FINANCIAL LITERACY FOR THE HOMELESS

"I might know about economics and finance, but I know nothing of what it's like to be a homeless single mother", observes an economics writer on Economist.com. Providing financial-literacy training at a local homeless shelter is an education for everyone ...

From ECONOMIST.COM

I suppose I could be described as financially literate. I have a doctorate in economics; my dissertation focused on financial decision-making. I write about economics and finance, and I've worked in the financial industry, designing investment strategies. But, when I look at the balance of my brokerage account (those low-fee global-equity index funds do not seem like such a good idea at the moment) or my credit card statement (peppered with frivolous impulse purchases), I question my financial savvy.

Nonetheless, I have volunteered to provide financial-literacy training to young mothers at a local homeless shelter. This is the first time I have volunteered since school, when my guidance counsellor forced me into it. She thought the experience would look good on my college applications.

I always justified not volunteering by figuring that my actual time was worth less to the charity than the monetary value of my time. But something about this project intrigued me. I thought I'd learn from the experience; it could make me a better economist. I even spent weeks fancying myself the next Suze Orman, empowering the financially downtrodden with my economic knowledge.

Contemplating how best to spend resources given significant budget restrictions is the exact question I spent years solving, but as my first session approached, I started to wonder what value my training could provide. Economics often neglects solving this problem for genuinely poor people (or as we economists like to call them, "liquidity constrained agents").

At our orientation session, we introduced ourselves and explained why we volunteered for this particular project. I went first. I said I volunteered because I thought that learning about how these women respond to their extreme financial constraints would be interesting.

Everyone else said they thought their experiences would be helpful (most were lawyers or in human resources). I realised I was the only one who did not say I was there to help homeless women. I wondered if that made me a bad person. But (and I may be rationalising here) I found something presumptuous about the idea I could swoop in from my comfortable life and sort out these women's financial woes. I might know about economics and finance, but I know nothing of what it's like to be a homeless single mother. I genuinely hope to help these women, but expecting that I can feels naive.

I also wondered what financial literacy skills are, exactly. I've read my share of academic papers on the subject. They contain several measures of financial literacy. One measure, which predictably yields appalled gasps at economics seminars, is most people do not know bond prices fall when yields increase. How could that information be useful to homeless single mothers? I never heard Ms Orman explain that one.

We went through the curriculum we would be teaching. It was much simpler than fixed income pricing. We would be focusing on budgeting, principles of saving, repairing credit scores, and basic banking. If we had time we also would discuss the difference between stocks and bonds. Not quite an economist's definition of financially literate, but if people do not know these things already, they probably should.

Picture credit: TheTruthAbout... (via Flickr)

(This is the first instalment of a week-long correspondent's diary, published on Economist.com.)