David Trend
As consumer prices continue to rise, experts now warn of a looming recesssion brought about by pandemic manufacturing slowdowns and supply-chain shortages. Economists explain it as a classic case of demand outpacing availability –– with scarcity making things more costly. Unfortunately, the painful solution now being launched will raise borrowing costs rates so that people spend less. While these measures may or may not improve the overall economomy, the combined effects of inflation and rising interest rates will exact a double blow to people struggling to make ends meet. In such an atmosphere it becomes critical to help people manage their own finances and to prevent the broader economy from overheating. This is where consumer education and financial literacy can help as part of a largermove toward a “learning society.”
For some time now, economists have been promoting financial education in public schools and urging people to become more resourceful. Time Magazine reported polls showing “99 percent of adults in agreement that personal finance should be taught in high school.”[i] The Federal Reserve argued that “financial literacy and consumer education, coupled with strong consumer protections, make the financial marketplace ‘effective and efficient’ and assists consumers in making better choices.”[ii] Many colleges and universities have started making financial literacy courses graduation requirements. And for some it has worked, as many Americans “put their own budgets under the microscope –– akin to what financial analysts routinely do when the scrutinize companies.”[iii]
Creativity is becoming became a buzzword in new push for consumer education, as people are urged to find alternatives to mindless shopping. Articles began appearing in the press about “Creative Ways to Spend Less” and “Creative Money Saving.”[iv] Meanwhile, studies began appearing on the relationship between creativity and thrift. In an essay entitled “Creating When You Have Less,” University of Illinois consumer analyst Ravi Mehta cited research showing that people with less money instinctively found innovative alternatives. “If you look at people who don’t have resources or only have limited resources, they end up being more creative with what they have,” Mehta said.[v] This is frequently seen in nations with high poverty rates. “When times get tough, resource-poor people become more creative in their use of everyday products.” Conversely, wealthy populations seem less conditioned to do so. “Abundance is our default setting here in the U.S.,” Mehta explained. This has lead everyone –– producers and consumers alike –– to become less inventive. “As we become a more abundant society, our aggregate average creativity levels decrease,” Mehta concluded.[vi]
Amid this outpouring of financial education and incentivized creativity, people got smart about money for the first time in decades. But the pattern soon reversed. Call it short-term memory or the hubris from a recovering economy, but in recent years Americans have slipped into old habits. Creative approaches to personal finance are on the decline and household budgets again are in trouble. Not helping matters has been a dramatic increase in consumer borrowing, with U.S. credit card debt for the first time topping $1-trillion in 2017.[vii] Student loan obligations have broken records at $1.3-trillion –– or, double what they were a decade ago –– while defaults on mortgages and car loans again have hit all-time highs.[viii] And for 25 percent of working families, stagnant wages drove additional borrowing for child care.[ix] “It took nearly a decade, but debt has made a comeback,” the New York Times recently reported –– adding that the numbers are now dangerously close to those triggering the recession.[x] Yet people just don’t seem to understand the problem.
Even the business press now is sounding alarm bells about America’s naïve money habits –– with articles again calling for basic consumer education. “The U.S. has a financial literacy issue, and the problem is both deep and potentially highly damaging to the U.S. economy,” explained one account of families behind on mortgages, living on credit cards, and spending more than they earn.[xi]Unfortunately, many people find it hard to resist the dynamic of borrowing and spending. Shopping is easier than creative thinking, many experts contend.[xii] And schools again are no longer helping. A recent CNBC headline read that “U.S. Schools Get a Failing Grade for Financial Literacy.” According to CNBC, “The number of states requiring high school students to complete a course in economics has dropped over the past two years, and mandates for personal finance education in upper grades remain stagnant” –– leaving 60 percent of the country without such education.[xiii] Even FoxNews has chimed in, stating that “Survey after survey show Americans don’t understand basic financial concepts,” adding that over 60 percent of high school students can’t answer even basic questions about budgeting or how to write a check.[xiv] Meanwhile, as economics courses dwindle in the U.S., nations like Australia and the United Kingdom quickly are moving in the opposite direction, mandating financial literacy for all young people while also boosting creativity offerings.
What’s behind this education gap in such a vital area? Is it a lack of information? The way finances are taught? Remember that Americans are an independent breed with an instinctive aversion to authority. And in more general terms, they prefer practical learning over anything theoretical. In a column entitled “Why Financial Literacy Fails,” investment advisor J.D. Roth explained that money management courses fall short because they don’t connect to people’s real life experience. [xv] “When I was in high school, every senior was required to take a course in personal finance,” wrote Roth. “But now we’re no better with money than those who were never given this sort of instruction.” Abstract lessons about interest rates and profit margins often fail to show students how overspending can hurt them in real ways. And it doesn’t address why they buy things. “Our financial success isn’t determined by how smart we are with numbers, but how well we’re able to control our emotions ––our wants and desires,” Roth pointed out. “For most of us the issue is internal: The problem is in us. In other words, I am the reason I can’t get ahead.”
Making matters worse, marketing keeps getting more clever and “creative.” Advertisers long have recognized that selling is a visceral business. As Entrepreneur Magazine recently put it, “Effective Marketing Appeals to Emotions Instead of Reason.” The magazine was quite explicit about how this works, telling businesses “to acknowledge that selling a product is no longer enough. Now it’s all about the experience you provide with it. This experience is dependent on your ability to trigger the right emotions, from the right audience, at the right time.”[xvi] The big three triggers are: establishing deeper value, alleviating psychological pain, and eliminating consumer regret. Acknowledgement of this came from Glamour Magazine, a periodical usually thick with exactly such ads. In “Creative Ways to Save Money,” Glamour told readers to be wary of feeling-laden ads and “consider leaving your credit card at home if you have a burning need to spend passionately.”[xvii]
Also, money itself is growing increasingly abstract. As traditional boundaries between makers and consumers are loosening, individualized work-and-spend cycles become even stronger. Rarely recognizing the working of systematic beguilement, Americans instead blame themselves for any hardships in their lives. Set before them is a vision of purchasing as a form of liberation and self-expression. Tempered by a decade of fiscal insecurity, discretionary spending has taken over as a measure of personal freedom –– often gently encouraged by the friendly suggestions of an Amazon algorithm. Beneath all of this, big data and computerized marketing keep refining a rising virtual economy in which material goods are increasingly rendered as electronic transactions. Online sales are but one example of the diminishing use of cash in an age in which finance has become more ephemeral and hard to grasp. Even bankers can get lost in a spirals of leveraged investments, credit default swaps, and other exotic instruments.
Underlying America’s financial literacy problem is the country’s ambivalence about education. Even as schooling enhances upward mobility, many in the U.S. are wary of too much book-learning. Some of this comes from the anti-elitism baked into American identity, which associates pedantic superiority with aristocratic ways rejected centuries ago. Also, lots of people simply don’t like being told what to think. They prefer to believe they are making up their own minds, even as they are falling for advertising pitches. Remember the “knowledge illusion” discussed in the last chapter? Americans in particular assume they know more than they do. And when it comes managing household finances, most consumers don’t want any help –– usually seeing money as a “personal” matter. After all, isn’t this why so many voters revolted against health care reform? Perceived autonomy is one of consumerism’s unspoken allures. Buying things provides a form of gratification that’s just about the opposite of sitting at a school desk.
In his landmark 1964 book Anti-Intellectualism in American Life, Richard Hofstadter linked these tendencies to worries about external control, along with latent insecurities about American prosperity. This partly explains why business leaders often react with such virulence to pedigreed “experts.” As Hofstadter put it, “The plain sense of the common man, especially if tested in some demanding line of practical work, is an altogether adequate substitute for, if not actually much superior to, formal knowledge and expertise acquired in schools.”[xviii] America’s ambivalence about schooling is even more pronounced toward higher education. These anti-intellectual instincts have been fed in recent years by a torrent of bad publicity over college tuitions, sex scandals, and a resurgent student protest movement. Quite recently, the Pew Research Center found a widening partisan divide, with only 40 percent of Republicans feeling good about higher education (down 15 percent from the prior year).[xix] While Democrats remained positive at roughly 70 percent, overall public opinion has dropped to 55 percent. “The erosion of trust in heretofore respected institutions is a problem for the ivory tower,” wrote Daniel Drezner in his book The Ideas Industry.[xx] “Academics attempting to weigh in on public affairs confront a delegitimizing assault on the academy –– call it the ‘War on College”[xxi] This has meant the fall of the academic “public intellectual” and the rising prominence of entrepreneurial “thought leaders” like Bill Gates, Guy Kawasaki, Neil Patel, and Zuckerberg.
The rise of the thought leader shows just how much Americans value practical knowledge and success stories. This isn’t necessarily a bad thing, according to Drezner. In fact, it might help clarify what kinds of education work best in the U.S –– especially in matters like financial literacy. Knowledge seems to catch on when it has a clear usefulness. “Our brain has evolved to discard information that it thinks has irrelevance,” Tesla thought leader Elon Musk recently quipped.[xxii] Others see such attitudes reflecting a broader pattern of neoliberal rationalization –– in which practical utility becomes the measure of all things (especially when linked to money). Certainly the thought leader concept reinforces this. On the other hand, the common appeal of practical ideas may have a less partisan explanation –– having more to do with immediate need and experience. Many consumer commodities are there for a purpose, after all. And customers don’t always have a choice about whether to buy basic necessities like food, clothing, and other staples of life.
This learning dynamic long has been recognized in educational circles, however. From the nineteenth century onward, successful teachers saw that students do best when they “learn-by-doing” and feel they have some control over the process. Memorized facts quickly get forgotten when lessons seem disconnected from practical usage. And rote learning also steals the fun of finding knowledge on one’s own. These factors informed the Progressive Education movement and its core principle of student-centered learning. When students discover their own answers and see how knowledge can help them, the insights become more meaningful and longer lasting. This fundamental insight about hands-on cognition isn’t only a premise of educational theory. For quite some time, employers have been seeing it in the workplace.
If you think about it, learning-by-doing has always been the basis of on-the-job training, internships, and trade apprenticeships. The learner first is shown a method and then asked to perform the task independently. Even today, medical students are familiar with what is termed the “See One, Do One, Teach One” approach. In 1962, economist Kenneth J. Arrow wrote an often-cited paper entitled “The Economic Implications of Learning by Doing” in which he declared that, “One empirical generalization is so clear that all schools of thought must accept it … Learning is the product of experience.”[xxiii] To Arrow, “Learning can only take place through the attempt to solve a problem and therefore only takes place during activity.” Going yet further, Arrow added that “A second generalization that can be gleaned from many of the classic learning experiments is that learning associated with repetition of essentially the same problem is subject to sharply diminishing returns.”[xxiv]
Arrow’s learning-by-doing argument has several implications for the “crises” in innovation and the creative industries discussed in the pages of this book. For one thing, Arrow argued the economic advantage of experiment in moving knowledge forward and the economic disadvantage of repetitive inclinations. Put another way, short-term gains deriving from already-known formulas ultimately provide less benefit than long-term research and problem solving. Even more importantly, Arrow’s principles conformed with the self-motivated spirit of American capitalism and the country’s anti-elitist attitudes toward learning. It argued that working for one’s own gain and doing so in a practical way were compatible with both enhanced learning and societal benefit.
More recently, this same philosophy has been advanced by other well-known economists. In their book Creating a Learning Society, Nobel Laureate Joseph E. Stiglitz and Bruce C. Greenwald put learning-by-doing in both historical and contemporary contexts.[xxv]Stiglitz and Greenwald began by asserting an unequivocal link between new knowledge and economic growth, often tied to technological innovations. They stated that knowledge has proven far more effective than wealth in improving standards of living and allowing populations to thrive. Capitalism can do much to incentivize this process. But it also can get in the way because “the production of knowledge differs from other goods,” Stiglitz and Greenwald explain. “Market economies alone typically do not produce and transmit knowledge efficiently. Closing knowledge gaps and helping laggards are central to growth and development.”[xxvi] Stiglitz and Greenwald got specific in stating that “many standard policy prescriptions, especially those associated with ‘neoliberal’ doctrines focusing on static resource allocations, have impeded learning.”[xxvii]
“Changes in technology affect what and how we learn (and what and how we should learn),” Stiglitz and Greenwald added.[xxviii] Some of this has come from computerization. After all, digital technologies have been rising for twenty years as a social force, and along with them all manner of new products and services. As business, education, entertainment, and finance migrated to online environments in the 1990s, the term “information economy” became the order of the day. A decade later smartphones shot the process forward as everything became digitally “smart” –– from notebooks and televisions, to refrigerators and thermostats. Next, the “internet-of-things” would designate the increasing interconnection of products. Eventually people were speaking of smart homes, cities, and entire nations as the concept of a “knowledge economy” took over. It’s not rocket science to see the importance of learning in all of this. How else can the average person come to terms with the exploding infosphere?
[i] Dan Kadiec, “Why We Want ––But Can’t Have––Personal Finance in Schools.” Time (Oct. 10, 2013) http://business.time.com/2013/10/10/why-we-want-but-cant-have-personal-finance-in-schools/ (accessed Jul. 20, 2017).
[ii] Thomas L. Harnisch, “Boosting Financial Literacy in America,” Perspectives (Fall 2010) http://www.aascu.org/uploadedFiles/AASCU/Content/Root/PolicyAndAdvocacy/PolicyPublications/AASCU_Perspectives_Boosting_Financial_Literacy(3).pdf (accessed Jul. 13, 2017).
[iii] “Recession Lesson.”
[iv] “Creative Money Saving Tips,” MoneyMatters (n.d.) https://www.listenmoneymatters.com/money-saving-tips/ (accessed Jul. 26, 2017).
[v] Ravi Mehta and Meng Zhu, “Creating When You Have Less: The Impact of Resource Scarcity on Product Use Creativity,” Journal of Consumer Research 42, no.5 (2016) https://academic.oup.com/jcr/article-abstract/42/5/767/1855952/Creating-When-You-Have-Less-The-Impact-of-Resource?redirectedFrom=fulltext (accessed Jul. 26, 2017).
[vi] “Creating When You Have Less.”
[vii] Andrew Soergel, “Consumers Ramp Up Borrowing as Outstanding Debt Hits $3.84T” U.S. News and World Report (Jan. 10 2017) https://www.usnews.com/news/economy/articles/2017-07-10/consumers-ramp-up-borrowing-as-outstanding-debt-hits-484t (accessed Jul. 10, 2017).
[viii] Michael Corkery and Stacy Cowley, “Household Debt Makes a Comeback in the U.S.” New York Times (May 17, 2017) https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html (accessed Jul. 10, 2017).
[ix] Rachel Gillette, “A Quarter of American Families Go into Debt to Pay for Child Care,” Business Insider (Aug. 10, 2016) http://www.businessinsider.com/a-quarter-of-american-families-go-into-debt-to-pay-for-child-care-and-the-cost-is-significantly-changing-the-way-people-do-their-jobs-2016-8 (accessed Jul. 19, 2017).
[x] “Household Debt Makes a Comeback.”
[xi] “Just How Bad in America’s Financial Literacy Problem? This Bad” The Street (Aug 1, 2016) https://www.thestreet.com/story/13660249/1/just-how-bad-is-america-rsquo-s-financial-literacy-problem-this-bad.html (accessed Jul 12, 2017).
[xii] Kimberley Palmer, “9 Money Strategies for the Creative Thinker,” Money Magazine (Nov. 2, 2011) https://money.usnews.com/money/personal-finance/articles/2011/11/02/9-money-strategies-for-creative-thinkers (accessed Jul. 26, 2017).
[xiii] Shelly Schwartz, “US Schools Get Failing Grade for Financial Literacy Education,” CNBC (Jan. 28, 2016) http://www.cnbc.com/2016/01/28/us-schools-get-failing-grade-for-financial-literacy-education.html (accessed Jul. 10, 2017).
[xiv] Yasmine Ghahremani, “Can Schools Really Teach Personal Finance?” FOXNews (Jan. 14, 2014) http://www.foxbusiness.com/features/2014/01/09/why-johnny-cant-save-money-and-what-schools-should-do-about-it.html (accessed Jul. 10, 2017).
[xv] J.D. Roth, “Why Financial Literacy Fails,” GetRichSlowly (Apr. 10, 2017) http://www.getrichslowly.org/blog/2011/12/07/why-financial-literacy-fails-and-what-to-do-about-it/ (accessed Jul. 14, 2017).
[xvi] Jeremy Ellens, “Effective Marketing Appeals to Emotions Instead of Reason,” Entrepreneur (Aug. 7, 2015) https://www.glamour.com/story/14-creative-ways-to-save-money-in-2017 (accessed Jul. 26, 2017).
[xvii] Jillian Kramer, “14 Creative Ways to Save Money in 2017,” Glamour Magazine (Dec. 12, 2016) https://www.glamour.com/story/14-creative-ways-to-save-money-in-2017 (accessed Jul. 26, 2017).
[xviii]Richard Hofstadter, Anti-intellectualism in American Life, (New York: Vintage, 1996) p. 19.
[xix] Daniel W. Drezner, “The War on College Continues to be Prosecuted on Multiple Fronts.” Washington Post (Jul. 11, 2017) https://www.washingtonpost.com/news/posteverything/wp/2017/07/11/the-war-on-college-continues-to-be-prosecuted-on-multiple-fronts/?utm_term=.cb325f7ebcd5 (accessed Jul. 12, 2017).
[xx] Daniel W. Drezner, The Ideas Industry (Oxford: Oxford, 2017).
[xxi] “The War on College Continues.”
[xxii] Matt McFarland, “Elon Musk Explains What is Wrong with Math Class,” CNN (Jul. 19, 2017) http://money.cnn.com/2017/07/19/technology/future/elon-musk-dc/index.html?iid=ob_homepage_tech_pool (accessed Jul 23, 2017).
[xxiii] Kenneth Arrow, “Learning by Doing,” Review of Economic Studies 29, no. 3 (Jun. 1962 1962): 155.
[xxiv] Ibid.
[xxv] Joseph E. Stiglitz and Bruce C. Greenwald, Creating a Learning Society: A New Approach to Growth, Progress, and Social Development (New York: Columbia, 2017).
[xxvi] Creating a Learning Society, p. 18.
[xxvii] “Guest Talk by Nobel Laureate Prof. Joseph E. Stiglitz on ‘Creating a Learning Society,’” Centre for Information Technology and Public Policy (Jul. 5, 2016) http://citapp.iiitb.ac.in/guest-talk-by-nobel-laureate-prof-joseph-e-stiglitz-on-creating-a-learning-society/ (accessed Jul. 14, 2017).
[xxviii] Creating a Learning Society, p. 35.