Paul B. Farrell: Financial literacy is a big, fat Wall Street hoax

[marmar]

By Paul B. Farrell, MarketWatch


SAN LUIS OBISPO, Calif. (MarketWatch) — Financial-literacy programs are getting popular again. Warning: They don’t work. Maybe for 7% of us. But for the rest of Americans, they are a big waste of your time, and your money.

Financial-literacy programs reveal a subtle lesson in behavioral economics brainwashing. Why? Your brain is irrational, you can’t rewire or reprogram it. But Wall Street can. They have seven clever ways to turn your irrational behavior against you, to manipulate you, to siphon off your money. Listen closely:

Even with the best-of-intentions, financial-literacy programs like Jump$tart, RichFitUSA, long-time APCPA accountancy programs, and the President’s Council on Financial Literacy will never work. Never. Want proof? Just think about the past decade: Factor in the 2000 dot-com crash, the 30-month recession, the 2008 meltdown and guess what: On an inflation-adjusted basis Wall Street lost 20% of America’s retirement money in the 2000-2010 decade. And they’ll do it again.

Get it? Financial literacy is a cruel joke Wall Street insiders keep playing on investors, local governments, school systems, Congress and the President. Here’s the problem why even the best-of-intention programs will never (yes, never) work: They assume, erroneously, the human brain can retrain itself to make rational decisions about investing, finance and budgeting. But that’s impossible. ...............(more)

The complete piece is at: http://www.marketwatch.com/story/financial-literacy-is-a-big-fat-wall-street-hoax-2011-11-08?link=home_carousel

[provis99]

1. this line says it all:

“At least two out of every three mutual funds underperform the overall market in any given year.”

meaning you could do better than mutual funds by simply investing at random.

When I invest, I put my money in only two investments: a fund indexed to the overall market (since the stock market as a whole always goes up over the long term), and Canadian banks. Given what's happened over the past 3 years with the mortage collapse, my investment in Canadian banks was a good decision; they are too tighly regulated to invest foolishly, and there are only five major banks in the whole country; market concentration like that is equivalent to oligopoly, which is a guaranteed money maker.

[dmallind]

2. financial literacy includes some more things

1) Equities can decline in value, and when they do the principal blame lies with the company's senior management, which is only "Wall Street" for a few financial firms.

2) Nobody sane invested all their cash in a lump sum in equities in 2000 and needs to sell it ten years later as a lump sum.

3) Even if they did, insanely, an analysis should include not just trading price but dividends received too.

Do financial literacy programs work? Not a clue. But if we want them to, excluding the above considerations as the writer does would indeed be a cruel joke.