With Financial Literacy Month coming to a close, it’s time to ask an important question: should our industry be striving for more than just”literacy?”
In today’s world, we carry around a wealth of financial knowledge in our pockets. Our smartphones ensure that we’re never more than a few screen taps away from the answers to all of our questions. If you think about, carrying a smartphone is like having a bank or credit union branch in your pocket. Yet we’re still celebrating Financial Literacy Month like nothing has changed – when, in reality, a lot has changed.
Taken at its most basic definition, literacy is the ability to read and write. And while an understanding of financial products and terminology may have been a worthy goal for bank and credit union customers in the past, the bar needs to be raised for a world of technology and complex financial decision-making.
A Brief History of Financial Literacy
The first acknowledgement of a need for financial literacy might be this letter from John Adams to Thomas Jefferson in 1787 (since we at EVERFI are in Washington DC, we love this kind of historical reference). However, the term itself wouldn’t start to gain popularity until after the 1914 passage of the Smith-Lever Act, which focused on providing citizens with necessary learning experiences, including financial education.
For the majority of the 20th century, financial literacy continued to be a relevant term. But most financial educational tools were text-based, so absorbing this knowledge involved a lot of reading and writing. As it did for many industries, technology soon changed everything.
Smartphones Change Everything
On January 9, 2007, the very first iPhone was announced, and everything changed. Now, people can get the knowledge they need quickly and easily; anything you want to know can be found in seconds. And with more information available, people are able to do more research before making important decisions.
Beyond access to knowledge, smartphones also give people the ability to take action from the palm of their hand. They can read Amazon reviews to research a product, then purchase it with a single click. They can download their bank’s app and have access to financial education, then put that education to use right away by making changes to their accounts. These interactions go well beyond simply becoming literate; instead, smartphones allow users to achieve proficiency and take immediate action.
Moving Beyond Financial Literacy to Financial Capability
Consider a customer who is aware of both bank services and check-cashing services – the latter of which can be predatory, tacking on huge service fees. The customer already has the financial literacy to know that each option exists. But to achieve true financial capability, this hypothetical customer needs the confidence and strategic attitude to make the connection that a banking product would be a better choice for their long-term financial health.
That’s why we think it’s time to replace financial literacy with a more impactful term: financial capability. Financial capability is the set of knowledge, attitudes, habits, and confidence in one’s ability to control one’s finances that a consumer needs to build his or her financial wellbeing. In other words, it’s not just a matter of being literate about your financial options – it’s having the capability to use that literacy to make good decisions.
In order to change the conversation surrounding financial education standards, we need to change the industry expectations. So, in April 2018, let’s not celebrate Financial Literacy Month anymore. Instead, let’s raise the bar. Let’s plan a big, impactful, and action-oriented month. Let’s have Financial Capability Month.
P.S. – Download our mini guide, Developing Financial Capability Across Every Stage of Life: Why Financial Education Should Start Early, to learn how your financial institution can improve its financial education initiatives.