CW Industrial Partners


The Private Equity for Families Blog

Fairy Tale Finance: Crisis in Financial Literacy

Happy New Year. CW Industrial Partners hopes 2023 will be healthy, prosperous and enlightening. An appropriate theme for the first blog of the year is financial literacy… or maybe the frightening absence of it in America 2023.

When you look at the fraud and speculation that accompanied the last few years of persistently low interest rates and the incessant flow of printed money , we should be afraid. Too many of our citizens are financial dopes and easy prey for FTX, meme stocks, student loans, Ponzi and phishing schemes, and identity theft. These are citizens who graduated high school and, in many cases, college, but have no grounding in the basics of personal finance.

Here are some fairy tales and folklore I read or listened to as a child all of which set a foundation for my financial literacy and personal responsibility. If you can master their lessons, you should be able to navigate credit cards, understand speculation, avoid promoters and balance a checking account.

Here is your first test: Would you rather have $1.0 million cash today or 1 penny doubling every day for 30 days. Even if you know the answer, ask your kids and then tell them the story of Rani and the Rajah link: One Grain of Rice.  Rani fooled the powerful Rajah by understanding the power of compounding . The Rajah learned the disastrous effects of compounding rice payments on his promised repayment. Rani now works for Mastercard and the Rajah dies broke (lessons: savers, compound interest, credit cards).

Second Test: What is the story of Jack and the Beanstalk really about link: Jack and the Beanstalk?  Ask your kids and then ask them what bartering a cow (something with value like savings) for magic beans reminds them of? It is more than faintly reminiscent of the beanstalk to a pot of gold in meme stocks or cryptocurrencies and slaying the giant (Wall Street) and escaping with his gold? (Lesson: Speculation)

Third Test: What is the story of link: Stone Soup really about?  A man borrows a kettle and then borrows all the ingredients for a soup dinner. He adds only magic stones to the bottom of the kettle. Does it remind you of many financial offerings from promoters who don’t put anything in the pot but then eat a full share of fees for organizing the investment? It is interesting that this story is also interpreted as an endorsement of a socialist way of thinking and not exploitation of the unsuspecting contributors (Lesson: Promoters Using Other People’s Money)

Fourth Test: What does the story of the Three Pigs and The Three Little Bears really teach us about risk and responsibility? The brick house pig and the highly organized and responsible bears are children’s’ favorites.

Fifth Test: What does the story about link: How the Sea Got Salty teach us about having enough material wealth? The king won’t throw a magic salt grinder overboard and his vessel sinks from the weight of the salt: “Presto, Change O, Domino, Alloto, if you can’t grind anything else, mill grind salt”.  Lesson: Greed and Why The Sea Is Salty.

I could write a book just about the financial wisdom you can glean from fairy tales, folklore and children’s books. I learned so much from my parents reading me these fairy tales, and it is no coincidence so many of them really teach lessons in personal responsibility and financial literacy. I also realized as I researched this topic that my parents had extracted from these stories the lessons they wanted me to have and often there were alternative literacy and responsibility conclusions.

Maybe the real lesson is parents need to be the first teachers of literacy and personal responsibility?

States Recognize the Crisis

Twenty-three states have now mandated K-12 education on personal finance or financial literacy, but only eight states have had programs in place since 2009. Notwithstanding a consensus around the existence of an educational crisis, almost all of the state efforts are hamstrung by no room in the curriculum, lack of funding, subject matter competency and other priorities like unfunded teacher pension plans.

For example, Ohio has enacted a set of laws requiring financial education as part of the K-12 curriculum in 2024. In Ohio any licensed teacher will be permitted to teach personal finance or financial literacy. Virginia leads the states with the most comprehensive financial literacy model by mandating half year courses. Other states are much more lenient, and none requires a “fin lit” proficiency examination. Only Virginia requires passing the financial literacy course as a prerequisite to graduation.

I have a high degree of skepticism about Ohio and other teaching models which allow any licensed teacher to teach financial literacy. I fear most high school teachers, just like the general population, could not pass a financial literacy test much less teach one.

Social Media Wants Stupid

I am not an expert and my experience with Facebook, TikTok, Instagram, You Tube, and Twitter is limited but I think a majority of citizens under the age of 50 would rather be an “influencer” than understand how social media is monetizing their online involvement and grooming their consumption and credit habits. I think there is more interest in a credit score than anything else.

I honestly don’t know if Gen Z  would chose to save $1000 in a Roth IRA for 30 years or invest $1000 in meme stocks and crypto? In the first case the value of the account invested tax deferred at 5% will be $4,321.00 in 30 years and can be withdrawn tax free.

However, if you trade meme stocks in your Roth, losses are not deductible against other taxes and it is a sure thing you will have losses because you are at a distinct information disadvantage compared to market makers like Citadel and Goldman Sachs both of whom see all the order flows and know when to bet against or in front of herd momentum investing.

You probably did not know that Robinhood actually sold its order flow to Citadel in 2021 to raise cash in  to avoid bankruptcy.  Whereas Robinhood had a customer and fiduciary relationship to its customers, Citadel was motivated only by profit. The outcome was horrible for Robinhood customers.

A laudable goal for 2023 is basic financial literacy and it can be achieved by reading children’s books and stories. It seems like a pretty easy place to start with your personal responsibility to understand basic principles about money, interest, credit cards and risk. A great resolution of 2023 may be More “FinLit” and less “TikTok”???

The above commentary is for informational purposes only.  Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments based on conditions at the time of writing and are subject to change without notice.







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Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records. Founder and chairman of CW Industrial Partners (originally CapitalWorks, LLC), he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CW Industrial Partners or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.