the Great Recession occurred when the mortgage market crashed, and was fueled by loose mortgage underwriting standards.

However, there was another cause nobody talks about: financial illiteracy. Many mortgages defaulted because consumers didn’t understand the terms of their interest-only loan and how it affected their ability to repay once the loan reset. Other homeowners didn’t understand how cashing out equity would put them at risk if the value of their home dropped.

Credit unions truly care about their members, and some provide financial education, whether it’s a free mortgage workshop or a blog post that provides budgeting tips.

However, most financial education efforts simply don’t work. Here are four reasons why.

  1. It’s uninspiring

Most financial education is as much fun as a root canal. We teach teenagers the harsh reality of everyday living. We expect adults to cut fun out of their budgets. We tell retirees to accept standards of living below what they had hoped or planned for.

Some financial education is even judgmental or required as punishment for past performance. That’s a guaranteed turn-off.

Financial education should be inspiring. It should be fun. It should be funny and aesthetically pleasing and give people hope. It should teach them how to earn more or get more for their money, rather than just how to get by on less.

  1. It doesn’t address belief systems

Financial education is like dieting advice. Everybody knows you need to eat less and exercise more to lose weight. But if simply knowing what to do solved the problem, we’d all be thin and rich.

Many people do need to learn the basics of budgeting and investing, but the real problem lies in executing those plans. Attitudes and beliefs about money are formed when people are young. Those hidden thoughts reside in their subconscious mind, where they can sabotage the best of intentions. Effective financial education must employ a two-pronged approach that not only teaches skills, but provides members with a new, strong belief system about money so they can successfully execute those skills.

  1. It teaches outdated ideas about money

Balance your checkbook. Open a 401K. Stop buying coffee at Starbucks. This sort of advice is not only unoriginal and uninspiring, it communicates limited, outdated financial strategies.

Robert Kiyosaki, financial education expert and author of the legendary book Rich Dad, Poor Dad, said one good example of this is the difference between assets and liabilities.

Many of us learned about assets and liabilities in accounting class in high school. However, Kiyosaki says, the rich use another definition that’s grounded in simplicity and reality: an asset is anything that puts money in your pocket and a liability is anything that takes money out of your pocket. That means the rich see a mortgage as a liability, not an asset.

Likewise, Kiyosaki says, most financial educators teach the value of capital gains, but rarely educate consumers about ways to increase cash flow.

  1. It doesn’t effectively cross sell your credit union

In order for members to make financial headway, they must escape the grip of predatory lenders that overcharge them for credit cards, car loans and other financial products that hamper their success. They need your credit union.

Financial education isn’t the same as advertising. Instead, it should provide education, but include a convenient opportunity to act on that knowledge by applying for credit union products and services.

Financial education that misses the mark is a waste of resources and doesn’t help anyone. That’s why my business partner, John San Filippo, and I launched FinancialFeed, a financial education content service for credit unions. You’ve probably seen examples of our work this month featured on CUInsight. FinancialFeed uses a well-respected, secure delivery platform that automatically pushes insightful, inspiring, educational and customizable content to your credit union’s website each weekday. It’s inspiring, funny and aesthetically pleasing. It teaches new ideas about money. It doesn’t judge. You can customize it to cross sell your credit union products and services. And, it’s available at a price every credit union can afford, regardless of asset size. Click here to learn more and contact us for a demo at your convenience.