Financial Schizophrenia - The Fallacy of Decomposition

I recently wrote critically about the fallacy of composition, meaning the idea that individual ‘economic’ acts do not add up to social economy because what is true for a part may not be true for the whole.

To make the question live, lets consider the current practices and arrangements in relation to financial literacy. Surely it is axiomatic that an economy consisting of financially literate people will be a healthy economy … indeed one way of defining what financial literacy essentially consists in would be to say that it is the understanding which leads to socially functional financial behaviour. Put the other way round, the global financial crisis must be a reflection of our societal financial illiteracy.

Unfortunately this logic is not applied among those for whom such considerations ought to be paramount. Instead the operating thesis is simply as follows: financially literate individuals are those who cleverly use their understanding of current arrangements to ensure the best outcome for themselves. But best here means best on an individual level, in isolation from wider events, and based on the idea of saving the most (which is tantamount to capital valued in the abstract). On the societal level a completely other set of considerations are thought to come into play. Responsibility for keeping the whole show on the road is given to policy makers who, notwithstanding the narrow perspective of this view of financial literacy, have to put matters rights when the actions of individuals don’t add up, normally this involves legislating, regulating, penalising and reallocating resources. The same person might in his private life be pursuing ‘policies’ who natural consequences on a societal level will be financial turmoil, while in an official capacity endeavouring to apply the correctives that allow society to avoid breakdown. Can this really be called financial literacy? Isn’t this just financial schizophrenia? Its like throwing rubbish onto the street and then being outraged by the mess there, while at the same time declaring that the responsibility for keeping streets clear of litter cannot be undertaken by anyone but an officially designated street warden.

So what kind of financial literacy would really add up to a whole? More to the point is whether an expanded conception of what it means to be financially literate is beyond humanity-at-large. You would be surprised about how many people, when responding to this question, reveal that such matters are beyond ordinary people. My response is that not so long ago writing was considered beyond ordinary folk, but as soon as people were given the opportunity to learn (and literacy became part of the curriculum) the consensus changed, so is it really so far-fetched to imagine that in the not so distant future we will all be able to practise double-entry bookkeeping based on the balance sheets of our own situations?