Financial education - does it work?

An article in this week's Economist discussing the meager results achieved by financial education programmes.

The Economist's article starts: "Here is a test. Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102?...A survey found that only half of Americans aged over 50 gave the correct answer. If so many people are mathematically challenged, it is hardly surprising that they struggle to deal with the small print of mortgage and insurance contracts."

The majority of people who could not answer the question correctly were probably mathematically not competent. That said, there may have been some who were looking for an answer that was not there. For instance, no mention is made of bank fees and charges.

But is it valid to suggest: "If so many people are mathematically challenged, it is hardly surprising that they struggle to deal with the small print of mortgage and insurance contracts"?

The small print is, by definition, a struggle. How is making the text smaller going to make it easier to read? Many intelligent, literate people struggle with the small print and the voluminous terms of contracts. They are not prepared to invest the cost (in terms of time and effort) to understand the fine print.

And let's face it, if you did read the fine print and disagreed with a particular clause, what ability would you have renegotiate the contract and sign an amended version? Instead, people use proxies, such as the brand and reputation of the provider, what their friends and their communities are doing. If there were a problem, these proxies will point it out.

Is it about intellect anyway? Even large organisations who had the incentives to read the fine print and could do their sums, failed to read it when they invested in securitised mortgages. Most people failed to understand the implications of the bigger picture* and many of these were not in the "stupid" category (see The Big Short by Michael Lewis gives an entertaining explanation of what happened).

Financial education is more than acquiring knowledge about products and the ability to manipulate data mathematically. It isn't really about finance at all, but about behaviour, habits, heuristics and the recognition of arbitrage and opportunity.

Knowledge that credit card borrowing is an expensive form of debt and that "rewards" are an illusion (you are rewarding yourself with your own money) do not muscle up to the real opponent: that same person's inability to delay gratification.

Likewise, knowledge that a lottery ticket and a leaf are merely different versions of wood, does not prevent day-dreaming how you will spend the money when you get it and dissipating your effort to achieve more realistic ways to make money.

Financial education comes with practice and learning from mistakes, some of which are financial and some which are not. It comes from understanding behaviour, both your own and others. It comes from the ability to ask questions to cut through the guff that accompanies the sale of financial products. Acquiring the principles and practices that will help you not to get wiped out. A mathematical calculation is a useful aspect, but only a small aspect of what is required.

*  Including me.

"Clutter and confusion are failures of design, not attributes of information."

The subject of this post is a compelling film: Inge Druckrey: Teaching to See.

The 38 minute film is a beautifully presented outline of design thinking. It is worth viewing, for this reason alone.

In the last third of the film there is discussion of the relationship between design and information. Druckrey talks about her work with Edward Tufte, executive producer of the film and former student.

Tufte has written: "What about confusing clutter? Information overload? Doesn't data have to be "boiled down" and "simplified"? These common questions miss the point, for the quantity of detail is an issue completely separate from the difficulty of reading. Clutter and confusion are failures of design, not attributes of information."

It is right and proper that design is left to the designers, but there would be enormous benefits if the principles touched on in the film, and extensively covered in Tufte's books, were more widely known.

When presenters believe that clutter and confusion are attributes of information, they dumb it down and over-simplify. The result does not enlighten and serves to confuse when the recipients of the presentation are faced with real-world complexity. Designers, on the other hand, enable the presentation of massive amounts of information, but with clarity and ease of access.

Why MindMapping works

In these two films you can listen to Tony Buzan explains MindMapping. Tony was the inventor of MindMapping, so you cannot have a better explanation.

The DailyMotion film here is a different interview, from a slightly different standpoint. Together, these films will rapidly give you what you need to start MindMapping. With practice and adherence to the principles,  practice will perfect.

Used properly, MindMaps can produce enormous benefits. Used electronically, with metada, notes, attachments and hyperlinks, they have become more powerful than ever.

Get the right answers by asking the right questions

I attended a networking lunch last week. I can cope with such situations, having learned the hard way over the years, but am not a natural. The "hard way" was asking questions that were too philosophical for the event (stick to the footy or Master-chef) and taking corporate clients to the cricket: a long haul if the client is not talkative.

If you suffer that awkward feeling when you don't know anyone in a room and you appear to be the only one, here are some tips: Find out who will be there beforehand (phone the organiser of the event if need be). If there is someone you particularly want to meet, you can ask the organiser for an introduction. Set an achievable target as to how many people you intend to meet.

If you find someone at the event who is alone, speak to them. Ask them "what brings you here today?" or simply, "do you mind if I join you?" It can be challenging breaking the ice, but you will be glad you did!
If you can get involved with the organisation of the event, do so. It will give you a role and reason to talk to people and need not feel awkward.

A great skill to have is the art of good conversation. Conversation, even so-called "small chat" is important to make others feel at ease and communicate with the world.

Here is a great article called "The one conversational tool that will make you better at absolutely everything".

Really, it will.

Link here.

Thanks to the Fast Company blog.