If you listen to financial planners for long, you’ll find out we are big proponents of thrift, industriousness, and planning. That translates to a tendency to come across like pinched-mouthed finger-wagging harridans nagging the world to save more and not spend money on anything fun; because, if you do, you’ll have a horrible and richly deserved financial comeuppance. Humbug.
This is not a good way to make friends and help others.
So, I’m going to look at the softer side of financial planning by unpacking the financial blame game. You know the game, and you’ve probably seen it played thousand times. Here’s how it goes: A tale of woe is told. The poor soul finds themselves in a plight. They’re unemployed, sick or injured. Their home is being foreclosed upon, they can’t pay their bills, creditors are calling daily. They are probably going to have to file bankruptcy. Or, maybe their student loans got out of control. Or the interest rate on their credit card suddenly increased, and they can’t make they payments. The cause of the woe doesn’t really matter, because after the tale comes the blame game.
Did the poor soul cause their own destruction? Should they have saved more? Should they have done something, anything differently? Could they have done anything differently? They could’ve? Then it’s their own fault, and they should quit whining, buckle down, repent of their financial sins and take some personal responsibility.
And so on.
Here’s the skinny about financial planning – it requires a lot of research to make a half-way decent financial decision, especially about investing. I’ll let Laura E. Willis [PDF] take it away:
Harboring a belief in the efficacy of financial-literacy education may be innocent, but it is not harmless; the pursuit of financial literacy poses costs that almost certainly swamp any benefits. First, requiring all individuals to act as their own financial experts is inefficient. People are financially illiterate not because they are stupid, but because they have better things to do with their time. The hours of study they would need to invest to attempt to reach literacy are unlikely to generate positive returns. The waste of time and money alone is reason enough not to pursue financial-literacy education. But there appear to be other costs as well. For some, personal finance classes increase confidence without improving ability, potentially leading to worse decisions. When individuals find themselves in dismal financial straits, the regulation-through-education model blames them for their plight, shaming them and deflecting calls for effective market regulation. Opportunity costs should not be overlooked; single-minded focus on education inhibits the development of other policy tools for improving the financial welfare of Americans.
And here’s the rub; when we play the blame game, we’re pitting the poor soul against large, educated teams of financial and legal professionals, and then are expecting the poor soul to come out with the better end of the bargain. Is that reasonable?
I, for one, would like to see greater tolerance toward financial mistakes, especially by lay people. I know how hard it is to developing knowledge in financial planning, insurance products, investments, credit, banking, investment and finance, economics, taxation, estate, and related topics. I’ve spent years and years at this, and I still don’t know it all. I don’t think it’s reasonable to expect the average person to be highly knowledgeable about the same subjects.