Financial literacy: What good is it without financial health?

Financial literacy is overrated.  I’m hoping not too many of you spit your morning coffee on your monitor when you read that!  

Why would a champion of financial wellness say such a thing?  An analogy may help explain why I would make such a provocative statement. 

Imagine learning you have diabetes. To get a handle on the disease, you attend workshops about what it is and how to treat it. After sitting through your 4^th workshop you are pretty literate about diabetes and the steps you must take to control it. 

So you go home intent on exercising and eating well.  You quickly encounter challenges. There isn’t a gym close by. You try running after work, but you’re too tired. Cooking healthy meals takes too long, and they don’t taste very good. After a week you give up. It’s too hard and, besides, you’re not seeing any real difference in how your diabetes was affecting you. If anything you feel like it’s gotten worse.

What went wrong? Those workshops made you highly literate about diabetes. Why didn’t that help you manage the disease? 

Now imagine you have a diabetes management coach. Rather than just giving you information she walks with you through your journey. She helps you find exercises that you enjoy. She shows you how a well-timed afternoon snack can give you the energy for post-work exercise. She helps you identify healthy foods you like to eat. She finds recipes that don’t take too long to prepare.  She meets hurdles with you and guides you over them. Step by step, you become healthier. Your quality of life soars.

We believe the same principles hold true when it comes to financial literacy and financial health. A 2013 meta-study found that “financial literacy interventions” and so-called “measured financial literacy” both produce questionable downstream benefit for participants. (See “The Effect of Financial Literacy and Financial Education on Downstream Financial Behaviors,” Daniel Fernandes, John G. Lynch Jr. and Richard G. Netemeyer). The authors suggest “the need for re-examination of public policy around how financial education is used to improve financial decision-making.”

Stephanie Furches, left, saw her financial profile
improve with coaching from ACFCU. Learn how here.

We’ve seen firsthand how well coaching works. Only 18 percent of our clients who have stayed the course with coaching report experiencing high financial stress after coaching. The figure is 90 percent before that coaching. Those clients’ average credit scores increase 194 points, from 441 to 635, while their average “debt-to-income” ratio drops from 43 percent to 19 percent. Average delinquent debt decreases by more than two-thirds, and their average amount of predatory loans falls by nearly half.

We are taking a “both/and” approach to this challenge. We continue to promote and offer financial literacy, including workshops. We’re helping a partner, Tusculum University, design a course that will prepare students to teach financial literacy to the school’s freshmen and in local high schools.

Jessica Handy, right, started her credit journey the right way
by working with ACFCU's Haley Jones. Check out her story.

But someday those high school seniors will get their first credit cards. Those college freshmen will buy their first cars and homes. Some will face significant student loan debt. Others may be challenged by medical bills.

Whatever the circumstances, we know financial stress’s impact on people’s work, on their physical health and on their quality of life. As we continue seeing positive results, we’ll keep financial coaching services at the forefront of our approach to helping people achieve financial health.

Ultimately, this approach stems from our belief that all people have dignity. We agree with this assessment by Fernandes, Lynch and Netemeyer: “The financial environment that consumers face today has become dramatically more perilous just in one generation.”

We hope our coaching-centered financial health approach, and others like it being adopted around the country, can contribute to a discussion about how to help Americans achieve healthy financial lives.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)