Financial literacy and the wealth gap
“Of course, there is nothing new about this screenplay, and perhaps the only thing we can learn from history is that we seem incapable of learning from history.”
THE increasing wealth gap is regarded globally as possibly the most socially explosive issue of our time, responsible for the rapid radicalization of large population segments that we are witnessing worldwide. The rising disparity between rich and poor, between the powerful and the powerless, between those who are connected and those who are cut off, between those on the inside looking out and those on the outside looking in, is highly combustible and easily seduced by political and religious demagoguery. It is the stuff revolutions are made of, which several Arab leaders have learned firsthand over the past two years.
Of course, there is nothing new about this screenplay, and perhaps the only thing we can learn from history is that we seem incapable of learning from history.
The disturbing trend of a widening wealth gap is a challenge for leaders of all countries. Across the political spectrum everyone solemnly proclaims an unwavering commitment to bridging this economic divide. Unfortunately, these lofty pronouncements are rarely followed by meaningful actions. Instead, we are forced to endure an endless loop of the same recycled platitudes and grand pledges.
As we witness the debate that is raging, particularly in the United States and in Europe, between fiscal austerity and economic stimulus, those left behind financially have little to cheer about. We are way beyond the point of calibrating some synthetic balance between opposing economic theories, and instead of factbased, accountable policies we are exposed to ideological, gospel-like decla- rations of allegiance to Reaganesque trickle-down formulas or quantitative easing monetary policies. There certainly are legitimate policy discussions to be had, but for proponents of any side to claim their particular recipe to be a panacea for bridging the wealth gap is trite, bordering on the preposterous. Incomprehensibly, however, the glaring parallelism between the education gap and the wealth gap is being superciliously brushed aside, a correlation perhaps too obvious to be taken seriously by today's great thinkers.
Far too many people are cut off from their mainstream economies, and contrary to popular belief, this is as true for urban residents as it is for rural populations. Deficient public and private sector financial infrastructures certainly exacerbate this problem, though the increasing demographic penetration of technology such as mobile banking seems to be having a mit- igating effect on the infrastructure shortcomings.
Far more lethal, however, is the stupefying neglect of financial literacy and public education. Vast segments of society lack even the most basic knowledge and understanding to make sound economic decisions, and the ability to control their own financial well-being and independence. It is hardly surprising that the financial knowledge and education void is quickly filled by fraudulent actors, taking advantage of widespread ignorance and gullibility. This is fertile ground for pyramid or Ponzi schemes, preying on the uninformed with irresistible investment opportunities, whose returns come from the investors' own money or the money paid by subsequent investors, rather than from profit earned by a legitimate business. When these schemes collapse, as they all invariably do once they are unable to feed the exponentially growing money appetite of the beast they created, people are left destitute.
This phenomenon is hardly limited to socio-economically disadvantaged parts of society - as the Bernard Madoff and Allen Stanford scandals spectacularly demonstrated - but those are the ones left penniless without the ability and the opportunity to climb up from the bottom of the pit. Meanwhile, the wealth gap continues to widen. What makes this so unforgivable is that it could be thwarted with effective financial literacy campaigns.