Experience or Education?

My parents are my inspiration for leaving consulting to teach personal finance. Still, my mother constantly says, “you can’t teach people how to make good financial decisions, they can only learn from experience.” She has a valid point. The best financial lessons are not taught in the classroom but in the world of hard knocks. Remember the college credit card offers, the 0% down mortgages, or the ‘you can’t lose’ investments? We all wish we knew then what we know now but the lessons leave an indelible mark in our brains.

So why offer personal finance education? If it’s all about experience, what’s the purpose? Financial educators (including myself) must constantly grapple with these questions. Moreover, we must adapt our curriculum, approach and objectives to complement life experiences and, as often as possible, help people avoid bad choices. With that in mind, I believe financial education should focus on a few key areas:

• Prioritization: People are faced with a range of financial decisions at the same time (debt, housing, investments, college savings, etc.) Strong programs help participants understand what to do first, second, third and so on.
• The Decision Approach: Power is in understanding how to make better decisions, not blindly knowing what to do. Strong programs teach technique in addition to content.
• Marketing vs. Reality: Financial products are often sold, not bought. Moreover, the salesman generally knows more about the product that you do and will use that leverage to close the deal. Strong programs help you learn how to become a more informed buyer, ask better questions and avoid what you don’t understand.
• Realistic Expectations: Smart decisions lead to slow growth and long term stability. Unfortunately, we live in an ‘instant gratification’ society. Strong programs help participants see the big picture that balances living today with saving for tomorrow.

My mother is from the school of hard knocks so I completely understand her perspective. At the same time, the financial world has become much more complex and education plays a vital role in helping people navigate the waters. Ultimately, I believe a mix of timely education with real world experience leads to the best long term result. Just don’t make the same mistake twice!

How do you learn about financial matters? Do you believe there is value in personal finance education?