Edition 32: What is “Financial Literacy”?

Plus: Financial Education, Open Minds, Invisible Scripts, Guessing Prices, Credit Builder Accounts
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WRITTEN BY OZ CHEN

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Compliment for you: You are financially literate.

Today’s topics: Financial Education, Open Minds, Invisible Scripts, Guessing Prices, Credit Builder Accounts

But first, a personal note on my Covid recovery. If you want to skip to the main topic, tap here or keep scrolling!

After sending the last update about recovering from Covid, I had a return of symptoms later that day, two Fridays ago. Massive fatigue and headache resumed. Luckily, it passed after two days.

Here’s a shitty illustration of how my Covid recovery went.

Two main points: my recovery was nonlinear, though almost everything moved towards normalcy by week 4. The part that gives me anxiety are symptoms that persist, e.g. “Long Covid.” I feel like I have 90% of my brain back, but still experience some brain fog and fatigue even as I write this. (Yes, I’m shocked too—it’s said that most humans can only access 10% of their brains 🤪)

When I talk to people who refuse the vaccine, one of their main arguments is “Young, healthy people don’t die from Covid, so…I’m going to sit this one out.”

As someone who’s young and healthy and got Covid, I tell you…it takes over your life. I lost a ton of productivity and connection in that time period, not to mention the symptoms that persist to this day.

Even if you don’t die from Covid, you certainly don’t want to get it.

You do not want to get Covid. You do not want to get Covid. I repeat: you do not want to get Covid.

On a lighter note, it felt amazing to be in good enough health to attend a 3-day camping music festival in 100 degree weather. I was a bit nervous about going, having recently recovered from Covid, but it turned out to be a blast.

Meta note: I know this newsletter is mainly oriented around psychology and finance. At the same time, I’ve had more than 1 friend say “I don’t care much about finance but I read to know how you’re doing.” I’m working on sharing more personal stories and updates. I guess that’s the flexibility of having a personal brand (my website) versus a specific niche.

📚 What’s the right financial education for kids?

In 2019, The Budgetnista Law (Law A1414) was approved in the state of New Jersey to make financial literacy education required for middle school students from grades six to eight.

I got curious and wondered exactly how “financial literacy” was defined by via this law:

“The financial literacy instruction will emphasize budgeting, saving, credit, debt, insurance, investment… to ensure New Jersey’s youth have access to the tools and foundation needed for sound financial decision-making.”

Overall, I think this is a positive move. More knowledge to the youths about finances should lead to greater awareness. Here’s where I can’t resist putting my contrarian hat on.

Blame the individual or the system?

If you’re living in the U.K., the government does taxes for you and you get sent a bill. There are some exceptions where people have to file a tax return, but it’s still far simpler than the American tax code. The U.S. system, along with a lot of corporate quackery, puts the burden of tax filing on the individual. Filing in Japan is also a breeze, as many other countries.

Where am I going with this?

I wonder if teaching kids about how a system works (e.g. U.S. taxes) early on will make them comfortable with a broken system, or if it’ll make them question the system itself. I hope it’s the latter.

It depends on how “education” gets executed in the classroom. I hope there’s a strong dose of history and critical thinking. Instead of only advising kids “Don’t get into credit card debt!” I hope it covers how the credit system works and why is it that a company is allowed to charge a customer 25% APR.

Questions like Why are taxes so complicated to do? How can a college accept a low income student and expect them burden them with $200k in loans by the time they graduate?

My agenda: raise a generation of children, who’ll inevitably become leaders, who’ll question our system and shape public policy. Not just go along with the status quo because it’s been hand-fed to them by a failing American education system.

My wish list for financial education also includes how to assess risk and the psychology of money, because financial outcomes are ultimately driven by behavior.

Passing a law like The Budgetnista Law is incredibly complicated, and I appreciate that a blogger and complicated. And this may be part of “bottoms up” approach that puts pressure on schools to expand financial education. As of today, only 21 states require high school students to take a course in personal finance.

What do you think should be taught in schools as part of a well-rounded financial literacy education?

🧠 Open minded about closed minds

To be open-minded, you have to be open-minded to the idea that other people may not be “open-minded” like you

Perhaps that needs reframing too—

It’s not that someone’s closed-minded; they just have a different perspective

🎙 Ramit’s podcast on emotions and money

Ramit Sethi, financial influencer famous for his I Will Teach You To Be Rich brand, released an amazing podcast talking to couples about their financial struggles.

My favorite is episode 2, where a wealthy couple struggle to live a rich life.

Ramit basically took the real-time-therapy-with-side-observations format that worked so well for Ester Perel’s Where Should We Begin podcast, but focuses on the emotional side of money.

Here’s one example from episode 3:

Ramit: When you buy a car, do you comparison shop for prices?
Calvin: Yes
Ramit: When you go on vacation, do you comparison shop for hotels?
Calvin: Yes
Ramit: When you go to the grocery store, do you comparison shop for the type of spaghetti sauce or lettuce that you get?
Calvin: Yes
Ramit: Yes. So…everything!

Goddamit that was triggering conversation for me. I comparison shop for everything and it’s poor use of my time.

(Aside: recently I decided that if any ticketed social event under $30 interests me, I’ll buy it without hesitation.)

I love the concepts he points out, like:

  • The invisible scripts that drive our behavior around money
  • We often inherit ideas about money from our family; those ideas can become financial baggage.
  • People build the skills of getting wealthy, but very few people learn the skill of spending money to live a rich life.

📚 Finance game for kids: guess prices

One of my friends shared a money game he was taught as a kid. It’s genius.

The teacher would have students cut out images of items and products from a magazine. (Btw this was in the 90s).

Then the kids would guess how much those items cost…and later research what the actual prices were!

My friend said that this, as a kid, was illuminating to him. A bag costs $500? How many hours of work does that take?

I love this type of exercise because it teaches kids how to deal with reality.

Prices give people a frame of reference for operating in the financial world. It sounds basic. But if this was so basic then financial disasters would be a lot less prevalent:

  • Paying hundreds of thousands of dollars for college for a career path that might not pay off
  • Getting into credit card debt
  • Overspending

If I have kids I’m going to teach them this game, because it teaches the concept that everything comes with a tradeoff, including price.

💸 Money tip of the week: Savings Accounts That Build Credit

There’s a way to build credit while saving money…and it doesn’t require a credit card!

Here’s a bit of financial innovation called “credit building loans.” Intermediaries like Self, CreditStrong and SeedFi operate like this:

  1. You apply for a “loan,” and the company puts your funds in a locked savings account
  2. As you pay off the loan, those payments get reported to credit bureaus (what you want)
  3. Once the loan is “paid off,” you access all the money contributed to the savings account, which is now unlocked

This combines the mechanism of a loan with a savings account to help boost credit scores for just a small fee, or sometimes even free. What I love even more is that for people who struggle to save, this is a locked savings account which forces people to not touch their money.

When done in conjunction with getting added as an authorized user, these tactics could offer cheap ways for people to increase their credit scores.


Just for fun: When a good person comes into your life at the wrong time

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