The Growing Gap in Financial Literacy

What feels like an eternity ago but is probably only a year back or so, I was talking about the coming problems of Buy Now, Pay Later (BNPL) services and how it is going to lead people into a raft of issues. As it turns out, I wasn't wrong.

A year ago, Financial Counsellors Australia reported that about 31% of clients (people who are struggling under debt and need financial management help) had some form of BNPL debt. That number is now 84%, which is quite an increase in a year and speaks of how the proliferation of BNPL services has ballooned in popularity.

But not only that, whereas last year the expenditures were on electronics and "luxury" items, what they are seeing is an increase in people using the services to cover essentials, lie groceries, utilities, medical costs and rent. They also mentioned that many people are "not seeing instalment payments as debt” - which is indicative of the financial literacy of some of the people who are using these services and getting into trouble.

Financial Services Australia released a report and there was a theme mentioning that because people didn't want to lose access to the BNPL services, they would actually pay those debts before something like their rent, which obviously is going to lead into another world of debt-laden pain.

I find it quite remarkable that while the governments turn people away from crypto, these services are so far going largely unchecked and regulated, even though billions are being passed through them - and this is debt. For the most part, the people who are going into crypto could lose their money, but it is money they had in the first place - with very few likely taking loans in order to buy crypto.

I think that there is a cultural element to this and most people investing will have the understanding (or know the risks) of taking debt to invest. However, these BNPLs are not providing income for investments, they are doing it for some form of consumable that is "normal" to take credit debt on. It is a funny world when people are willing to take debt on something that returns nothing, yet are unwilling to invest into something that could fundamentally change their financial future - Spend $200 of credit on a pair of jeans, but buying crypto is a scam.

Financial literacy and understanding seems to be decreasing, or at least, there may be a stark "gap" forming in society. We are used to these kinds of gaps now, where we know there is a wealth gap, but there are other gaps too - like health gaps, weight gaps, skill gaps, opportunity gaps... I wonder how many of them overlap or cluster?

I suspect many. I would reckon that the people who are going to have the hardest struggle controlling their financial wellbeing, will also likely struggle in other areas of life, as in general, there is an "impulse control" issue, where there is a gap between those who are instant and those who are delayed gratifiers. Credit debt on consumables (a house and perhaps even a car depending on circumstances are different), targets the instant gratification mindset and in general, the world has been aligned to encourage the development of instant gratification habits, where patience in all things is wafer thin.

While it is easy to blame the people who get into these predicaments, the truth of the matter is that we are primed to be susceptible to them from a young age and taking on debt has been normalized in society. Consumer life is like injecting people with small amounts of heroine daily for years on end, and then being surprised they become addicts. But, like any addiction, the first step to break it is the realization that there is a problem at all, and yet this seems to elude many people - even when they are paying their BNPL (dealer) debt before paying rent or buying groceries.

But, perhaps it isn't all doom and gloom, because one of the fastest ways to enact change, is to apply pain. Once people are in enough economic distress, at least some of them will start looking to ease the pain and since there is very little "out" in the current economy, many will start turning toward new ways to earn in the gig economy and crypto as an investment vehicle and a participate-to earn model. This will lead many of them to developing something they could have done with far earlier - not more money - but better financial understanding and literacy.

We are moving into building another "gap" in society and while tied to the wealth gap, it is going to be polarized across the decentralized and centralized economies. This gap is not going to be fought with the rich on one side and the poor on another, it will be between those who are looking to improve wellbeing for the mases, and those who are looking to control the masses.

Centralization is always about control and when it comes to generating profits in the consumer markets, it is about controlling the impulses of the consumer. There are many ways to do this from marketing to social engineering processes, but the end goal is always the same - direct people to behave according to what fulfils the desires of the authority - money and power - either or.

To me, there is no wonder that the BNPL services have been able to expand so rapidly before legislation will "rein them in", because it gives them time to "give users a taste" and normalize the culture of taking on more debt and getting them hooked on having what they want now, even if it is going to cost them more down the track. Companies don't need to make more money by building better products and generating demand, they just need to stretch out the repayment time as far as they can.

A lot of people I talk and interact with, speak about how they are able to manage their debt, and perhaps they can, but it has to be considered what the average person does too, as that is going to affect the entire economy. Most people are not good at managing their impulses, nor their finances and as a result, they are going to rack up a large amount of debt quite quickly, and then never ends well for people - as inevitably, it will be the taxpayer who closes the gaps one way or another.

The financial literacy gap will not be closed through schooling, only economic experience. One of the main reasons to get kids involved in crypto is, to build their understanding of economic mechanisms and help them use them to their advantage. Currently, most of us are not economic agents, we are tools of the economy, used to grease the wheels for profit.

Taraz [ Gen1: Hive ]