The Problem with Financial Education Courses

Are you one of the lucky few who took a financial education course in school?

Do you remember some of the topics that were covered?

Many financial education courses begin with, and spend the most time on, credit management skills. These are topics like improving your credit score, balance transfers, and getting a good rate on loans.

There's a big problem with this.

Good financial education does not mean learning the best way to schlep your debt from one loan to another.

The most important thing about managing your money isn't polishing up your credit score so you can get better rates on loans.

Sure, this is a little part of knowing how the financial world works, but it shouldn't need to be a daily life skill.

The most important financial skill is rarely talked about in these classes.

Being good with money means knowing what is a need and what is a want, and never, ever, buying a want with money you do not have. In fact, smart money people know that you should never buy a want even with money that you do have if you'll need that money for something more important soon. That's how people end up backed into corners.

The real core of money management skills lies in being able to prioritize, which in turn is the core of frugality. Folks who are empowered about money know that frugality doesn't mean washing your clothes in the bathtub or eating lentils every night. (Read more about the misunderstood concept of frugality here.)

Frugality means being intentional with your spending, and when you're intentional with your spending, you are less likely to run into situations where you need a loan in the first place.

If you use consumer credit and carry a balance at all, it costs you money. It doesn't matter if it's "good credit", like a mortgage or a student loan. Even "good debt" costs money for the privelege of using it, and there are plenty of people who drown in their "good debt" every year. This isn't to say nobody should ever have a mortgage, but debt should never be taken on without understanding its gravity.

So why do they teach it this way? Why do we assume that everyone is borrowing out the wazoo so we should all learn how to borrow better?

Not All Financial Courses

An exception to this obsession with credit schlepping is Dave Ramsey's course.

Dave Ramsey is spot on about all the basic steps of managing money. Get an emergency fund, pay off your debt, start to save. But Dave Ramsey's path starts to get thorny after the basics, where he recommends actively managed investments over passive index funds.

Why does he do that?

Because he makes a ton of commissions off the actively managed funds. This article was quite the eye-opener.

So his advice is good, right up until the point where he has a chance to profit off of you. That's the point where he stops recommending the best option and starts recommending the most profitable option for him.

Getting Money Advice from the Money Lender

This brings me back to the question, why do so many financial education courses obsess about credit management and neglect frugality and living within your means (which usually means living without revolving credit)?

Lots of financial education courses are sponsored by banks. How do banks make money?

Banks make money when people pay interest on credit: loans, credit cards, and mortgages. In total, banks made record income of $171,300,000,000 in 2016. (source: New York Times)

It just makes sense that many bank-sponsored financial education programs teach mainly about credit. They're not trying to raise up frugal, self-sufficient, financially empowered folks. They're trying to raise up better customers.

This information then gets repeated as "what a financial course should look like", and the next thing you know, when you take a class in schools, you're learning about balance transfers (how to schlep debt from one card for another to save a bit on interest) but not how to stay out of debt in the first place. Being neck deep in debt has already become a totally normal thing for every generation from the boomers and beyond. Go ahead, buy a giant house, get a new car and go on vacation all on credit. Everyone else does it!

Is it a conspiracy theory? Is my tinfoil hat showing?

I'm not sure, but I do know this: you should never take advice from someone who is trying to sell you something, without thinking real hard about what's in it for them.

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