Time to Bring Financial Numeracy to the Masses?
Take a young adult and bombard them with glitzy images of fast cars and the wonderful life they bring. Offer them easy access to as much money as they want, hand over the keys to a powerful sports car without any instruction and direct them out onto the nearest highway. Take your commission and move on without a second thought. Look surprised when the ambulance speeds by minutes later.
Welcome to the car crash that is the global economy.
Who Should We Blame?
Now we can castigate the governments, regulators and lenders who oversaw this mess. Actually we should definitely do that – partly because it’s right and proper that authority is held accountable for their actions and partly because there’s nothing quite so enjoyable as watching the rich and powerful wriggling on a petard undeniably hoist of their own efforts. However, underlying this there’s an uncomfortable truth – that the lenders were serving a demand and for every imprudent lender there was an equally imprudent borrower.
We can, perhaps, lay some of the blame at the feet of a complicit media which was all too eager to encourage a “consume all you can” culture. Sadly the media usually reflects, magnifies and distorts that which it finds in everyday life.
So, although I’d normally draw the line at engaging with a plot requiring time-travelling islands, one could see Lost as an allegory for the British Isles as it travels back economically to the seventies. Desperate Housewives is simply the natural end point of over-mortgaged middle class people with too much time on their hands descending into primeval savagery in between expensive makeovers and Ugly Betty’s what happens when you start valuing style over substance and preferring service industries to manufacturing. Yes, you get pretty girls wearing unstylish glasses and really uncool braces.
Perhaps I should get out more.
Maths Blindness in Sexed-up Apes
More critical, really, is the abysmal state of financial education across the western economies which sees people taking on debt without even being able to calculate their annual repayments. It’s the equivalent of sending a teenager out in a Porsche without the requirement to pass a driving test. Or know how to drive. Or know what a car is. And what does that “Halt” sign we just passed mean? Why are those red lights on at the back of that truck? What’s a brake?
Ouch.
Most people prefer to avoid maths if at all possible. There’s a reason for this – it’s difficult. Generally speaking our brains aren’t wired for it and really that’s not surprising. When we were no more than semi-erect hominids gambolling across the savannah you can understand that being good at language might have been useful – persuading other apes to do your bidding, forming alliances, persuading that sexy minx of a lemur to pop into the bushes with you, that kind of thing. On the other hand mathematical ability would have been less useful – can you remember the last time the pick-up line “Fancy coming over to my place and solving some quadratic equations?” led to a fruitful sexual encounter, let alone increased your food supply in the jungle?
The trouble is that this maths blindness leads to mass deception in the modern economy when people misunderstand the nature of risk and reward. Frankly, I don’t think we’re going to see people drawing out decision trees and calculating probabilities en masse anytime soon, but demanding a basic understanding of debt, interest rates and likely costs ought to be a fundamental requirement before permitting access to borrowing. It’s time we introduced the financial equivalent of a driving test before letting people out on the financial highway.
Politics and the Absence of Hope
There’ll be objections to this from both sides of the political spectrum. Right wingers will insist that this is an infringement of personal liberty, while feverishly sponsoring biometric identity cards, CCTV on every street corner and insurrection in unfriendly but, entirely coincidentally, oil rich, nations. Left wingers will worry about social inclusion while shutting down local self-help groups with ever-increasing checkbox health and safety legislation.
Both sides have a point but neither addresses the fundamental problem that a financially innumerate population brings – there’s no greater infringement of liberty and no greater mechanism of social exclusion than losing your home and any hope of a future. And, as we’ll shortly start to discover, there’s no greater cause of global instability and social unrest than homeless, hopeless and hungry people.
The Trap of Financial I.Q.
Of all the potential problems with a financial driving test social exclusion is both the most intangible and most dangerous. Capitalism is underpinned by the idea that the have-nots may one day be the have-alls. Without this the rich would be torn apart by the masses and we’d all live in communes and eat lentils. Partly the illusion that the lifestyle of the wealthy is achievable without needing to earn it is responsible for the mess we’re in but if you remove the possibility of a better life you’ll create social barriers that can’t be overcome – with very nasty consequences.
The danger of such an examination is that it simply becomes another sort of I.Q. test which guarantees that those from the bottom of society will fail. Many supporters of I.Q. testing have taken it for granted that the fact that society’s poorest people fare worst in these tests “proves” that they are poor because they’re stupid. Others have idly wondered if the direction of causality there might be the wrong way around – maybe people are stupid because they’re poor? See this article on New Thinking on Poverty & I.Q.
As this is psychology, hoping for a clear-cut answer is hopeless but there’s little doubt that people from poorer backgrounds have less chance of success in the casino of life. However, to deny people access to opportunities simply because fate’s dice rolled the wrong way at birth is unconscionable. People have a right to try to improve their circumstances and governments will fall – should fall – if they fail to understand and support this.
Education is better than Legislation
These problems can be overcome: basic financial numeracy can be taught and is as fundamentally important as being able to read. The internet allows a reach that was previously impossible and the development of e-learning programmes should be a priority – if governments want to stimulate the world economy through infrastructure investment they should start with the development of the soft infrastructure of their citizens rather than pumping billions into dying industries. Get kids and parents to learn together, bring communities into closer contact, build a better and more sustainable future instead of staggering from failure to fiasco like a D-rated celebrity in need of a fanbase.
This programme should be extended to other financial areas, beyond loans, The risks, rewards and costs of shares and bonds, insurance policies and saving accounts should be explained. We shouldn’t try to featherbed the population with legislation that tries to prevent miss-selling but which simply creates other problems – regulation will only ever stop the last set of issues, not the next set: we need to accept that the only real answer is education, not legislation.
There’s an opportunity here, too, for those of us willing to roll up our sleeves and get involved. It’s time we accepted that fixing this mess isn’t just a problem for governments. It starts with all of us because it’s not someone else’s problem anymore. It’s everyone’s.
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Take a young adult and bombard them with glitzy images of fast cars and the wonderful life they bring. Offer them easy access to as much money as they want, hand over the keys to a powerful sports car without any instruction and direct them out onto the nearest highway. Take your commission and move on without a second thought. Look surprised when the ambulance speeds by minutes later.
Welcome to the car crash that is the global economy.
Who Should We Blame?
Now we can castigate the governments, regulators and lenders who oversaw this mess. Actually we should definitely do that – partly because it’s right and proper that authority is held accountable for their actions and partly because there’s nothing quite so enjoyable as watching the rich and powerful wriggling on a petard undeniably hoist of their own efforts. However, underlying this there’s an uncomfortable truth – that the lenders were serving a demand and for every imprudent lender there was an equally imprudent borrower.
We can, perhaps, lay some of the blame at the feet of a complicit media which was all too eager to encourage a “consume all you can” culture. Sadly the media usually reflects, magnifies and distorts that which it finds in everyday life.
So, although I’d normally draw the line at engaging with a plot requiring time-travelling islands, one could see Lost as an allegory for the British Isles as it travels back economically to the seventies. Desperate Housewives is simply the natural end point of over-mortgaged middle class people with too much time on their hands descending into primeval savagery in between expensive makeovers and Ugly Betty’s what happens when you start valuing style over substance and preferring service industries to manufacturing. Yes, you get pretty girls wearing unstylish glasses and really uncool braces.
Perhaps I should get out more.
Maths Blindness in Sexed-up Apes
More critical, really, is the abysmal state of financial education across the western economies which sees people taking on debt without even being able to calculate their annual repayments. It’s the equivalent of sending a teenager out in a Porsche without the requirement to pass a driving test. Or know how to drive. Or know what a car is. And what does that “Halt” sign we just passed mean? Why are those red lights on at the back of that truck? What’s a brake?
Ouch.
Most people prefer to avoid maths if at all possible. There’s a reason for this – it’s difficult. Generally speaking our brains aren’t wired for it and really that’s not surprising. When we were no more than semi-erect hominids gambolling across the savannah you can understand that being good at language might have been useful – persuading other apes to do your bidding, forming alliances, persuading that sexy minx of a lemur to pop into the bushes with you, that kind of thing. On the other hand mathematical ability would have been less useful – can you remember the last time the pick-up line “Fancy coming over to my place and solving some quadratic equations?” led to a fruitful sexual encounter, let alone increased your food supply in the jungle?
The trouble is that this maths blindness leads to mass deception in the modern economy when people misunderstand the nature of risk and reward. Frankly, I don’t think we’re going to see people drawing out decision trees and calculating probabilities en masse anytime soon, but demanding a basic understanding of debt, interest rates and likely costs ought to be a fundamental requirement before permitting access to borrowing. It’s time we introduced the financial equivalent of a driving test before letting people out on the financial highway.
Politics and the Absence of Hope
There’ll be objections to this from both sides of the political spectrum. Right wingers will insist that this is an infringement of personal liberty, while feverishly sponsoring biometric identity cards, CCTV on every street corner and insurrection in unfriendly but, entirely coincidentally, oil rich, nations. Left wingers will worry about social inclusion while shutting down local self-help groups with ever-increasing checkbox health and safety legislation.
Both sides have a point but neither addresses the fundamental problem that a financially innumerate population brings – there’s no greater infringement of liberty and no greater mechanism of social exclusion than losing your home and any hope of a future. And, as we’ll shortly start to discover, there’s no greater cause of global instability and social unrest than homeless, hopeless and hungry people.
The Trap of Financial I.Q.
Of all the potential problems with a financial driving test social exclusion is both the most intangible and most dangerous. Capitalism is underpinned by the idea that the have-nots may one day be the have-alls. Without this the rich would be torn apart by the masses and we’d all live in communes and eat lentils. Partly the illusion that the lifestyle of the wealthy is achievable without needing to earn it is responsible for the mess we’re in but if you remove the possibility of a better life you’ll create social barriers that can’t be overcome – with very nasty consequences.
The danger of such an examination is that it simply becomes another sort of I.Q. test which guarantees that those from the bottom of society will fail. Many supporters of I.Q. testing have taken it for granted that the fact that society’s poorest people fare worst in these tests “proves” that they are poor because they’re stupid. Others have idly wondered if the direction of causality there might be the wrong way around – maybe people are stupid because they’re poor? See this article on New Thinking on Poverty & I.Q.
As this is psychology, hoping for a clear-cut answer is hopeless but there’s little doubt that people from poorer backgrounds have less chance of success in the casino of life. However, to deny people access to opportunities simply because fate’s dice rolled the wrong way at birth is unconscionable. People have a right to try to improve their circumstances and governments will fall – should fall – if they fail to understand and support this.
Education is better than Legislation
These problems can be overcome: basic financial numeracy can be taught and is as fundamentally important as being able to read. The internet allows a reach that was previously impossible and the development of e-learning programmes should be a priority – if governments want to stimulate the world economy through infrastructure investment they should start with the development of the soft infrastructure of their citizens rather than pumping billions into dying industries. Get kids and parents to learn together, bring communities into closer contact, build a better and more sustainable future instead of staggering from failure to fiasco like a D-rated celebrity in need of a fanbase.
This programme should be extended to other financial areas, beyond loans, The risks, rewards and costs of shares and bonds, insurance policies and saving accounts should be explained. We shouldn’t try to featherbed the population with legislation that tries to prevent miss-selling but which simply creates other problems – regulation will only ever stop the last set of issues, not the next set: we need to accept that the only real answer is education, not legislation.
There’s an opportunity here, too, for those of us willing to roll up our sleeves and get involved. It’s time we accepted that fixing this mess isn’t just a problem for governments. It starts with all of us because it’s not someone else’s problem anymore. It’s everyone’s.