FXD 18: Can You Afford Financial Illiteracy?

To many people, money is a magical thing. It’s difficult to imagine how a paycheck can cover rent and groceries, and also go into savings.

There’s good reason for this: as children, quarters make us feel rich. And just a few years later, while still in high school, many of us make financial decisions that impact the rest of our lives: choosing colleges, requesting financial aid, and taking out loans. To someone who has never seen more than $50 in one place, a $10,000 loan is impossible to imagine. Yet the average 2016 graduate entered the work force with over $37,000 in student loan debt – and no idea how to pay it back.

What I’m describing is a lack of financial literacy.

What is Financial Literacy?

Financial literacy is described in multiple ways. One of the most succinct explanations is that financial literacy is “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” (2008 President’s Advisory Council on Financial Literacy) Yet only 2/3rds of Americans can pass a basic financial literacy test.

Most people agree that there are five areas of knowledge people need to understand:

• How to budget
• How interest works
• Debt (the good and the bad)
• How to gain credit
• Identity theft and security

The question remains: how do we get there?

Design the Conversation

There are a plethora of prospective solutions. Organizations such as the Global Financial Literacy Excellence Center (GFLEC) conduct studies on topics such as attitudes toward debt and financial fraud in older Americans, and teach online personal finance courses. Some schools offer finance classes in middle school and high school – though unfortunately only five states require these courses for a high school diploma.

One area where designers and financial institutions can work together is by considering design. A well designed website, application, or portal should facilitate education without requiring members to do research before beginning. Financial institutions can make a point of using plain language instead of financial jargon. And UX designers can approach money as a tool, rather than a goal. In other words, financially literate people understand how to use money to build savings, gain credit, and budget. Designers can create user flows that support these perspectives.

The opportunity is here. We can increase financial literacy, and thus improve customer satisfaction and success. Where do we begin? That’s up to you.