Tuesday, January 14, 2014

Happy New Year, Pacific Standard

If you haven't checked out Pacific Standard magazine, do it today. I discovered it about a year ago and look forward to its bimonthly arrival in the mail the way my cat awaits his food each morning.

The most recent issue has been getting a lot of notice lately because of its cover story, Why Women Aren't Welcome on the Internet. I read that article and thought it was worth doing because it put a lot of facts in one place where they can be cited, but it wasn't news to me. The truth -- that women writers are threatened with rape and dismemberment for daring to string a few words together -- is a revolting fact of life these days. It hasn't happened to me (thanks, readers!) but reports have been common.

A lot of men, however, seem to find it a revelation and have been tweeting about it, which is good. Thanks, guys. When I saw the recent response by Ross Douthat, conservative columnist for the New York Times, in which he called on men to cleanse the Internet of its worst misogyny, I knew it had passed some kind of threshold of recognition. So congratulations to the writer, Amanda Hess. I hope it does some good.

The two things from the issue that did surprise me were on unrelated topics. First, this graphic:

One percent of power plants make 30 percent of the entire energy industry's carbon emissions. Not just emissions of the coal-burning part of the energy industry. Wow. Seems like there should be something relatively easy that could be done about that.

The other notable piece was Crash Course by Helaine Olen, who brings together the work of various researchers whose findings challenge the conventional wisdom that financial literacy can improve things for the poor and struggling. Requiring financial literacy courses in high school, for instance, has no effect on savings or investment behavior.

So what about "just in time" financial literacy classes? When a person starts a new job and has to make decisions about a 401K plan -- that's the time to teach, right? But that opens up a big can of conflict of interest worms, with the student (who by definition lacks knowledge) being asked to judge what's unbiased info and what's not. And even if the teaching is unbiased, the time of life of the students may keep them from hearing the advice:
[With] instruments like the 401(k), consumers must begin saving early in life to maximize the money they will have on hand at the end of their careers. But that often doesn’t happen. People stay in school until their late 20s, or, faced with competing demands on their funds, come to believe they can’t afford to put money away for some ill-defined future need. They make bad decisions for what seem like good reasons. If a counselor comes along at some point in this process, it’s likely not going to be “just in time,” but either too early to make an impression—or too late to make a significant difference.
And even if a young worker hears the message about saving, what about all those student loans that have to be paid back?
College tuition has soared at rates well beyond that of inflation, forcing students to turn to loans to get by, which in turn leaves them servicing massive amounts of debt in their 20s, a time when financial literacy classes--citing the power of compound interest--say they should save.
(Noam Chomsky, among others, has written that increasing tuition and the resulting debt may have been intentionally deployed as a means of social control of young people after the unrest of the 1960s and early '70s. Hard to be an activist when you're buried under crushing debt. A bit paranoid, but who knows?)

And how will financial literacy keep you out of trouble when the biggest cause of bankruptcy is debt from a family health crisis? As the work of Elizabeth Warren has documented (in her pre-Senate days), medical bills top the list above even job loss and family breakup.

Olen ends the article by telling about a different take on financial literacy, which doesn't try to educate as much as make you appreciate financial constraints: the game Spent, which I've written about before.
Spent, like the controversy that ended up swirling around McDonald’s suggested employee budget, points to an oft-buried truth. The financial literacy movement presumes that with a modicum of education, we can all be equal in the financial and economic marketplace. But that’s a false promise. Financial literacy is, first of all, no substitute for financial regulation. It’s also an ultimately ineffective personal solution to a systemic political and economic problem.
There's a lot more to why people make "bad" decisions, and why the poor are poor. Simplistic notions like financial literacy only make people feel guilty about things, like scarcity, that are too often beyond their control.

Helaine Olen is the author of a book called Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Sounds like it's worth a read. She blogs about the problems of our do-it-yourself retirement system at helaineoelen.com.

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