Mind Your Decisions

I Read 10 Money Articles A Day–So Why Am I Confused? A Take on Why Personal Finance Education is Failing

We Americans are failing at money management. We have issues with debt and saving for retirement. We have even more pressing issues. Over 40 percent of Americans don’t save money for emergencies, even though experts say this is one of the highest priorities.

Lack of information does not seem to be the cause. I know people who read 10 money articles a day who are more confused than before.

As a firm believer in the value of education, I have to admit that I was stumped. Is it because we lack discipline? Is there a macroeconomic reason? I have meditated over this issue many times.

And then one day, I found the answer staring at me in an unexpected place: a book about nutrition.

The Source of Confusion (in Nutrition)

…I can confidently state that one of the major sources of confusion is this: far too often, we scientists focus on the details while ignoring the larger context [emphasis mine]. For example, we pin our efforts and our hopes on one isolated nutrient at a time, whether it is vitamin A to prevent cancer or vitamin E to prevent heart attacks. We oversimplify and disregard the infinite complexity of nature. Often, investigating minute biochemical parts of food and trying to read broad conclusions about diet and health leads to contradictory results. Contradictory results lead to confused scientists and policy makers, and to an increasingly confused public.

–T. Colin Campbell, Ph.D., The China Study

The explanation is simplicity itself.

We’re confused because of too much information, with too much noise in the details.

Money Confusion

Money education might be failing for the same reason. Experts focus on details and make generalizations that conflict. They forget the “infinite complexity” of individual preferences and instead focus on isolating small factors, like tax deductions. What’s left is a confused public.

Consider this article on whether Roth IRAs are good.

There are details about tax deductions, income considerations, saving rates, compound interest, tax-deferral, and capital gains taxes.

By the time you’re done reading, it’s hard to parse out a sensible strategy.

One Counter

I have yet to find a solution to money confusion (chime in if you have an answer), but understanding why it happens is useful. It logically means I should be selective in what I read, and that I need to put the information in context.

For instance, here is how I approached that Roth IRA article within a larger context. I brainstormed questions, and based on the article, came up with answers (in parentheses) :

–Is it better to have a Roth IRA than do nothing? (mostly yes)

–Is it better to contribute to a Roth IRA or a 401(k)? (mixed)

–If possible, should I contribute to both? (mostly yes)

In short, the burden lies not with education and more information, which will necessarily lead to contradictions and confusions.

The burden lies with us to ask questions within a framework and make the information useful.

Get started with your framework by writing your goals.