Let’s try a quick experiment. If I were to offer you $100,000 in cash or an expert-level knowledge in finance, which would you choose? If you chose the $100,000, congratulations! You have just demonstrated some financial savvy, as you can get expert knowledge in finance for much cheaper. And there are many finance experts (myself included) who have nowhere near that kind of money in the bank.

Financial literacy is simply adequate knowledge of the financial implications of the decisions you are faced with. Almost every decision we make in investment, marriage, education, retirement, career, fashion, health, entertainment, food and so on has financial implications. Not having adequate knowledge places one at a disadvantage. However, the FACT that human beings cannot predict the future with any certainty and the FACT that we take decisions for much more than financial reasons mean that even a person with adequate financial literacy can have terrible financial outcomes.

I started this post in this manner because I wanted to address head-on the misconceptions that financial literacy will make you rich or solve all your financial problems. Like any other skillset which humans have designed over time to help solve their problems, financial literacy is not perfect. That does not mean however that it is overrated.

This post was sparked by a recent conversation online on the plight of marginalized people and how financial illiteracy contributes to that. This conversation is unfortunately tainted with poverty shaming, victim blaming, and the ignorance of the existence or effect of structural oppression. As I explained in a previous post, most financial advice is catered to the well-to-do.

But all this does not mean that financial literacy would be useless to poor people. On the contrary, one would be impressed by the ability of poor people to manage their resources in a way in which those of us privileged to have never gone for days with no food can ever hope to replicate. However, their lack of resources also mean that they are unlikely to have the kind of financial education that will protect them from bad investment schemes for example. So they will benefit from financial literacy.

On the other side, claims that rich people do not need financial literacy is significantly overblown. The examples of people who went from being rich to being in huge debt due to poor financial decisions is endless. Check here, here and here. Also, wealthy people pay lots of money for armies of accountants, tax attorneys and fund managers not for fun, but to protect their wealth. So yes, financial literacy will not make you rich but it is a key tool for keeping you rich.

In conclusion, financial literacy is a tool to help you make better decisions. It is not alchemy. It does not give you superpowers. From my almost 7 years’ experience in writing this blog, the feedback I have from people is that it has helped them know of opportunities to make better financial (especially investment) decisions. I think that is important work even if it does not make anyone a millionaire. Financial advisers have to be more modest about what financial literacy can do for people and financial literacy cynics have to stop denying that financial literacy can actually help people.