Financial Literacy – Are We Passing the Test?
The Covid pandemic has hit us all very hard during the months of April and May 2021. On the one hand the medical system has been overwhelmed by the number of seriously ill Covid patients, on the other hand the disease has progressed in several patients who needed it. be admitted to intensive care units. Many had to be put on ventilators. And many didn’t improve even with fan support. They were then offered extracorporeal membrane oxygenation (ECMO). I wish there was research that tells us the proportion of patients who do well with ECMO. But this play is not about that.
It was absolutely heartbreaking to see middle-class families doing well who were looking everywhere for financial help so they could give their loved ones a fighting chance at life – medical services such as intensive care, respiratory support and l ‘ECMO are not cheap. And it was heartbreaking to see patients failing to recover and dying. I suffered a very personal loss. One thing that came out very clearly is that many of us were unprepared for a medical emergency that can require heavy expense. Most were underinsured.
Obviously, there is a need to introduce lessons on personal finance into every class. And it must be calibrated to the needs of the class. The foundations should be laid in the primary classes preferably in the form of games and puzzles.
There is a lot of content available on financial literacy – many of which are free from financial service providers. Although their content seems relevant and meaningful, these often appear as infomercials, which limits their usefulness as an educational tool. There are also several pieces of educational and informational content that have been developed by social purpose organizations. Most of them deal with lack of awareness and a few also deal with access issues.
Efforts have been made to increase financial literacy on a large scale, with a good portion of social funds being used for this purpose. They have certainly helped raise awareness of issues such as financial fraud and regulated financial services. However, their success in getting people to make responsible personal finance choices has been very modest, as low health insurance coverage suggests.
In my experience, I have found that after awareness and access, cognitive biases such as confirmation bias, status quo bias, and anchoring prevent people from engaging in responsible behavior in personal finance. These prejudices make us lazy. For example, relying on credit might sound good because most of my friends are sailing the same boat and I think they’ll all come ashore eventually, just like me. Or I haven’t gotten sick in the last five years – do I really need health insurance?
Financial literacy content should address these biases in a way that makes people aware that they may not be making the best personal finance choices because of these biases. It should also give them tools to overcome these prejudices.
The opinions expressed above are those of the author.
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