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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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Michael1
Michael1
1 year ago

And when you hear them talking about financial planning or money in general, point them to this website.

Michael Clark
Michael Clark
1 year ago

With all the best possible answers chosen on the questionnaire, and age 18-61, the highest possible score is 73.

Joe Tillman
Joe Tillman
1 year ago

Reminds me of the Chinese saying, “When the student is ready, the teacher will appear.”

Brian
Brian
1 year ago

Sometimes one finds so great of a teacher/professor that you want to take anything and everything he or she ever teaches…into perpetuity. That takes me back to your Getting Going WSJ columns from the 1990s. Thank you!

medhat
medhat
1 year ago

At the risk (probably in part deserved) of sounding like moralizing, it’s been my observation that suboptimal financial choices don’t exist in a vacuum; they’re often emblematic of other choices that might commonly be deemed “counterproductive”. This is also accounting for income, net worth, and educational differences. In personal experience it’s most closely related to environmental cues, starting with family/significant others, and extending from there to social environment. “Breaking out” of an environment surrounded by negative examples and reinforcement is a persistent challenge.

Rick Connor
Rick Connor
1 year ago

It is hard to get people to talk about this kind of stuff. But I’ll keep trying.

Peter Blanchette
Peter Blanchette
1 year ago

I respect you greatly as a journalist but I have to disagree with your prescription for financial welfare being so dependent on financial education. I trust that you do not believe that it is the primary problem. I know many smart, successful people who do not understand the concepts that you espouse so faithfully on this website. They, often, are the people who hire financial advisors. In this country inequality is getting worse as time goes by. We have a nation with 32 Mil uninsured, 65 Mil without broadband services, 36 Mil at poverty rate(16 Mil are 50% below poverty level) and many struggling just above it, less than 90% with high school or higher, half the household incomes are below $60-63K. These are some of the factors which, I would argue, are causing the financial distress that is so visible. It is dangerous, I believe, if, as a nation, we continue to believe that the individual has so much power to control his outcomes. We should act as a community to lift everyone up. Except for a brief period in the 40’s to the 70’s America has been on a constant slide to more and more inequality. Poverty dropped by half to about what it is now by the 70’s. It has stagnated at this level and, minimally, has not changed substantially since the 70’s. Paraphrasing FDR, we all should ask ourselves where we would be if there were no one to pick our vegetables and fruit because those who do could not live on the wages paid. Capitalism is a system that drives the cost of inputs and outputs based on the supply and demand factors of those inputs and outputs. Should we, as a society, limit the outcomes of a good life for those who provide the ingredients of our breakfasts and dinners or should there be intervention of some type by the community so that these people have the same opportunities as the rest of us?

https://poverty.ucdavis.edu/faq/what-current-poverty-rate-united-states

Andrew
Andrew
1 year ago

IMO, even if you’ve “preached to the converted,” I think it is extremely powerful that you’ve helped those inclined to convert in the right way. Good intentions don’t always equate to good results. Very respectable that you’ve done what you’ve done…

JasonT
JasonT
1 year ago

This is excellent advice. Good sense is one of the critical factors in a life well lived no matter what one’s starting financial situation. There is no substitute for developing a long view, wise spending, saving, living with integrity, generosity and faithfulness to spouse and family. This is true wealth and may very well lead to financial wealth, if not in your generation, in your children’s.

miles dudley
miles dudley
1 year ago

when I started investing actively in the late nineties it was a tech stock bubble game for me.
I was prone to funding vacations to Bermuda on my credit card at the same time. While I was perplexing over 1000 P/E ratios (can this be real?), and beginning to wonder why I couldn’t pay the bills as well, while I was making myself an instant millionaire by rapidly doubling my tiny portfolio value as I fell to sleep, easy as counting sheep, I took a subscription to the wall street journal, and began to read your columns. I had just watched my pension get cut to ribbons and getting the first gray hairs, so I guess I felt a need for mid-life crisis financial self-reform, but it was your columns that gave me a sense of clarity and common sense as to some of the ways and means to take control of my finances. I wouldn’t say everyone can be helped by financial advice, but for people who do have cashflows, mismanaged, I can assure you from direct personal experience that you have made a big difference. thanks

Doug K
Doug K
1 year ago

I got a 47. Ten years ago, before the actual cost of college became apparent, I would have scored higher. But the $100k I had saved for each child is $60k short of what’s needed for in-state tuition at a public school. We have insufficient in retirement accounts (immigrants, only started saving twenty-five years ago). There is going to be a severe correction in the markets before I can retire, so I expect that to drop by 30-40% anyway. At the same time I’m getting too old to be employable.

I used to save 20% of income to 401k, but that’s dropped to 5% (10% with company match) with the necessity to pay for colleges. We also used to be able to save a couple hundred each month to the emergency fund and travel/other luxuries, but that hasn’t been possible since the mid- earlies. All of this makes me entirely unconfident of our financial security.

This while my mortgage payment is under $500 (over $1000 once rates, taxes and insurance added) and we have no (never had) car debt or any other debt but mortgage.
So I really can’t help anyone else get to financial well-being, as my best efforts weren’t enough to get us there..

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