Just in Time

Jonathan Clements

I USED TO THINK anybody could be taught to manage money sensibly. I no longer believe that.

When I was in my 20s and scraping by on a junior reporter’s salary, I had some sense for the financial stress suffered by everyday Americans. But after a handful of years of diligently saving, I was able to escape those daily worries. Many Americans, alas, never do.

This was hammered home when I recently took the financial well-being questionnaire offered by the Consumer Financial Protection Bureau (CFPB). It involves answering 10 questions—things like whether you can handle a major unexpected expense, whether your finances control your life and whether giving a birthday or wedding gift puts a strain on your finances for the month.

I scored an 86, which is the highest possible score for my age group when the questionnaire is self-administered. I don’t tell you this to brag. Take the questionnaire yourself and you’ll realize it isn’t exactly difficult to earn a high score. Most HumbleDollar readers, I suspect, will notch around 70 or higher.

And yet the average U.S. score is just 54. Indeed, a third of the population scores 50 or below—a level “associated with both a high probability (well above 50%) of struggling to make ends meet and of experiencing material hardship,” says a 2017 CFPB report.

The CFPB considers a “very high” score to be 68 and above. What are the attributes of this group? A 2019 CFPB report says 69% make automated deposits into a savings or retirement account, most have health insurance and 80% have $10,000 or more in “liquid savings,” meaning money held as cash or in checking and savings accounts.

What about those at the other end, who notch a “very low” score of 29 and below? Just 5% of these folks are confident they could come up with $2,000 for a financial emergency, 82% can’t always afford the food they need and 96% find it somewhat or very difficult to make ends meet.

Scores tend to be higher among those with more formal education, homeowners, the higher paid, those who are married or living with a partner, folks who have a job with employee benefits, those who are older, and people with stable incomes. Meanwhile, scores are lower among the sick, disabled and unemployed.

But here’s a modest surprise—at least in terms of its impact on financial well-being: Those with less than $250 in liquid savings had an average financial well-being score of 41, versus 68 for those with $75,000 or more. That point difference was “the largest difference observed across any factor examined,” says the 2017 report. It seems significantly boosting financial happiness could be as simple as keeping perhaps $5,000 in the bank.

The CFPB and others have suggested that, while financial well-being is higher among the more affluent, it can also be helped by financial education. As the editor of a financial website, I’d like to think that’s true. But I’m not convinced.

That brings me to a 2014 academic study that looked at financial education, drawing on the results from 201 prior studies. It found that the impact of educational efforts on financial behavior was negligible, especially if that financial education happened more than 20 months earlier. Indeed, the authors suggest that the only strategy with a fighting chance is just-in-time education—where you help folks just before, say, they take out a mortgage or put together a portfolio.

That doesn’t mean financial education is a total waste. A minority of folks will benefit enormously, but they’re the folks who are naturally inclined to save money, plan for the future and so on. In other words, when the financial educators preach, typically the only folks listening are those inclined to be converted. This, I fear, is what I’ve spent my entire career doing—preaching to the converted.

That’s where you, dear reader, come in. In all likelihood, not all of your colleagues, friends and family members are innately sensible about money. My hope: You will keep your ears open, so you know when they’re about to make major money decisions—and you’ll take that as your cue to deliver some just-in-time financial education.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Opening the SpigotHumble Bragging and He Can Be Taught. Jonathan’s latest books: From Here to Financial Happiness and How to Think About Money.

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