Developing and Disseminating Financial Guidelines for American Households

William G. Gale Benjamin H. Harris

FSP#2011-3

Abstract

Household financial planning can be challenging and household members often lack basic financial literacy skills. This paper discusses the potential and pitfalls of one approach to solving these problems—the development and dissemination of financial guidelines simple enough to be explained in graphic form. The discussion is motivated by the history of nutritional guidelines, namely the Food Pyramid and MyPlate. Financial and nutritional choices share several salient features, including the trade-off between current and future choices, the underlying complexity of the problem, and the auspicious effect that simple rules-of-thumb can provide. We conclude that financial guidelines can be most effective if they meet the following criteria. First, the guidelines should be simple, accurate, and comprehensive. Second, alternative versions of the guidelines should be developed to reflect the divergent economic circumstances of people at different points in the life-cycle, or who for other reasons face different economic situations. Third, the guidelines should be designed to be a focal point for the development of new, appropriate financial products and services. Fourth, the financial guidelines should be widely disseminated from an unbiased source of financial information and planning.