"The Financial Literacy Industrial Complex" -- Felix Salmon

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AlohaJoe
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"The Financial Literacy Industrial Complex" -- Felix Salmon

Post by AlohaJoe »

https://www.axios.com/financial-literac ... 7a0cb.html

Felix Salmon has an article about how financial literacy education not only doesn't work but has been co-opted by the very organizations most people should be avoiding.

There is a massive amount of research showing that financial literacy education, especially of high school and college students who are far removed from the "real" financial system, simply doesn't work:
A 2014 meta-analysis of 169 papers and 201 studies, however, found that "interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied" — and that low-income students had even weaker correlations.
But even if financial education worked in theory, in practice it seems doomed to failure.
The main reason that teens get targeted is they're a captive audience for financial education campaigns, many of which come with branding from large financial services companies.
...and...
As the FoolProof Foundation puts it: "Today's financial literacy education doesn't work because virtually all major financial literacy resources are developed or shaped by businesses that benefit when consumers make money mistakes."
The better approach? One-on-one mentoring about specific topics at the moment they come up in people's lives....kinda like how Bogleheads works!
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by arcticpineapplecorp. »

AlohaJoe wrote: Mon Sep 20, 2021 8:19 pm The better approach? One-on-one mentoring about specific topics at the moment they come up in people's lives....kinda like how Bogleheads works!
While this may be true, I see this conclusion nowhere in the article. I like Felix Salmon and wouldn't want to attribute anything that he himself didn't say.

I don't disagree with some of the conclusions that the businesses that develop curriculum stand to gain from early exposure/advertising/marketing but take some issue with his conclusion:
Such curricula also tend to reinforce a libertarian view of financial wellness, based on individual rather than collective action — one where poverty and debt are less a societal problem and more a consequence of bad individual financial decisions.
Why must it be one or the other and why can't it be some of both? Do we really not know people who have had things handed to them on a platter, yet because of bad decisions made, wound up worse off in the end? Of course.

Life's more complicated than merely viewing it as a series of either/or type choices.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by TheLaughingCow »

If you can teach people to avoid debt and live below their means that's 90% of financial literacy right there.

You don't need a class for that. In fact I suspect those things are mostly shaped by early childhood experiences and genetics. I have not met a lot of people who are "reformed" overspenders. And I have not met a lot of people who were once frugal, but became spendthrift.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Chip »

arcticpineapplecorp. wrote: Mon Sep 20, 2021 8:56 pm
AlohaJoe wrote: ↑Mon Sep 20, 2021 8:19 pm
The better approach? One-on-one mentoring about specific topics at the moment they come up in people's lives....kinda like how Bogleheads works!
While this may be true, I see this conclusion nowhere in the article.
Well, there was this (emphasis mine):
Salmon Article wrote:Between the lines: Loyola Law School professor Lauren Willis, whose own recent paper concludes that "financial education does not demonstrably improve financial well-being," tells Axios that one-on-one financial counseling, of people already participating in the financial world, can be effective.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by coachd50 »

backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Coltrane75 »

arcticpineapplecorp. wrote: Mon Sep 20, 2021 8:56 pm
AlohaJoe wrote: Mon Sep 20, 2021 8:19 pm The better approach? One-on-one mentoring about specific topics at the moment they come up in people's lives....kinda like how Bogleheads works!
While this may be true, I see this conclusion nowhere in the article. I like Felix Salmon and wouldn't want to attribute anything that he himself didn't say.

I don't disagree with some of the conclusions that the businesses that develop curriculum stand to gain from early exposure/advertising/marketing but take some issue with his conclusion:
Such curricula also tend to reinforce a libertarian view of financial wellness, based on individual rather than collective action — one where poverty and debt are less a societal problem and more a consequence of bad individual financial decisions.
Why must it be one or the other and why can't it be some of both? Do we really not know people who have had things handed to them on a platter, yet because of bad decisions made, wound up worse off in the end? Of course.

Life's more complicated than merely viewing it as a series of either/or type choices.
The quote was not black/white either/or, it stated it was more x and less y; not x instead of y.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by JBTX »

coachd50 wrote: Tue Sep 21, 2021 6:33 am
backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
To the extent his approach is successful, he makes frugality part of a culture and a set of values, a bit of us vs them, we get it, you don't. What I don't know is how relatively effective the approach is. Yes there are a lots of examples of converts, but maybe millions have gone through or purchased the program. I have no idea what the relative success rate is.

Generally you have to have a motivation for success. For Ramsey disciples is I want to be responsible, and don't want to be like the irresponsible hoards. For some people, it is "I want to be a millionaire" or something like that. For some wealth accumulation is a measuring stick, and these are the rules how to succeed. For some, like FIRE types, it's an aversion to lifelong working and having little to show for it. It could be the case that at earlier stages the education isn't successful because the motivation isn't there yet. But people have motivation to go and do well in college so there is no reason the motivation couldn't be there.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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TheLaughingCow wrote: Mon Sep 20, 2021 8:59 pm If you can teach people to avoid debt and live below their means that's 90% of financial literacy right there.
Exactly. Much of the financial literacy that people really need to know can be explained in just two sentences.

1. Save a minimum of 15-20% of your income.
2. Put your savings into a low cost target-date fund.

Given the actors often involved with the so-called instruction of financial literacy, greater complexity to the instruction is more likely to be counter-productive.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by meowcat »

I can tell you everything there is to know about personal finance in just five simple words. Yes, it IS that simple. These five words are the cornerstone of personal finance. They are the very foundation upon which wealth is built, and without these 5 words, one can never get ahead financially. These five words are no secret, we all know them, as do all consumers. "Spend less than you earn". So yes, any 5 year old can learn personal finance in all of 30 seconds. It's the implementation that consumers can't grasp. It's not an "education" thing, it's a "emotional/psychological" one. Spending problems have absolutely nothing to do with education. I would venture to say that all humans know and understand "live below your means".
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by PicassoSparks »

backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Ramsey gives good “get out of debt and get your middle class spending under control” advice. And then he gives bad investing advice including investing in active mutual funds and sends people to a stable of financial professionals who pay for the referrals. https://www.ramseysolutions.com/retirem ... on-details
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Whitecap »

JBTX wrote: Tue Sep 21, 2021 8:57 am
coachd50 wrote: Tue Sep 21, 2021 6:33 am
backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
To the extent his approach is successful, he makes frugality part of a culture and a set of values, a bit of us vs them, we get it, you don't. What I don't know is how relatively effective the approach is. Yes there are a lots of examples of converts, but maybe millions have gone through or purchased the program. I have no idea what the relative success rate is.
Anecdotally, my dad and older brother used Dave Ramsey to regain their freedom - I helped them through the program.

Dad paid off 120k over three years. My brother paid off 95 K in 2.5 years. The family grew up pretty poor, and financial literacy was not even a known thing. I learned some tenets of financial literacy in the military, then met a good woman who had used Dave’s program and became debt free. (I married her).

Both Dad and brother are living free lives now, where their financial stress is very low. There is no anxiety now when they go to fill up their cars.

Ramsey effectiveness is 100% from my real life experience.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by willthrill81 »

meowcat wrote: Tue Sep 21, 2021 9:27 amIt's not an "education" thing, it's a "emotional/psychological" one. Spending problems have absolutely nothing to do with education. I would venture to say that all humans know and understand "live below your means".
Well said. People don't get into deep credit card debt because they can't understand the math involved.

A 'I want it all, and I want it now' mentality will lead to financial ruin.
Last edited by willthrill81 on Tue Sep 21, 2021 9:42 am, edited 1 time in total.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by meowcat »

duplicate
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by L84SUPR »

willthrill81 wrote: Tue Sep 21, 2021 9:42 am
meowcat wrote: Tue Sep 21, 2021 9:27 amIt's not an "education" thing, it's a "emotional/psychological" one. Spending problems have absolutely nothing to do with education. I would venture to say that all humans know and understand "live below your means".
Well said. People don't get into deep credit card debt because they can't understand the math involved.

A 'I want it all, and I want it now' mentality will lead to financial ruin.
Here is a fact I happened to hear when I needed to hear it:

If you purchase an item with a credit card and make minimum payments it will cost you three times the purchase price.

After that when I saw the price of an item and I was tempted to put it on a credit card I multiplied the price tag by three. There were very few items I was willing to pay triple for.

I have no idea if the math was accurate then or is today but it sure put things into perspective when I most needed it.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by JBTX »

Whitecap wrote: Tue Sep 21, 2021 9:36 am
JBTX wrote: Tue Sep 21, 2021 8:57 am
coachd50 wrote: Tue Sep 21, 2021 6:33 am
backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
To the extent his approach is successful, he makes frugality part of a culture and a set of values, a bit of us vs them, we get it, you don't. What I don't know is how relatively effective the approach is. Yes there are a lots of examples of converts, but maybe millions have gone through or purchased the program. I have no idea what the relative success rate is.
Anecdotally, my dad and older brother used Dave Ramsey to regain their freedom - I helped them through the program.

Dad paid off 120k over three years. My brother paid off 95 K in 2.5 years. The family grew up pretty poor, and financial literacy was not even a known thing. I learned some tenets of financial literacy in the military, then met a good woman who had used Dave’s program and became debt free. (I married her).

Both Dad and brother are living free lives now, where their financial stress is very low. There is no anxiety now when they go to fill up their cars.

Ramsey effectiveness is 100% from my real life experience.
There are a lot of examples like yours. In no way did I mean to imply it isn't effective. But I really have no data to know how broad the effectiveness is. I suspect for your dad and brother it may have been the best approach.

I have an adult daughter who is a complete spendthrift and financial wreck. If there is ever anything that may get through, eventually, it may be Dave Ramsey.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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TheLaughingCow wrote: Mon Sep 20, 2021 8:59 pm If you can teach people to avoid debt and live below their means that's 90% of financial literacy right there.

You don't need a class for that. In fact I suspect those things are mostly shaped by early childhood experiences and genetics. I have not met a lot of people who are "reformed" overspenders. And I have not met a lot of people who were once frugal, but became spendthrift.
Yep, I was that weird kid who wanted to save almost my money. I stayed way under budget, got the cheapest shoes that were comfortable, got high quality clothing for dirt cheap, etc. But that was because I was raised in circumstances where the family could not afford much. Essentially, if it were not the positive chain of events that happened to my parents (part miracles, part opportunities taken), I would not have much of anything because they would have been poor with little to no ability to give a good start in my adult life.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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My DS and BIL have been killing it in their careers over the past decade. I don't know their exact numbers but I do know they both make well over six figures, and boy, they spend like it, too. They truly look rich but they have a negative net worth and are rolling up on 60. OUCH! They will have to work the rest of their lives. I've tried to convince them the importance of saving (twice) but as I recall, I wash shut down pretty quick. Okay, I'll try something else. I bought them The Millionaire Next Door, and on the inside cover I had written "Michael, this book changed my life". I don't even think they cracked it open to read the note. :oops: hopeless.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by GP813 »

I remember being taught to balance a checkbook and calculate a mortgage with pen and paper and that's about it for financial literacy that I learned in High School. I was never taught about equity markets or credit cards/credit scores. Coincidentally I can count on one hand the number of paper checks I've written in my life.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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meowcat wrote: Tue Sep 21, 2021 11:19 am My DS and BIL have been killing it in their careers over the past decade. I don't know their exact numbers but I do know they both make well over six figures, and boy, they spend like it, too. They truly look rich but they have a negative net worth and are rolling up on 60. OUCH! They will have to work the rest of their lives. I've tried to convince them the importance of saving (twice) but as I recall, I wash shut down pretty quick. Okay, I'll try something else. I bought them The Millionaire Next Door, and on the inside cover I had written "Michael, this book changed my life". I don't even think they cracked it open to read the note. :oops: hopeless.
Some people do not want to change. I imagine that I would probably live the same way as I always do despite my income; my guess is my net worth will grow quicker than what retirement spending will be. I just cannot spend what I do not want to spend.

And some spend what they cannot spend...
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Fallible »

It's another good article on the pitfalls of teaching financial literacy, but there have been so many good ones over the years pointing out hundreds of studies on the downsides and failures (whether Wall Street is involved or not). So, we generally know what's wrong and may have promising ideas about how to do it right; so, is anybody out there doing it right or trying to (besides the Bogleheads :) )?
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Ependytis »

OK so we have an idea of what doesn’t work. The question is, “what will work”? We have all this talent on this board and yet I hear very few people that have been successful convincing people to save and invest. Convincing may be a bad word, may be influencing is better. I’m sure they’re out there somewhere. Please tell us your stories. Especially the ones that the average person could implement.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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Ependytis wrote: Tue Sep 21, 2021 2:42 pm OK so we have an idea of what doesn’t work. The question is, “what will work”? We have all this talent on this board and yet I hear very few people that have been successful convincing people to save and invest. Convincing may be a bad word, may be influencing is better. I’m sure they’re out there somewhere. Please tell us your stories. Especially the ones that the average person could implement.
Fear is what motivated me. I've told my story before, on these boards. To make it short, if you really want a crystal clear picture of what it's like to be old and broke, go sit down in the waiting room of any Social Security office for a short period. You want to talk about a wake-up call? I'm not saying fear will motivate everyone but it did a number on me. I refuse to be part of that dire statistic. It is a great question, though. How do you get through to these people?
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by Walkure »

meowcat wrote: Wed Sep 22, 2021 5:21 am
Ependytis wrote: Tue Sep 21, 2021 2:42 pm OK so we have an idea of what doesn’t work. The question is, “what will work”? We have all this talent on this board and yet I hear very few people that have been successful convincing people to save and invest. Convincing may be a bad word, may be influencing is better. I’m sure they’re out there somewhere. Please tell us your stories. Especially the ones that the average person could implement.
Fear is what motivated me. I've told my story before, on these boards. To make it short, if you really want a crystal clear picture of what it's like to be old and broke, go sit down in the waiting room of any Social Security office for a short period. You want to talk about a wake-up call? I'm not saying fear will motivate everyone but it did a number on me. I refuse to be part of that dire statistic. It is a great question, though. How do you get through to these people?
Seeing this reminded me of a study ( can’t find it at the moment) finding that showing people photos of themselves with an artificial aging filter applied made them more willing to delay gratification by enabling them to better visualize / empathize with their future selves.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by hnd »

I used to say, this doesn't need to be taught at schools, it needs to be taught at home! at some point I reluctently was like well i guess if its not going to be taught at home it should be taught in the classroom. there is likely plenty of worthless stuff taught in school it can be fit in.

But the reality is that if its not being taught at home (when i say "taught" i'm referring to either actual instruction and/or by example) its basically actively being taught AGAINST. So if someone is raised in a home where financial literacy is thrown to the wind, a section of curriculum will likely do nothing for a child/adolescent. It usually takes a real attachment to someone who is financially literate or some catastrophic event that alters the view of said person.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

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FWIW, I don't agree with blaming "the system" when people don't listen. I have certainly observed that people don't want to learn. That's just a fact of life. You can't just wave a magic wand and make the truth "relevant" to particular people. This is a VERY broad topic and most "pundits" on any topic will say, as part of their intro to the subject, "you weren't ever told blah blah blah" but I think there is an awful lot of information available. Maybe you could learn whatever you want.

When I was in college, one day in design class the prof didn't have class and he just had a financial guy (of the sort we don't hire here at bogleheads) come in and he did the old charts and tables that we've all seen comparing saving $100 a month from age 20 to 40 vs. $100 a month from 40 to 60, and how much money you'd have if you saved X and got investment returns Y. he had to use an overhead projector back then. You've all seen this stuff.

That was the most impactful hour of my whole college experience. I could have bought a new Camaro anyway. Some folks did. I graduated in 1988 and I wanted a 1988 Thunderbird Turbo Coupe. I have two of them now, but I waited 30 years before I got one. It's a tradeoff that not everybody would want to make.

Something I have learned from my co-workers, as they all aged, is that their parents had been in debt and they had debt demonstrated to them. In some cases the parents said things like "you'll always be in debt". People talk about these things as they get older and start thinking about whether or not more "stuff" is really going to make them happy.
Last edited by firebirdparts on Thu Sep 23, 2021 8:48 am, edited 1 time in total.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by firebirdparts »

coachd50 wrote: Tue Sep 21, 2021 6:33 am
backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
I don't really believe that his high school curriculum has some kinda poison pill or lie in it that causes people to pay him later. It might, but I earnestly doubt it. The article makes a causal relationship between the selling of financial education and its failure due to conflict of interest at the source. I really doubt it.

Your comment just makes it sound like you can tar anybody with that brush and we're supposed to believe it. It's not really an appropriate way to think.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by coachd50 »

firebirdparts wrote: Thu Sep 23, 2021 8:44 am
coachd50 wrote: Tue Sep 21, 2021 6:33 am
backpacker61 wrote: Tue Sep 21, 2021 6:10 am He doesn't get a lot of love in these circles, but I think programs like Dave Ramsey's have helped a lot of people. His broadcasts expose a lot of listeners to LBYM concepts, pay off debt, and to sign up for any employer-sponsored retirement plans available.
Dave does create a culture in which those behaviors are encouraged, however he also fits the description of making money off of other’s financial mistakes. Depending on the definition of “money mistakes” obviously
I don't really believe that his high school curriculum has some kinda poison pill or lie in it that causes people to pay him later. It might, but I earnestly doubt it. The article makes a causal relationship between the selling of financial education and its failure due to conflict of interest at the source. I really doubt it.

Your comment just makes it sound like you can tar anybody with that brush and we're supposed to believe it. It's not really an appropriate way to think.
As stated- this depends on the definition of "money mistake". Remember, Dave Ramsey makes $$ off of his ELPs, and I think many might consider the services of those ELPs a money mistake.
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Re: "The Financial Literacy Industrial Complex" -- Felix Salmon

Post by JackoC »

Coltrane75 wrote: Tue Sep 21, 2021 6:39 am
arcticpineapplecorp. wrote: Mon Sep 20, 2021 8:56 pm
Such curricula also tend to reinforce a libertarian view of financial wellness, based on individual rather than collective action — one where poverty and debt are less a societal problem and more a consequence of bad individual financial decisions.
Why must it be one or the other and why can't it be some of both? Do we really not know people who have had things handed to them on a platter, yet because of bad decisions made, wound up worse off in the end? Of course.

Life's more complicated than merely viewing it as a series of either/or type choices.
The quote was not black/white either/or, it stated it was more x and less y; not x instead of y.
I agree the author says there's 'more' emphasis on one and 'less' on the other implying that should be changed, not necessarily implying the think that's currently 'more' should be ignored.

But, I fundamentally disagree with the author that teaching people to responsibly handle their personal financial affairs 'reinforces a libertarian view' or even if it does whether that matters. The reality of life under any likely form of 'collective action' is that you have to manage your own financial affairs responsibly, or suffer undesirable consequences. I think the two things are just apples and oranges really, what you think collective policy should be about eg. credit card interest rates, advertising etc., let alone income differences, and how you manage your own affairs in a given personal situation. Teaching people about 'collective action, where poverty and debt are a societal problem' is inherently, explicitly political. IOW I think the author bootstraps his way from claiming that education on how to handle your personal financial affairs 'reinforces a libertarian view' to proposing political teaching about debt and poverty, there being no such thing I can conceive of as non-political teaching of 'what society should do' about debt or poverty.
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