Manage Debt

Waiting For Superman: An Essay on Financial Literacy

Minor Spoilers Ahead. You’ve been warned.

Waiting for Superman Review

Waiting for Superman,’ is a poignant, competent movie on the state of education in the U.S. Starting out slow, it revs up and shows a world, where the hopes and futures of children rest on the luck of the dice. Though very true, it often belabored the point.

This film was more of a what’s wrong with education, than a “how to” fix education. I would have also like to seen how the competitive world of private schools fit into the education system and the college paradigm. Overall, it was one of the better documentaries I’ve seen.

The following is going to analogize educational system with the current financial culture.

Dropout Factories

In the film one of the Ph.D’s referring to the schools with high-drop out rates and low college readiness, called these schools dropout factories. Not surprisingly, most of the dropout factories are located in the poorest areas.

Once a student who is below their competency ( in Math, Science, and Reading scores), sometimes six or seven years behind,  gets to the high school – very often they flounder and their chance of graduating are slim. Paralleling this to consumer debt in this country; once you get behind on your bills and obligations, it becomes quite harder for you to get out of debt. This piling up of debt gets insurmountable, frustration grows along with your content for the financial system (or, educational system).

People in bad financial states may attribute it to an unfortunate luck of the dice, declaration of economic unfairness, etc. In a country were the top 1% own 42.7% of the entire U.S. wealth, its easy to see how people get angry – often times very fast.

To get out of debt, or secure their economic freedom – people (if they have the wherewithal) will hire professionals: financial planners and financial advisors. A Look on how this is related is below.

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Teachers

One of the main takeaways, if not the biggest takeaway, from ‘Waiting for Superman,’ is bad teachers are the main cause of the poor educational state in this country. Teachers get their unions, unions get their teachers unable to be terminated.  Some of these teachers, who preform poorly, are unable to be fired at the expense of students and the budgets.

Similarly, people looking to improve financially will often hire a financial advisor/planner. Good move? Not so fast.

Many financial advisors are similar to bad teachers, where bad teachers are teaching not for students but for the cushy, non-stressful career; financial advisors are nothing more than glorified salespeople. Salespeople with their own interests at hand.

The actors were armed with one of four distinct fake portfolios: One group was heavily invested in index funds; another entirely in cash; a third claimed to be seeking the next hot market sector; and the fourth said they held 30% of their savings in their employer’s stock.

The result was nearly always the same: The actors walked out with advice that mimicked the biases in the original portfolios. Investors who wanted to find the next hot sectors, for example, were put in actively managed funds that try to beat the market. The cash-sitters were more likely to be told to take the cautious step of buying index funds.

The most telling result came from the actors loaded with company stock. Just 40% of the planners told them to sell the stock and diversify their portfolio, even though the move would both be in the client’s best interest (for why, look at what happened to the employees at Enron) and generate commissions for the planner.

“There is a need to get business in the door and have that client come back year after year,” says Mullainathan. “So they will avoid the difficult conversations.”  —Source: Money.CNN.com

In a world becoming more, and more aware that investing in index funds is often more financially rewarding than listening to your financial advisor. Can salespeople really have your best interest at hand? Maybe a few.

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The important thing to consider is that instead of learning to improve your current financial state, they hire somebody to do that for them. The analogy is that the parents in the movie are doing the same thing. Parents try to get into better schools for their child’s education, instead of rolling up their sleeves and teaching their children along side teachers.

The good news here is that it is easy to learn basic money management and parenting, that compliments the education they receive. There are many resources online, inexpensive books and communities specifically created for these purposes.

Conclusion

The only way to change these systems is to change our knowledge, assumptions and our energy regarding them.

Parents with will have to take more of an active interest in the child’s education. The mindset of dropping kids off for their education (as if it were a daycare), will never compare with parent(s) who actively monitors the child’s performance, motivates the children and who teaches the child in their spare time.

Likewise, hiring a financial expert to fix your financial state and/or make you rich. Will never compete with somebody taking the time to learn financial principles, learn budgeting and basic investing.

So throwing your arms in the air woefully will not make your situation better. Read, educate yourself and change your (and your family’s) life.

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