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June 22, 2015 at 02:23 PM
File this one under “Teaching a man to fish vs. giving man a fish.” We’ve all read plenty of stories about the need to improve financial literacy. Indeed, the lack of financial literacy has been fingered as one of the primary culprits behind savings and investing woes.
We’ve also seen, especially since the White House and the DOL began a highly public crusade for a new fiduciary rule, a multitude of stories about the damage to retirement savers wrought by conflicts-of-interest. The president himself, as well as many much more qualified to say so, have said how these currently legal self-dealing transactions have cost billions in retirement savings every year.
Here’s an idea, though, that hasn’t got nearly as much press—what if the two issues—financial literacy and the fiduciary standard—are linked. A spokesman for AARP recently said the public “generally assumes that all advisers currently have a fiduciary-type standard and are already acting in their best interest” (see “Exclusive Interview: AARP’s David Certner says of DOL’s Proposed Fiduciary Rule: ‘Disclosure Alone Not Enough’,” FiduciaryNews.com, June 16, 2015).
If the public already believes all advisors operate under a fiduciary standard, does regulators making it so even matter? What, then, does this tell you of the primacy of the fiduciary standard vs. financial literacy?
Clearly, if the public knew the truth—that some “advisors” are under no legal obligation to act in their clients’ bests interest—do you think we’d have as many non-fiduciary “advisors” are we currently have?
If the entire investing public had this minimum financial literacy, there would be no need for regulators to regulate this issue —the market would take care of it all by itself.
The question, then, is “How?” “When?” and “Where?” to improve financial literacy. The answer lies in what I’ll call “The Three Ms” —Math, Money, and Morality.
Math: It goes without saying the fundamental basis of all aspects of financial literacy begins with math. I’m not talking about your fancy calculus or really cool matrix algebra. I’m speaking of rudimentary math—the kind found in elementary school speed tests and multiplication tables.
For all I’m concerned with, for most citizens, we can stop teaching math at the associative and commutative laws (and even learning those might be overkill). OK, I’m not actually saying to “stop” teaching math—rather, I’m saying to do the ol’ lather-rinse-repeat routine.
That means designing lessons that continually repeat the need to practice and, ultimately, know basic math operations. This would be, as it is today, a series of elementary school lessons that are repeated through the remainder of the secondary school education.
