April is Financial Literacy Month, an effort to increase financial understanding in the U.S. But while Americans definitely need some help to better understand money, Financial Literacy Month isn't the answer.
According to a 2015 S&P Global Financial Literacy Study, the U.S. ranks 14th in financial literacy; nearly half of the population rates as financially illiterate. The ability of Americans to understand the financial world and properly manage their finances is intrinsically tied to the prosperity of the American economy.
Unfortunately, Financial Literacy Month is a miss — its blanket approach to finance is flawed by design and can't work.
General guidelines won't answer the financial questions most relevant to their lives. If the advice isn't personalized, situational and actionable, most Americans won't even remember it. And many, many people in our country deeply need help. According to a Federal Reserve study, 47 percent of Americans can't afford to pay for an unexpected $400 expense. This is alarming and underlines a core issue with financial literacy: Americans are not good at anticipating their needs and planning for them.
I myself suffered from financial shortsightedness in the first 10 years after college. Despite an MBA from Wharton and good jobs with ever-growing responsibilities, I basically lived paycheck-to-paycheck with no emergency fund to back me up. I was too involved in my work to think ahead. But making financial advice relevant and urgent to individuals' particular life stage and situation can help spur them to action.
In recognition of Financial Literacy Month, here are three ways that financial literacy lessons can be made more effective.
1. Understand that everything changes
- The economy changes. What works in some economic conditions may not work in others. In the first few years after college, I made the mistake of investing my entire 401(k) in my company's stock. After the internet bubble popped, I watched it decline by over 70 percent. I learned about diversifying your investments — and that what may seem to make sense for you right now might not turn out to be a smart financial decision in 10 years.
- The financial industry changes. The advent of defined-contribution plans like 401(k)s and IRAs, and the decline of defined-benefit pensions, created a need for far greater financial literacy because a person's financial future is now completely in his or her own hands. New products like robo-advice and personal financial management apps have created more tools but also more confusion.
- Your financial situation changes. The lessons that might have served you at one point in your career won't necessarily work later on. The techniques that helped you pay off student debt may not be the best way to manage your money when you become more affluent, for example. Even the type of mortgage that makes most sense can be different if you're planning to live somewhere for just a few years compared to the one that's best when you've found your "forever" home.
2. Start teaching financial literacy in college
The conventional wisdom on financial literacy advocates starting at high school age. That's a mistake. College is the best time to begin learning in-depth about finances.
Financial education in high school is rarely applicable to students' actual lives and, therefore, often falls on deaf ears. By contrast, in college, students start encountering real-life situations and have tangible financial problems to work through. It can be the first time students use their own credit or debit cards, or pay rent, or become debtors.
The stakes are high, too: Student loans, if not handled properly, can haunt borrowers for years. Currently, many students mistakenly believe that their college loans will be forgiven – as many as 50 percent, according to a survey by LENDedu.
Colleges have the responsibility to help young adults begin their financial lives on the right foot. Don't forget: Many employers check credit ratings when people apply for jobs.
3. Never stop learning
College may be the best time to start developing financial literacy, but your education can't end there. At various points in your life, you may need to learn how to decrease credit-card debt, or to save for retirement, or to refinance your home.
Americans need a way to find the right answers at the right time, and those answers should be accurate, accessible and easy-to-understand.
Financial Literacy Month could spread the word about where to go for coherent, reliable financial guidance and underline how important it is to have. After all, true financial literacy is building understanding from the ground up.
This article originally appeared on CNBC.