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The Organisation for Economic Co-operation and Development (OECD) recently conducted a study, presenting a financial literacy test to fifteen-year-olds around the world, and has now published the group’s findings. The sample included 29,000 teens from eighteen countries (or, in the case of Belgium and China, two communities, Flemish and Shanghai). The test is designed to determine financial literacy and capability, with questions pertaining to income, taxes, borrowing, and money management.

Results show that only ten percent of the students taking the test can handle complex financial tasks. The results go much deeper, and show, like other studies before, that socioeconomic status of a community correlates strongly to financial literacy. While news outlets will certainly play up the international competitiveness — “Chinese teens are more financially capable than American teens,” for example — some of these differences disappear when taking socioeconomic opportunity into account.

In the case of China, the only city included in the survey was Shanghai, while the sample from the United States should be representative of the entire country. Even within the United States, financial literacy is biased towards economic opportunity, more than performance in other areas. The test results indicate that the strength of the correlation between socioeconomic status and financial literacy was stronger than the correlation to mathematics performance. That means that the performance gap between the wealthy and poor is wide, and the community-reinforced setbacks are harder to overcome in financial literacy than they would be in other subject areas.

Comparing the United States with the other countries studied, fifteen-year-olds in the United States are less likely to hold a bank account than the average. That is what is illustrated by the chart above.

In general, performance in math is correlated to performance in financial literacy, but that may be due to the types of questions asked in the test. Money is math, as the questions illustrate. But the design of a test can subtly benefit some cultures over others.

The skills addressed in the test, reading an invoice, basic investment knowledge and chart comprehension, reading a paystub, and a high-level evaluation of a loan offer, are all important skills from our perspective — a middle-class head of household with a job. And designing a test around these competencies shows that these are the financial skills we value.

It’s not clear whether the five financial literacy questions available online constitute the entire test given to the fifteen-year-olds in the study, but I would think it’s hard to draw conclusions from these data alone. Perhaps they measure something like “suitability for living a financially middle-class life,” which I think is something we tend to mistake for “financial literacy.”

At fifteen years of age, I’m pretty sure I’d have been able to deduce the correct answers to the questions in this test, but I didn’t have a bank account. I didn’t even have a joint bank account with my parents yet. I think I was sixteen when that day came. And when that day came, that’s when I was introduced to bank accounts.

Had I been required to take a class in elementary school about balancing a checkbook, I expect that information would not have helped me much. Anything I needed to know about the difference between gross pay and net pay would become clear with my first paycheck from Radio Shack, the first company clever enough to hire me. Unfortunately, or perhaps just differentially, many teenagers throughout the United States and the world will never see a paystub. Even among those who do work for a living, there is a vast cash-only economic society.

Who is the Organisation for Economic Co-operation and Development?

Here’s the organization’s mission statement:

The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.

The forerunner of the organization was founded in 1948 to run the Marshall Plan, using United States resources to help Europe rebuild its countries after World War Two. In the 1960s, the organization expanded in size and scope.

The OECD is funded by its member countries, with the United States leading the way by providing financial support for 21.2 percent of the organization’s budget. There doesn’t seem to be much corporate or capitalist interests, but the organization does have partnerships with the Business and Industry Advisory Committee and the Trade Union Advisory Committee. Unlike most financial literacy proponents and advocates, this mission does not seem to be spearheaded by the financial industry, who has their own goals in mind.

Is financial literacy education the answer?

The organization reviewed the data collected from the financial literacy study (which was only one part of the test) and is offering several recommendations or observations. All revolve around the recommendation that all countries provide better access to financial education to its students. According to the OECD, access to education is how countries will overcome gaps due to socioeconomic deficiencies.

Countries seek to improve financial literacy skills among students through various approaches. Some incorporate specific financial literacy content into the curriculum, either by identifying how it fits within existing subjects within the curriculum or – less frequently – by creating a stand-alone subject; others focus on helping students to develop a deeper understanding of mathematics concepts. As dedicated financial literacy approaches are relatively new (where they exist), the PISA 2012 financial literacy assessment cannot provide conclusive evidence on which of these strategies, or what combination of them, yields superior outcomes in financial literacy. The next PISA survey of financial literacy, scheduled for 2015, should provide further insights for policy.

Yet, the report does admit that incorporating financial education into school curricula is still inconclusive (although there have been studies showing that financial literacy courses are actually detrimental to long-term financial capability). Perhaps more research is needed.

Also, the organization does recognize that dealing with financial issues involves more than just cognitive processes; it’s important to be able to manage emotional and psychological factors. Students who are more inclined towards perseverance, problem solving, and having parents involved with education are perhaps more likely to succeed financially over the long-term, according to the report’s recommendations. Once again, these traits are going to naturally be more common within communities or households that are distinctly middle-class; see any article I’ve written over the past few years that deals with Maslow’s Hierarchy of Needs, survival mode, the urgency matrix, or realities of poverty to understand why.

Are there any other options?

For a few years, I’ve been thinking about what I’d like to do after inevitably moving on from Consumerism Commentary. Regulars readers are mostly aware that I sold this website a few years ago, although I’ve continued to manage it and serve as the editor and chief (and for the most part, only) writer. There is no pre-determined amount of time for which I’m obligated to stay, but I enjoy the audience here, and I’ve seen how difficult it is to start a new website from scratch and have fans continue to the new site.

In the last year, I’ve done some initial research into starting a non-profit organization with a mission similar to what financial literacy advocates are going for — and similar to the mission of Consumerism Commentary. (Readers should be aware of the mission, and I try to keep that mission in mind when I write, choose guests to appear on the podcast, and otherwise make day-to-day editorial decisions.) I have some interesting ideas, based on lots of reading about financial education and community-based projects that have been proven to change lives for the better, about how an organization could meet goals related to the mission more successfully than financial education (or at least more successfully that financial education alone).

At the same time, the prospect of spending the rest of my life fundraising (begging for money) and being the public face of an organization and missing (I prefer not to be the center of attention) are not ways of living my life that I would look forward to. So this plan is on hold, at least in the form of a non-profit organization under my leadership.

The least I can do is discuss some of these ideas more, and maybe that is the first step towards building something (else) with the potential of changing lives for the better.

Read more about OECD’s findings.


Neil Irwin at the New York Times points out that all asset classes around the world are expensive compared to their historical prices. If that’s the case, is there any investment class available that has the potential to provide great returns over the long-term?

Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors…

But frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next. How long will this low-return environment last?

The personal finance world operates on the assumption that the last century or so, minus the last decade, is a good reference for stock market expectations going forward. And depending on who you ask, that’s a return of 10 percent, 8 percent, or 6 percent. Regardless of the number, you’d have to go far outside of the mainstream to hear advice for the average investor that is something other than, “Invest mostly in a broad stock market index fund and don’t touch it for the best chance at getting historical returns.”

And this is the same assumption I’m living with. It’s why my investments are mostly in stock market index funds, though I’ve added some bond funds because it made sense to temper the risk of stocks and take advantage of tax advantages. But if my investments don’t end up appreciating over the next several decades, where will I be? Not so much better off than I am today, and if inflation erodes the value of my money (stored in these assets) faster than the values appreciate, then I’ll be worse off.

But what are the alternatives? Not investing my portfolio, keeping my money in cash form, there’s no doubt inflation will erode the value. At least invested, I have a fighting chance.

While the average investor is said to be better off investing in broad index funds, professional investment managers dealing with corporate cash look for undervalued opportunities. Not only are they not finding anything undervalued, but everything is overvalued. A company wants to reinvest in itself by building factories or property, for example, but it won’t if everything is overpriced, and they expect the company won’t get a good return on that investment.

If these professional investors with millions or billions of dollars to invest can’t come up with any good options, how is the average investor supposed to succeed?

Change your expectations.

There’s nothing magical about the 8 percent long-term annual return on the stock market. Most investors don’t see that return, anyway, because their behavior gets in the way. Even if the next hundred years was as promising for corporate performance as the last hundred years — the century in which the United States became a global economic power, the winner of the second World War, and the standard-bearer for the world (in its own mind, anyway), most Americans wouldn’t see the same kind of personal performance that financial planners advertise.

The kind of growth the United States saw in the twentieth century just doesn’t seem sustainable. Thinking globally, there still seems to be a lot of potential. But the economy in the United States has just become too expensive for the growth to happen here. I think that’s well understood, and people are looking internationally for growth opportunities, but this seems to be the point — it’s too expensive everywhere.

So maybe we just have to assume that long-term growth will be around 4 percent annually over the long term. No one wants to take this assumption because it causes problems with just about every financial planning model out there. Your “safe withdrawal rate” of 4 percent will fail, and inflation is a bigger risk.

The good news is that just doing something has to be better than doing nothing. If you invest 10 percent of your income into a stock market index fund for the long term over the next couple decades, it may only return an annual 2 percent, 4 percent, or maybe 6 percent. Well, there’s still the possibility of returns being higher. But even if they’re not, you’ll still be better off than those who have done nothing at all.

Start really thinking about the future.

The most promising way to make a future is to make it yourself. What are the biggest problems human existence will be facing in the next century? How can these problems be addressed? Apparently, there are enough people who believe that the availability of potable water is one of the problems humanity will face in the future. Scientists, including kids taking on middle school science experiments, are coming up with more efficient methods for cleaning water. It currently takes a lot of energy to turn ocean water into drinking water, and in areas of the world that don’t receive much rain, potable water is needed. This could lead to the growth of an industry in the next hundred years.

As the will for government spending continues to disappear, people will have to look to corporations to lead the way without government support. We may not get much from NASA in the next era, but private companies led by people who see some potential will pave the way for technological investment. The Internet is a product of twentieth century government funding, but that’s something that would never exist if the impetus was under today’s political climate. The next Internet, and by that I mean a world-changing technology, is going to be an opportunity that comes about only if the market deems it potentially profitable. And to take this further, the best opportunities will not be available to everyday investors; venture capitalists stand to gain from much of the potential economic growth of the next century.

We hear about the latest billion-dollar sale of technology companies, but most of these are backed — and therefore owned — by venture capitalists. So the smart kid who dropped out of college because he had a germ of an idea but pitched his business to venture capitalists will certainly see some financial benefit when he eventually exists the business, but it’s those who provided the capital who stand to win the bulk of the financial rewards.

So as much as I dislike the idea that average investors can now participate in angel investing through syndicates (because this is generally risky and sophisticated, and most investors don’t have enough wealth to manage risk and aren’t very sophisticated), this type of investing may be the only opportunity to see growth in the next decade. Angel investors take on risks, and usually they mitigate risk by diversifying across a large number of start-up businesses. These start-up companies may never see a time in which their stock is offered to the general public — or if they do, it will be after the initial investors take advantage of the early, most profitable period of growth.

Thinking about the needs of the future could give you insight not so much into where to invest, but where to spend your time. Or your life’s work. This may be more personally profitable than trying to invest 10% of your income into a certain industry or asset class.

Unfortunately, we have no way of predicting the future. Even the best minds have trouble coming up with what an industry will look like ten years from now. The automobile has lasted a hundred years. It’s probably a good bet that automobiles will be around for at least a few more decades. But after that, what will they look like? How will they be operated?

Google is betting on driverless cars. Tesla thinks the future is in purely electric vehicles. The traditional manufacturers and companies involved with the oil industry are the slowest to move. Will cars fly, like in Back to the Future? Probably not in 2015, but what about 2080? Someone is going to be right, and lots of people are going to be wrong. Those who are right will be the investors who experience the growth that is remembered — those who are wrong will be forgotten about and not included in historical accounts of a market. (That’s survivorship bias.)

Of course, there’s always a chance that no amount of planning will make a difference. Doomsday scenarios exist, even if they’re unlikely. Nature may change our ways of life in ways that we haven’t sufficiently planned for. But you can’t assume things that seem impossible. The best we can do is plan with the only understanding we have of the world today.

This may not solve the problem. Chances are good that people have already thought about what you see for the future, and that’s why professional investors can’t find any good, potentially profitable opportunities today. But if you take your ideas and start building something of your own, you’re creating your own value. Even if you don’t give birth to a new industry (kudos if you do!) you’ll be building value for yourself over the long-term, probably far better than an investment in any particular asset class will do for you.


This little tidbit of advice gets passed around frequently, whether by employers who feel justified in their poor treatment of employees or by motivational speakers who want to see the masses take control over their professional lives: If you don’t like your job, get another one.

Many people spend years of their lives — perhaps decades — working in unpleasant jobs. I have always believed that every individual owes it to his or herself to be treated well in any employment situation, even if it has taken me more time than I would have liked, in retrospect, to move away from toxic situations myself. In general, if you are in a bad situation, change the situation. It’s good advice, but unfortunately, the advice is often given by people who are unfamiliar with any particular individual’s specific situation. And reality can be a dark cloud hanging over the world of advice full of optimistic aphorisms and motivational quotes.

Why can’t someone with a horrible boss quit? Why can’t low-wage workers simply find better-paying jobs instead of advocating for a living wage? Why don’t women who are being verbally or physically abused by their husbands (or vice versa) simply pack their bags and leave? To those of us who have benefited from some privilege, the inertia might not make any sense.

I have a friend who has been a teacher for fifteen years or so. She didn’t go to school to be a teacher, but when she graduated she realized that education would be a better, more lucrative, and more successful career path than her chosen area of study. Now, she is no longer passionate about teaching; that is to say, she still loves actually teaching and affecting children in a way that will allow them to become competent, intelligent, and questioning adults, but thanks to systemic changes, she doesn’t really get to do that.

But she’s still teaching for now. She has the talent and fortitude to be successful at any endeavor. We’ve talked about opening a private school where she could have a positive effect under a different type of system. We’ve talked about other projects. But, from a perspective based in reality, she thinks she could be much more successful as a shop owner in a burgeoning middle-class community (that was formerly rural).

That said, it would take a leap of faith and a lot of energy to make this change. Her current job and other responsibilities inside and outside of her family require so much time, money, physical energy, and mental energy that she has little left of herself to give to planning out her future.

And that’s exactly where most people are when they stay in jobs they don’t like. You can’t tell, for example, a single mother who works multiple shifts at two different jobs seven days a week to use her free time to look for new jobs or to gain additional education. She can’t quit one of her jobs because she needs the money today. Living paycheck to paycheck, or even going into debt to afford basic shelter and food, there is no wiggle room.

Survival mode poisons the brain.

Motivational speakers, endlessly positive, want to instill hope. Well, other people have risen from these bad circumstances to thrive. And by admitting it’s difficult, we may not be reaching the one in one hundred who will hear the motivational advice and find a way to take the actions necessary to put themselves in a better position for the long-term. And maybe this is even possible for an additional five in one hundred people who are dissatisfied with their situation, and wouldn’t have done anything unless they felt inspired by a motivational story. Or perhaps this five do have the capability to make these changes and won’t regardless of what they hear.

I’m confident that we’re left with ninety-five out of one hundred people who really hate their jobs (or other life situations) — and this just isn’t because their boss is unfriendly, but because their quality of life is deplorable and they’re unable to think about their future because they’re focused on their urgent needs and the urgency tasks with their roles as employees — who will never be able to put into action the latest motivational author’s twelve-step plan for improving their lives.

If you are in survival mode, upper-middle-class ideals like self-actualization, self-improvement, and planning for the future are impossible. And it’s not a matter of how people work, it involves how people think. Survival mode prevents the brain from operating at the higher levels necessary to guide the actions of a self towards a better future. In general, survival mode hinders cognitive abilities.

This is why, as a society, we have organizations including the government that help people. If an external force can get the most vulnerable people out of survival mode, with the right cognitive training, they can begin to consider more than just meeting the immediate needs of their families. But survival mode is more than just something that happens to people who aren’t meeting their basic needs as one might see on the base of the pyramid that represents Maslow’s Hierarchy of Needs. If even the threat of loss of life, shelter, or food exists, the brain is still in survival mode.

Work isn’t supposed to be fun.

Not everyone who is stuck is in survival mode. Even people who are relatively secure — or at least, not living paycheck to paycheck — are liable to sit around in a situation that’s bad. In my example about the teacher above, there’s no reason to think she’s in survival mode. Yes, she’s overworked and has little time to consider her alternatives, but her family isn’t starving. Her husband owns a business (and as successful business owners know — you can hardly have a life for yourself if you want your business to be competitive, and an equitable work/life balance is a myth) and provides well for the family, even if income is scattered throughout the year.

Your average corporate employee who has an annoying boss and feels he could be doing something much more fulfilling with his life has something in common with this example: awareness. While they see their situation as unfortunate, they are aware that they don’t have it nearly as bad as the impoverished. People throughout the world seem to be satisfied — or at least not outwardly complaining — with much, much less. This awareness leads to guilt, and this guilt is powerful. When people realize that most of the world has it a lot worse, they feel bad about their petty complaints.

Competitive inertia prevents action.

It can be unhelpful for anyone’s long-term success to compare one’s life or success to another, whether the comparison is favorable (“I’m doing much better than the jobless mom who goes in and out of the homeless shelter!”) or unfavorable (“Some bloggers get all the attention from the mainstream media while I go unnoticed!”). Living life as a comparison for the most part prevents people from taking actions that can improve the situation.

While some people thrive under this type of competition, it’s certainly not the majority of people. Competition causes stress, and stress, especially when it is placed on top of layers upon layers of other stress, pushes people back towards survival mode. I’m familiar with competition because it’s always been a part of my life. Employees deal with competition all the time in their workplace, but like many people, I’ve always participated in activities that rely on interpersonal competitiveness.

I started learning to play the clarinet in third grade. It was a horrible experience, and I was terrible. The teacher made sure I knew I was terrible because he had all the clarinetists sit in a row of chairs, from best to worst. I was the worst and was made to sit in the last chair. (Of course, this is for the most part how musicians are seated in orchestras as adults as well; the “best” performer gets the first chair. The teacher was simply reflecting real life for the third-graders.)

Did that make me want to try harder? No way. I hated it. But I continued, and the next year I moved to a state where the fourth-graders were learning their instruments for the first time. I had a half-year of experience. Suddenly I was the expert — and I stayed “first chair” for the rest of my time through high school (except as a freshman) and pursued music education in college because I loved it so much and thought it teaching would be a great career for me.

The reality is that competition, awareness of the world, most often doesn’t inspire people to improve, it allows people to resign themselves to their situation. This is an attitude that can be overcome, unlike survival mode which happens at a subconscious level, but it isn’t something that’s going to happen just because someone says, “Get a new job, slacker.”

Let’s not forget about the economy.

I never want to be the economy to be an excuse for the choices I make. In fact, it’s hard to know what is really happening in the economy because the news is filtered and changed by the opinions of the people who write about it. But if government statistics are to be believed, the job economy hasn’t truly recovered from the recession that took hold of the world a few years ago. The unemployment rate soared, and the jobs that have returned have been lower-paying jobs.

Companies wanting to survive the recession, a disappearance in customers willing and able to pay for products and services, reduced expenses. And mostly, they reduced their expenses in human resources. Like humans, corporations entered “survival mode,” and employees got the worst of the effects. Employers found ways of surviving with fewer people, pushing for higher productivity from some employees while eliminating others.

This news permeated society, and certainly turned employment into a corporate-favorable buyers’ market. With this impression, people are most likely to “be thankful for the job they have.” They’re less inclined to improve the situation because they believe it’s somewhat futile to do so. This actually makes those who are able to make the sacrifices, leaving a job, stand out more, so it’s still a good idea to seek out better employment situations if you can. But like most things in life, the best opportunities go to those who can afford to take the risk. The survival-mode single mom working two jobs can’t afford the risk.

So if you hear someone say, “If you don’t like your job, get another one,” they’re either talking to someone who has a support system in place to make that risk possible, or they have little understanding of the realities that people who are truly stuck face.


Through the end of the second quarter, the S&P 500 has climbed 6.22%. That’s a nice increase, and the stock market’s performance has provided me impressive gains on paper in my overall portfolio. The bulk of my investments are split between tax-efficient bonds and a stock market index in my non-retirement accounts, and despite losses on paper in January and March, between dividends and market gains, I am satisfied with my financial situation.

But I am at the point right now — between projects — where I may decide to start drawing upon the income from my investments for expenses occasionally. I’ve mentioned this before. My plan has been to leave my investments untouched as much as possible, and I’ve been able to do that so far except for taxes and a few other expenses related to selling my business. I’ve relied on other income from working — mostly writing, coaching, and to a lesser extent speaking — to meet my needs for living day-to-day. But this has brought upon the need to be a little more frugal than I had been while I was receiving income from my business.

While the bulk of my investments have been performing well, it’s a little harder to look at my investments in the “Grow Your Dough Throwdown” As readers know, at the beginning of 2014, I and a number of other financial writers and bloggers invested $1,000 to track our progress throughout the year. Each participant was able to choose where and how the money would be invested, and I chose ShareBuilder and the buy-what-you-use philosophy. I invested in five stocks (or their analogues) based on products I use every day: Microsoft, Canon, Honda, Samsung, and Google.

You can review my previous articles about the Grow Your Dough Throwdown: initial purchases; review at the end of February; first quarter review; and review at the end of May.

So because I chose ShareBuilder, and I purchased six different investments, I paid a transaction fee of $6.95 six times. That’s an automatic loss of $41.70 before even taking a losing January into account. And while the stock market has shows this great return through the first half of the year, my investments have still not broken even when considering the transaction fee a loss (which it should be).

Continue reading this article to see the investment results as of June 30.

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