Empowering Professional Households with Financial Literacy
American households are in a precarious position. They know they must make financial decisions but they don’t know where to start or whom to trust. The government has let them down by failing to enact strong consumer protections and financial advisors increasingly seem like a source of risk rather than clarity.
An effective response is to improve financial literacy within American households, thereby reducing their reliance on unresponsive government and insincere advisors, and empowering them to make better decisions.
Traditional sources of financial literacy
For working professionals, traditional sources of financial literacy (outside the client-advisor relationship) include: books, blogs, TV (radio) shows, and peers or friends. Each of these can provide some useful knowledge, but all are flawed. Most books on the subject are written by financial advisors. Since they have clear commercial agendas the objectivity of their content is questionable. Many bloggers sell advertising space to financial advisors, brokers, or insurance agents. This too raises the potential for bias.
TV finance gurus flash toothy smiles and dispense advice with flair, but they have a very superficial understanding of a caller’s circumstances. This does the audience a disservice. It makes for good television—but bad financial planning. And for this same reason peers may not be able to give you good advice—because even if they are financial product experts (rarely the case) they most likely don’t fully understand your circumstances. Your peers and friends may have the best intentions, but their advice is often heavily influenced by negative personal experience which they may incorrectly generalize to you and your household. An insurance product that isn’t appropriate for your friend may be useful for you. An asset allocation that doesn’t work for a peer may be well suited to your needs.
A better solution
No one knows your family’s circumstances better than you and no one is motivated more than you to do the right thing—every time. Improving your financial decision-making skills allows you to reduce reliance on others. It may also lower the fees you pay. Even if you resent making these decisions and want to outsource them to a financial advisor you still need to understand enough of the basics to choose a good advisor.
My work focuses on improving financial decision-making by physicians. The findings can be generalized to other professions.
As a starting point, teaching a subject effectively requires at least three elements:
- Identify the relevant body of knowledge
- Deliver a comprehensive curriculum
- Use an unbiased, expert teacher
Body of knowledge
In our ongoing research at Johns Hopkins University we utilize a broad personal finance curriculum for medical professionals covering the following basics: investing, retirement planning, children’s college planning, managing risk, estate planning, asset protection, budgeting, debt management, negotiating employment contracts, selecting insurance, and dealing with financial advisors.
A comprehensive course
Financial planning decisions cannot be made in a vacuum. We can’t learn about insurance for an hour and finalize insurance decisions without also understanding our various other needs, which may include all the other topics listed above. Some people emerge from isolated educational events with firm convictions regarding next steps, only to develop doubts when reminded of all their other priorities. Such lingering doubts lead to procrastination—decision making’s greatest enemy. The best way to enable constructive decisions is by providing all relevant content in compact fashion.
Traditionally, hospitals have invited credentialed financial professionals such as advisors, brokers, and insurance agents to teach so-called financial literacy. Many other workplaces do the same. But such sessions are often thinly veiled marketing events. Education offered by finance professionals must always be viewed as suspect because it comes from presenters who have an agenda to sell financial products and services. It’s difficult to be decisive as a student when you’re unsure whether you’ve just learned an objective truth or been subtly led down a path to earn the “teacher” a commission or fee. Reliable learning can only take place when the source is sincere and unbiased.
I collaborated with several Johns Hopkins physicians in delivery of a comprehensive 8-hour curriculum to 18 graduate medical fellows. Twelve attendees completed the exit survey. Despite various other time commitments, respondents attended a mean of 70% of the class sessions. All “Strongly Agreed” with the statement: “It’s important for graduate medical education programs to offer such financial literacy courses to their students.” Overwhelmingly, respondents perceived that they learned the content and would recommend the course to other physicians.
We observed that a remarkable number of tangible financial decisions was made by attendees during and immediately following our educational sessions. 11 of the 12 respondents credited the course with helping them make a total of 21 distinct decisions in the areas of: retirement planning, investing, insurance, employment contracting, debt management, and home purchasing.
In summary, it’s possible to equip professionals with financial decision-making skills and the confidence to implement such decisions. The keys are to provide a comprehensive course delivered by a trusted, unbiased educator.