Wealth is the cumulative value of all of a person’s (or household’s) assets, minus their debts. This value comes from their house, retirement accounts, and other investments. Therefore, the higher the value their house and other assets, the more wealth they have. As the value of a person’s assets increase and their debts decrease, their net worth (or wealth) goes up.

According to the Survey of Consumer Finances 1983-2013, in the United States people in the 90th percentile in terms of wealth have, on average, 12 times more wealth than those who are middle class. With an issue as complex as the wealth gap, it’s difficult to boil the problem down to easily explainable causes.  In a recent study by Jeffrey P. Thompson and Gustavo A. Suarez, they found that income, education, and opportunity for inheritance are three major factors that contribute to a person’s wealth.

Another factor that greatly affects wealth is attitude toward debt and financial risk. Thompson and Suarez found that people who don’t mind going into debt for vacation or other wants have 20 percent less wealth than those who do. On the other side of the ledger, having a long-term financial plan is associated in individuals and households that have net worth that is three or four times higher than average.

I spend my days searching for and designing ways to change people’s attitudes and help them overcome their lack of financial skill. Success is not only made up of hard work and opportunity, but also know-how. For example, a person who has the skills required to negotiate for a higher salary is likely to be paid more than a person who doesn’t know how or when to do so.

Using common instructional theories, wealth literacy programs need some of the concepts below in order to be successful at changing attitudes about debt and investments.

In order for a learner to become expert at a skill, the individual must be exposed to an expert’s way of thinking about that skill. For example, in order for a novice investor to learn how the savvy home buyer makes decisions about their purchase, the novice would need to know the steps they take to make those decisions. This goes beyond the why of house buying and focuses on the complex how and when. These skills can be taught using decision trees and mentorship programs.

In the case of learning skills, learners need to see the progress of other learners and recognize that they can have similar success. In the case of wealth literacy, learners need at least two types of examples of success to observe: people like them who have successfully changed their wealth situation and people whose wealth status is currently out of reach but attainable with work. Offering opportunities for learners to interact with each other in formal and informal settings or arranging presentations by peers could help to facilitate this. This would be especially helpful when instructing about retirement investments.

 Novices are generally not able to complete complex tasks on their own, regardless of whether or not they understand the theoretical reasoning behind the tasks. There is a difference between what someone is capable of doing on their own and what they are capable of doing with the help of an expert or even a novice peer. Letting peers help each other (under the watchful eye of a mentor) leads to confidence in the learners that they are capable of finding solutions on their own. One example is peer support groups for first-time higher education students or business owners. They can bring their roadblocks to the group for feedback and brainstorm possible solutions.

Although I do believe that knowledge is power, simply telling people who lack wealth what they need to do will not change their situation. Wealth literacy programs should be based on both acquiring skills and changing attitudes if they are to actually make strides toward narrowing the gap.

Find out more about Wealth Literacy: Act Now