By Kjartan & Marlis Jansen with Lily Boyar
I remember when I was sixteen and my parents went on a trip, leaving my brother, sister and me in the care of our family friend, “Sandy”. One night, the four of us sat around the dinner table telling stories. Somehow the topic of finances came up and Sandy asked if I knew how to balance my checkbook. I didn’t. The next day, she sat me down, laid all of my bank statements out on the floor and explained the value of budgeting and tracking my expenses. She painstakingly went through each item, on a mission to help me learn to manage my money. By the end of the day, I felt confident to use these new skills.
A few days later, my parents returned and Sandy went home. Despite our practice together and Sandy’s patient instruction, I quickly slid back into the same financial habits that I’d gotten by with thus far. I knew balancing my checkbook was a useful skill that adults around me thought I should know, yet I couldn’t seem to make myself do it. I had been doing just fine so far without it. While the financial knowledge I learned seemed valuable at the time I learned it, this new habit just didn’t stick.
We’re Missing the Forest Through the Trees
A recent study found that 77% of participants feel worried or anxious about their financial situation, with 58% feeling as though their money controls them, rather than the other way around. It’s safe to say we all want a sense of security and control over our personal finances, yet, getting there isn’t an intuitive process. It must be learned. There is an entire industry of advisors, coaches, courses, books, apps and articles dedicated to resourcing us with the necessary knowledge we need to be financially savvy and informed. However, traditional financial education focuses on financial literacy skills in isolation, which has proven to be wholly ineffective. According to Dan Ariely, we spend about $700–800 million a year on financial literacy training which results in a 0.1% behavior change.
Financial literacy is about learning money skills. Financial engagement means using them.
Let’s be clear. Financial skills training is undoubtedly an essential ingredient for becoming financially informed. It’s necessary to learn how to budget, pay your bills and taxes, and, for many, understand the basics of trusts and investing. This knowledge allows us to make informed decisions with our resources. However, we don’t often apply these skills unless we understand how they impact our life and have the willingness to experiment with them. It’s the same way knowing how to read doesn’t necessarily motivate us to pick up a book.
A key ingredient for becoming a full participant in our financial lives is being intrinsically motivated to learn financial literacy skills in the first place. Financial engagement is the integration of financial skills into a person’s life. It allows them to be intentional about how they use their money and to gain control over their finances.
Knowing What Motivates You
So often, we’re moved to change something in our lives because of guilt, shame, fear or regret. However, it takes more than simply knowing we should make a change, to actually transform our habits. This is one of the reasons why crash diets and new year’s resolutions don’t often materialize.
Experts agree that behavior change is a process rather than a single learning event. It is only long-lasting and effective when the behavior is self-motivated and based in positive thinking. This explains why skill development alone isn’t enough to motivate engagement. Financial literacy education is most effective when we are able to see how these skills connect to our goals and interests and have relevant ways to practice them. Financial skills don’t change the way we interact with our resources until we understand why we want to use them, and how they serve and support our goals. Simply knowing how to budget won’t make us more mindful of our spending, for example. But if we can connect the skill of budgeting to a greater goal or value, like saving up to buy a home, they become more meaningful. In other words, when we understand our intrinsic motivation for learning financial literacy skills, we are more likely to apply them in context.
We become financially engaged when we combine financial knowledge with our intrinsic motivation to be active in managing our resources.
You Don’t Need an MBA to Manage Your Finances
Anyone can learn the skills to be an engaged participant in their money management. And it’s never too late to start. Ideally, we begin learning at a young age about spending, saving and sharing. We have conversations with our parents about the meaning of money. And what it means to treat it carefully. But many people begin this journey as adults. Regardless of age, becoming personally financially engaged helps people achieve a sense of agency in their financial lives.
Having financial means brings with it a responsibility to use it for good. The power of private capital to make the world a better place is absolutely astounding. And in most cases, families don’t hold on to their assets for more than two generations. It takes guidance to learn how to care for and responsibly steward financial assets. Even when the next generation is given a seat at the table to participate in decisions about their wealth, they often don’t know how to take that seat. When we are financially engaged, we connect the dots between our behavior, our financial resources, our values, and our responsibility to care for our assets.
Aside from financial literacy and motivation, another aspect of financial engagement is being able to work with financial planners, estate planners and other advisors. Being financially engaged means having the confidence to be a beginner and ask questions about concepts we don’t understand. Finance and investing is complex and nuanced. The most financially engaged people are constantly consulting mentors and experts.
Parents can help their children to become financially engaged by reducing any barriers that stand in the way. Wealth dynamics (family interactions associated with money) are complex. Money can be used as a weapon or prop to amplify power structures. This can impact the next generation’s sense of self-efficacy and willingness to show up, collaborate, and interact meaningfully with their resources. Each person in a family has a different path to empowerment. When we acknowledge this, the next generation has more of an opportunity not only to become financially knowledgeable but to embrace their wealth as a positive force in their lives.
A Few Tools for Financial Engagement
- Learn personal finance basic with Khan Academy
- Learn how you learn. Know your unique learning style so your financial education is best suited for you. Try this Assessment tool
References
Ariely, Dan. TED, www.ted.com/talks/dan_ariely_how_to_change_your_behavior_for_the_better/transcript?language=en.
Copeland, Brandon. “Big-Picture Thinking Leads to the Right Money Mindset.” Capital One, www.capitalone.com/about/newsroom/mind-over-money-survey/.
Publishing, Harvard Health. “Why Behavior Change Is Hard — and Why You Should Keep Trying.” Harvard Health, www.health.harvard.edu/mind-and-mood/why-behavior-change-is-hard-and-why-you-should-keep-trying.
Williams, Roy O., and Vic Preisser. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Robert D. Reed Publishers, 2015.
