Financial Literacy: Just Another Word for Financial Shaming

Shame creates discouraged and deflated people who cannot save for retirement.

Posted May 07, 2018

When I encourage people to save for retirement, many people hear advice to sacrifice needs, desires, and pleasures. They are resistant to giving up consumption now for consumption later.

In the face of this resistance, the conventional task of the conventional economist is to scold and instruct about the simple trade-off between saving now or suffering later in old age. Sometimes the message is gentle – to care for your future self – but all advice stems from the assumption that behavior will change with a bit of knowledge and financial literacy.

But the financial literacy is delivered with an implicit disease diagnosis: retirement income inadequacy is the fault of the victim. The conventional message is that if you are old and destitute, it is because of the choices you made to satisfy immediate urges and the choices you made to be financially illiterate.

I have found this conventional approach brings on a category of emotional responses that are more difficult to deal with than resistance to saving now for consumption later.

I appeal to the clinical community – how can economists and financial advisors deal with the powerful shame response?

Shame is thorough. It attacks self-esteem and self-worth, and it gets in the way of making life changes, including amassing retirement savings and getting out of debt.

Conventional financial planning and the economists who blame the retirement crisis on faulty individuals are wrong, but every person in the American hyper-individualistic 401(k)-IRA world receiving a financial assessment is being judged. The Motley Fool, a popular financial column, writes, “there is nothing like watching a Suze smackdown on Oprah, when she scolds hapless viewers for spending their spare cash on lattes at Starbucks instead of buying health insurance for the kids.”

Here is the situation. Most people (a little over half of all workers), don’t have retirement plans at work. Employer-sponsored retirement plans are where the vast majority of us can save enough to supplement Social Security. While Social Security is a retiree’s income base, a well-funded retirement requires more. Without accumulating savings on our own – either through an employer-funded retirement account or a 401(k)-type plan – our future selves will be in crisis.

A whole cottage industry has been built around the retirement savings crisis. And most retirement advice books sell by money-shaming the reader. Remember Suze Orman. Shame is a powerful tool, and, at its worst, it creates discouraged and deflated workers who still cannot save for retirement.

You are not at fault for your inadequate retirement savings. Say that again and let that sink in. We do not have bad people. We have a bad system. One bug in our retirement system is the structure of risky, high-fee investments and the way it incentivizes financial managers. If you ask how much the manager costs or if they have fiduciary loyalty, they do not know the answer.

Fiduciary loyalty essentially means an ethical obligation to put their client’s needs first. A fiduciary manager legally must give advice that serves your interest, not their own. Unfortunately, professional standards are not high enough across the board, and the average manager will give you advice that benefits their own or their firm’s bottom line.

The Trump administration weakened the momentum Obama had to create a fiduciary rule for these relationships. But you may not need the relationship at all.

The first step in caring for your future self is not to hire or listen to a financial manager. A good motto is, “go solo, go index.” By this I mean to choose your own investments, as long as they are indexed or passively-managed funds that follow a stock or bond index. A fund that tracks the S&P 500, for example, will mirror the general performance of the stock market overall. You will not be protected from the usual fluctuations. It will go up and down. But over time, the market has always gained ground.

To eliminate the weakness that comes from shame is to know the truth: individual savings alone cannot solve a savings crisis. Political reforms that strengthen Social Security and Medicare and that push forward plans that include universal coverage, pooled investments. and annuities (like my plan for Guaranteed Retirement Accounts, or GRAs).*

Saving for retirement in the current American system is built to be confusing, where almost everyone feels they need an advisor and where financial advisors and experts blame the victim. So know two things. First, you can help yourself invest in index funds and save as much as you can. Second, know you can’t go it alone. You need to join others for a collective solution. Our future selves need your help.


*GRAs create universal individual accounts funded by employer and employee contributions and a refundable tax credit throughout a worker’s career. Rather than bearing the risk of the market alone, workers are guaranteed their contributions upon retirement with the backing of the government. We can care and advocate for our future selves by calling on elected officials to create GRAs.