Jeff Judy

Jeff's Thoughts - June 11, 2008

Financial Literacy, Part I: Not "One Size Fits All"

Financial literacy is "in," there's no doubt about it. Pop the phrase "Financial Literacy" into your favorite Internet search engine, and you'll get a hefty pile of sites that deal with the subject from one angle or another. And in their April 5th, 2008 issue, that revered journal The Economist published a special "Briefing" on financial literacy, with the subtitle: "A global crusade is under way to teach personal finance to the masses."

And, really, that last word is the key: the masses, large number of individuals who presumably all need to know the same things.

The problem is, I find "the masses" a little too homogeneous for my taste.

Let's start with an example from traditional, non-financial, literacy, that is, basic reading ability. Imagine, if you will, two individuals who read at a sixth-grade level. Are they literate?

No doubt you answered (and wisely), "it depends." If one of those people is an adult, and the other is actually a third-grader, we would have quite different cases. We might consider the older person borderline illiterate, and the younger one exceptionally capable.

Unfortunately, I rarely encounter those nuances in discussions of financial literacy. Many people I talk to, or articles I read, only seem to be interested in the end state, the "adult" level of literacy. In other words, they think of "literacy" as knowing as much as possible about managing money, making financial decisions, and handling the products and services that are available.

But we don't learn to read by starting with "Gone With the Wind." We start with "Dick and Jane." We tackle material that is appropriate both to the level of ability we already have, and to the interests we have in the world around us.

And at the other end, when we are adults, we may have to acquire specialized literacy. Depending on our interests and professions, we may read literature, or science, or become expert in finance or engineering.

Banks and bankers can play a key role in promoting financial literacy. It is a good thing to do, and it benefits both the industry and your business by producing more predictable, reliable, and loyal customers. But it won't help much to just throw "financial literacy" materials, from your trade association or the bookstore or a web site, at everyone who comes in the door.

You know that there are differences between college students and people approaching retirement, but a lot of times both of these groups get the same advice. And you'll rarely find discussions about financial literacy for businesses. We tend to assume that most consumers are financially ignorant in one way or another, but somehow expect that business owners and managers know all about money matters. They don't.

And if such obvious differences are glossed over, I hate to think about all the more subtle differences that are ignored when the "financial literacy" speech kicks in. Some people may never buy a home, some are keen on investments while others avoid the least hint of risk, and families, health issues, and all the stuff of everyday life can influence just what a customer needs to be literate about.

Forget about what "the masses" need. Start thinking about what the individuals who are your prospects and customers need.