FAIR MONEY

Face to Face with Inequality


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Good with Money

Good with Money CoverFAIR Money has just published its first report, Good with Money: Getting by in Silicon Valley. The report, which is based on interviews and a diary study with 10 people struggling to gain or hang on to firm financial footing in a booming local economy, focuses on the most striking finding: how skilled people are with money and how little their skill set overlaps with the money management skills traditionally taught in financial literacy classes.

The report’s introduction sums up the central arguments:

The “master narrative” of financial probity that dominates American culture at this historical moment makes it almost impossible to see the financial behavior of low- and middle-income Americans without a strong punitive bias. This dominant narrative focuses on living well within one’s means, using credit cards responsibly, saving for financial milestones, and managing one’s credit score. It refuses to acknowledge that wage stagnation, underemployment, and rising costs of health care and education leave vast numbers of Americans with insufficient income to cover basic expenses. When we consider financial actions and decisions from the inside out, in their full complexity and in the context of meaningful relationships and life choices, it becomes readily apparent that struggle, hard work, ingenuity, and bad luck are much more common than financial irresponsibility or ignorance.

One of the practical manifestations of this master narrative of (assumed lack of) financial probity is the financial literacy industry, both for-profit and not-for-profit. Financial literacy education makes a foundational assumption that adverse financial outcomes are due to ignorance and/or irresponsibility and that education can effectively eradicate both. This report argues that offering education as a solution to financial struggle is a fairy tale that does real harm. It obscures the massive 30-year-long redistribution of wealth to the very top of American society. It blames the victims of this redistribution for their misfortune and distorts our thinking and our judgment. In obscuring the causes of the financial struggles experienced by average Americans, financial literacy education also makes it much more difficult to think about true solutions.

Good with Money discusses particular “scripts” in the master narrative condemning people who struggle financially, and it proposes a different way to think about their choices and decisions. The report also contains the financial stories of the research participants told through a lens of empathy and historical understanding.

We look forward to your comments.

The FAIR Money Research Collective

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Is It Worth It?

Freakonomics has two related podcasts on the benefit (part I) and the cost (part II) of going to college, and it comes to the conclusion that, yes, it is totally worth it. Every year of education adds 8% to your income every year, so those 4 years of college would result in 32% additional income every year. People with more education retire later, meaning that the years in college with little to no income are canceled out on the back end. (This is not to speak of the fact that people with more education are happier and healthier, presumably because their work is not nearly so unbearable.) In other words, higher education turns out not to be too expensive, after all, right?

Well, maybe not. Steve Dubner doesn’t dwell on this, but he’s undoubtedly reporting averages. And when you think about that, you have to figure that some people get a lot more return on their education than 8% per education year for every year they work. And others get less. What if you’re in a not-so-economically-viable major in a below-average school in a geography with below-average employment opportunities? Is it still worth it then?

Another very reasonable question Dubner forgets to ask is whether it is reasonable for a college education to cost what it costs, considering the social benefit we all derive from having a population of people ready to do the work that needs doing. That the average college grad will see a reasonable return on his or her investment does not mean that it is “priced” correctly or fairly. In fact, the cost of higher education is thoroughly irrational, especially in view of the fact that it is not entirely clear what creates the value. Is it what you learn? Is it just the piece of paper–the reputation of the degree? Is it the network you become part of?

About 20 years ago, I taught at Chicago State University–an institution where the question of whether it is worth it should be very seriously considered by all prospective applicants–nearly all my students said that, if given the option, they would buy their degree outright and skip the bit about learning. At the time, this merely struck me as a very sad commentary on the quality of the education that lay within their reach, and I gave it up and lit out for the territories as soon as I could. Now I fear they understood something about the real world which I was way too naive to appreciate.


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Paying for Educational Value

Oregon is considering the pros and cons of an Australian model of paying for college education after the fact. In this model, students pay no tuition. Instead they pay a small percentage of their income post-college, regardless of how much they make. In essence, how much they pay is directly related to how much college was worth to them, which makes a lot of sense on the face of it. I wonder how it changes the students’ experience of their education and the educational institution’s conception of what and how to teach students. I was able to find a study of “participation rates,” which doesn’t answer my questions, but it does show an overall increase in men and especially women getting a college education, but no increase for students from low-income backgrounds. Perhaps that has something to do with financing living expenses.