Economic Stimulus Minus Financial Literacy Doesn't Add Up

By Bruce Nofsinger

A couple of weeks ago I was at the Federal Reserve here in Charlotte to serve as a judge for an economics quiz bowl. Fortunately, I had:

1. a “cheat sheet” with all of the answers, and
2. a couple of Fed employees as fellow judges, one of whom is a Fed economist.

Dr. Matt Martin (said economist) was our go-to guy when we weren’t sure if an answer was acceptable. He was also my go-to guy on something that’s been bugging me — something that the soon-to-arrive economic stimulus checks, in particular, have prompted…

In the micro sense, most people need to save and/or pay down debt, yet in the macro sense, we’re told that the economy depends on people spending money to buy stuff.

Please, Matt … how can I rectify what seem like such divergent actions?!

Specific to the stimulus package, Matt told me that it should be viewed as a short-term stopgap measure — that much of the consumer spending that will come from the stimulus checks is spending that probably would’ve happened anyway. Filling your gas tank using that money minimizes the bleeding caused by debt.

Okay. I can understand the idea that we’re talking about a Band-Aid® at this point. But long-term?! (I didn’t expect him to address the fact that our economy is such a service-oriented one dependent on consumer spending, but is there something that’ll help me see the micro and macro more in sync with one another?)

Again, with the stimulus checks as a backdrop, Matt said that by better treating their wounds now, consumers stand a better chance of addressing the causes of those wounds — it gives people an opportunity to work on budgeting, minimizing debt, saving, and investing thereby improving their financial health in the long-term micro sense. The long-term micro improvements will also benefit our macro economy.

Okay. I can understand that, too. I feel a little better, I guess. Generally, I’m an optimistic person, but I wish I were more confident in people’s abilities to address the causes of the wounds affecting their financial health. I worry that too many people don’t have a foundation of financial literacy (knowledge AND skills) on which to build.

I can’t help but think about my experience at the Roundtable Discussion on Financial Literacy in African-American Communities. (The Financial Literacy & Education Commission [FLEC] at the U.S. Department of Treasury organized the meeting.) We discussed the fact that there’s a preponderance of financial information out there but not enough instruction to help in making that information relevant. And speaking of relevance, we also devoted a lot of time to the fact that the financial education community needs to do a better job of meeting people where they are. (here is my take on the FLEC roundtable meeting.)

I think if we make the effort to enhance the level of instruction, in part by doing a better job of meeting people where they are, I’ll share Matt’s long-term view, and micro and macro will be in sync. More important, economic theory and economic reality will also be in sync!