Why Financial Literacy Alone Will Always Fail

April is financial literacy month, and it’s dedicated to educating people on basic money concepts such as budgeting, saving, debt, compound interest and investing, just to name a few. Given that only 57% of adults in the United States are deemed to be financially literate, it’s certainly something we need to address. Improving the financial literacy of all people is a noble cause, but many questions remain surrounding how to do it.

Google financial literacy and you will find that there is no agreed upon definition, no standardized way to measure it, and no consistent process to ensure people are learning the right skills and how best to apply them in real-life situations. If you can’t define financial literacy, you can’t teach it. If you can’t measure it, you certainly can’t manage it or even judge whether financial literacy programs are improving financial health and wellness.

The one thing we do know is that the lack of personal financial knowledge costs U.S. households over $350 billion per year. Financial literacy is critically important to making healthier financial decisions, but financial literacy alone will fail because it’s only one piece of a much bigger puzzle that’s part psychology, part life and part money.

Here are the three reasons why financial literacy, by itself, will fail.

1. Financial literacy is the wrong starting point

While there is no commonly agreed upon definition of financial literacy, there is one common theme among all of them: Poor financial health is due to a lack of education. It’s considered a knowledge problem. Proper education is important, but financial literacy programs focus on the facts and figures and ignore our feelings (our emotions), which ultimately drive our behaviors. It’s a mindset problem and not only  a money and math problem.

For many, money is a cause of stress, worry, fear and even shame and embarrassment. Deeply rooted emotional issues and limiting beliefs about money will keep most people from making healthier decisions with it. More often than not, financial literacy programs address the technical aspects of money (the thinking and financial parts) and ignore the attitudes, beliefs and values (the emotional and psychological parts) around it. When 90%+ of the decisions we make are driven by emotions and not by logic, existing programs are starting from the wrong point.

2. Financial literacy doesn’t lead to behavior change

Tony Robbins has been quoted as saying, “Knowledge is not power. Knowledge is only potential power. Action is power.” It’s not what you know, it’s what you do with it that matters. Financial literacy and the programs that teach it focus on potential power (financial knowledge) and fail to provide real power (changes to behavior and actions) that can put people in control of the lives they want to live. In fact, studies have shown that improved financial literacy can explain just 0.1% of behavior changes that occur.

Our behaviors are driven by a complex web of emotions, attitudes, beliefs and values, and, without a clear understanding of how they drive our behaviors, more financial information will fail to produce real change. In short, information does not equal transformation. Financial literacy programs today are hacking at the leaves of change when they need to focus on the root of the problem and better integrate knowledge with healthier behavior.

If you don’t change your mindset (how you think), your habits (what you do), your systems (how you do them) or your environment (what shapes your choices), all the information in the world won’t lead to better financial outcomes. All of that being said, it’s important to note that in some cases there are greater systemic issues that limit one’s ability to choose or to change circumstances, so the push for greater financial literacy is just the tip of the iceberg.

3. It’s only one aspect of a much bigger financial (and life) picture 

There is a continuum of care with financial advice that can lead to improved financial health and wellness, and financial literacy is only one piece of it. Improved financial well-being occurs when all the pieces of the puzzle are put together (or integrated) to support the bigger picture, and these include:

• An understanding of beliefs and attitudes, cultural and community values, and behaviors and sentiment.
• Appropriate levels of literacy, education and knowledge on various money-related topics.
• Access to the tools, resources and money management systems through which this knowledge can be applied.
• The right environment to help develop healthier habits and support ongoing behavior change.
• Ongoing financial planning to adapt to a dynamic, increasingly complex, and constantly evolving life – personally, professionally and financially.

Financial literacy and the programs that support it fail because they focus on one aspect of this continuum of care. It mirrors a problem in the financial services industry where advice tends to focus on one aspect of our financial lives: our investments. We need advice and guidance in all aspects of our lives and ongoing support, and often course corrections and adjustments, to achieve true financial health, wellness, security and independence.

The greatest challenge surrounding financial literacy

The biggest challenge facing not just financial literacy but improved financial health and wellness comes down to three words: access, inclusion and integration. Greater access to financial tools, resources and expert advice unlocks the door to opportunity. Greater inclusion brings all people and communities through the door to participate in better education and economic ecosystems (lack of inclusion is a broader systemic issue). Greater integration takes the individual pieces of the continuum of care, threads them together and truly drives greater financial health and prosperity.

Financial literacy alone will always fail to improve overall health and wellness, just as advice limited to investments will fail to help people eliminate financial stress, make smarter, more informed decisions in all aspects of life, and put them in control of the lives they want to live.

If we want to create real change, we need to create greater access to financial advice and ensure the inclusion of all people and communities. The key is to focus on the integration of all parts and not just any one of them, such as financial literacy, in isolation.