As we come out of April, which is Financial Literacy Month, we at GBI found ourselves questioning the main problem that so many have been focused on these last 30 days: How to increase financial literacy for individuals so they can more easily engage with financial problems.
While we agree that increased financial literacy is a good thing, we haven’t seen much progress in this area. In fact, FINRA’s State of U.S. Financial Capability study found that financial literacy is actually declining.
In 2009, 42% of respondents to a five-question survey on finance fundamentals were able to answer four or more questions correctly. By 2018, this number had dropped to 34%.
Despite this negative trend, we still think it is important that people are able to engage with their finances and have control over them so they ultimately can achieve their life goals.
Therefore, at GBI, we want to flip the question: How can we make it easier for people to engage with financial problems while avoiding the need to increase their financial literacy?
More Engagement without More Literacy
Skeptics might argue that it’s impossible to get better engagement without acquiring more literacy. But we’ve seen it happen before in the software world.
When computing was first introduced, one had to have knowledge of coding in order to use a computer. Then, the engineers at Xerox PARC invented the first graphical user interface (GUI). The GUI translated technical commands like opening or deleting files into intuitive user interfaces – windows, icons and menus.
This opened up the computer world to a whole new type of user. With the GUI, everyday people were able to use a computer without having to learn any technical coding skills. This invention later led to the rise of the personal computer that we know today.
What the engineers at Xerox PARC tapped into was tacit knowledge. Tacit knowledge refers to knowledge that is intuitive and rooted in context, experience, practice and values. It is often unspoken as it is gained through experience that can be difficult to put into words.
For example, we all have a tacit understanding of how to walk. Most people, before we can understand language and talk, we learn to walk by imitating others and practicing on our own. We aren’t yet literate on any topic, yet we acquire a hard skill.
And more likely than not, we cannot explain exactly how we do it, nor do we need to explain it in order to enjoy the benefits of walking. You just know how to walk.
Xerox PARC created an interface that allowed people to interact with the computer and gain an understanding of how it worked without needing to know the technical ins and outs.
Presumably, those people could not explicitly explain how the computer was working and yet they were able to use it.
A Path to Unlocking Financial Inclusion
It occurred to us that this same concept could apply in the finance world. Tacit knowledge might provide a path to engage with financial problems without the need to increase financial literacy.
Does this mean we think financial literacy has no value? Certainly not. But instead of trying to increase an individual’s financial literacy, we think it’s better to focus on creating experiences that help individuals gain a tacit understanding of the problems they face so they can “just know” how to engage with financial problems.
In other words, we advocate for focusing on tools that enable people to be active participants in their finances and that help them make sophisticated decisions without the expert knowledge.
We think there’s a second component to this that truly unlocks greater financial inclusion. Once people are able to intuitively engage with their finances, there should be an avenue for them to more easily get access to people with very high levels of financial literacy – financial advisors.
Done properly, these two components could lessen, if not remove, the urgent need for increasing people’s financial literacy.
A Digital Solution
Thus, we built Lasso, an app that was informed by these questions and the resulting mission of creating greater financial inclusion. Lasso is the first social platform that can help any individual experience the basics of financial planning by using what they already know.
Then, we help those individuals connect more easily with financial advisors to build on their understanding and improve upon what they were able to do on their own.
As a result, we’ve democratized financial planning and made it available to a much wider audience. At the same time, we’ve made it easier for individuals to access financial expertise instead of requiring them to become financial experts.
To come back to the original question, we believe that methods for increasing financial literacy are much less effective than tapping into tacit knowledge and creating greater access to financial experts. With these two elements, we think it can be easier to engage with financial problems while avoiding the need to increase financial literacy.
Interested in getting started engaging with your finances? Click here to sign up for early access to the Lasso app.