What is financial literacy? To me, financial literacy means being able to understand and analyze financial products in order to make smart decisions about what to do with your money.
That shouldn’t be controversial, right? Well, the more I think about financial literacy, the more conflicted I get.
Read on for why, and for a heavy dose of computer age nostalgia.
Growing up geek
I wrote my first computer programs in the early 1980s on a Texas Instruments TI-99/4A using the BASIC programming language.
The TI was a pretty remarkable computer for its time. It shipped with 256 bytes of main memory, and if you wanted to save a program, you had to use cassette tape, but I wrote embarrassingly simple video games and programs to play simple melodies.
In 1984, I moved up to an Apple IIc, Apple’s first portable computer. Like a laptop, you could carry it with you. Unlike a laptop, you had to lug it around using a built-in handle, and it didn’t come with a monitor.
(I had a Zenith green-screen monitor, which feels incredibly Matrix in retrospect.)
The IIc was mind-blowing. It had high-resolution color graphics that I was eventually able to see years later when I got a color monitor.
It had a built-in disk drive, which meant I could collect a library of video games and illegally swap them with my friends. And it had plenty of memory (128K) to stretch out in and really program.
Eventually, I attached a 1200-baud modem to the IIc. After that, I rarely came out of my room. I dialed into bulletin board systems (BBS) and chatted with equally nerdy friends from school and people from other schools that I didn’t even know.
“Chatted” is an exaggeration, since most BBSes could only accept one phone call at a time, so you’d leave a message and maybe hear back from someone later. Or the next day.
Also, our house only had one phone line, so whenever I was online and my parents or brothers picked up the phone, I lost my connection. The nerve of those people.
Part of what made computers in the 80s so much fun for someone like me is that the interface was extremely opaque to anyone who hadn’t put in their 10,000 hours at the keyboard.
I didn’t have to worry about my mom sitting down at my computer and discovering my chats with my scuzzy anarchist buddies because nobody’s mom knew how to use a computer.
Furthermore, computers and their software broke constantly. For years, science fiction author Jerry Pournelle wrote a popular column in BYTE magazine.
Every month, all of his computers broke and he explained in painstaking detail how he fixed them. Computers, back then, appealed to the same kind of hobbyist that loves working on vintage cars.
If it ever ran perfectly, what would you do in the garage all weekend?
Of course, computers still break and software still has bugs. But computers in 2013 are to computers in 1984 what modern medicine is to Old West medicine.
Everyone is tired of hearing about how your two-year-old has mastered the iPad, but it illustrates a real point: grandmothers and toddlers can master a tablet computer. It doesn’t even require 10,000 seconds to learn.
Yep, it’s a parable
Now, what does this have to do with financial literacy?
Let’s think about what has happened to financial products over the same period of time. Some of the news is good. We have debit cards, better access to low-cost index mutual funds, and…well, I can’t come up with another positive trend.
While our computers have evolved out of the geeky basement and into the hands and pockets of everyone, financial products have, on the whole, become more complicated and dangerous.
I’m talking about equity-indexed annuities, payday loans, subprime mortgages (and car loans, and credit cards), medical and other insurance, retirement accounts, and all the other financial instruments that bedevil us.
It’s tempting to say that our lives are more complicated now than they were in 1984, so we need more complicated financial instruments. But we use computers to solve way more problems now than we did in 1984, and our computers have become simpler.
Why should our financial lives be any different?
That, I think, should be the mission of the Consumer Financial Protection Bureau and other financial regulators: to help make our financial products more iPad-like.
Does this mean I’m calling for a nanny state to rescue us all from the burden of personal responsibility? Of course not.
But I worked in tech support for years, and it was always tempting to blame the user when something went wrong. “Operator error” and “problem exists between keyboard and chair” were a couple of the more printable phrases thrown around.
In retrospect, however, the problem wasn’t the users. The computers were unreliable and too hard to use, so we made better and simpler computers. It’s already getting hard to believe that people used to have to manually click “Save” to avoid losing their work.
The road to there
Sure, let’s hear it for financial literacy. But let’s not forget that the only reason we need Financial Literacy Month is because our institutions have failed to provide us with financial products that are safe and comprehensible.
I don’t see an easy solution to this problem. Apple didn’t create the iPad as an act of charity to soothe users weary of file management and printer drivers. They did it to make a ton of money.
Too many financial institutions seem to believe that the best way to make money is to lure customers into unsuitable products, levy hidden and exorbitant fees, and otherwise behave like David Mamet characters.
In this landscape, financial literacy is a necessary evil, just like computer literacy was in the 80s.
Thanks for letting me indulge in a little 8-bit nostalgia. In the next couple of weeks, I’m going to offer some specific, actionable financial literacy advice to help prevent common bad moves.