Don't Mistake Crypto for a Community
April marks financial literacy month, and looking around the U.S., it’s clear that Americans need it.
Since 2003, the Financial Industry Regulatory Authority (FINRA) has tested Americans with a financial basics five-question exam, and to date, sixty-six percent of Americans are unable to answer more than three questions correctly. This deficiency is apparent in the real world, where surveys find approximately two-thirds of Americans live paycheck to paycheck and seventy-one percent feel they’re financially insecure. Meanwhile, financial innovations have and continue to further complicate financial literacy. In the media, discussions of traditional finance play second fiddle to discussions about the potential of blockchain technology, decentralized finance (DeFi), cryptocurrency and non-fungible tokens (NFTs). In these discussions, ardent supporters claim blockchain-enabled tools like Bitcoin will not only revolutionize finance but redesign society by replacing trust with technology.
But most Americans’ household budgets are too tight to take part in the revolution. For them, trust — in their communities and in their local financial institutions — is something that should be fostered, not done away with. That was true long before we had Covid disruptions and soaring inflation. So this April, instead of chasing the latest financial fads, we should get the basics right and realize that strong financial foundations improve household living conditions and can even lead to stronger communities.
People don’t know their neighbors anymore. Increasingly, regions are being sorted by ideology. Our culture of isolation and self-segregation could benefit from having some apolitical common interests that strengthen rather than weaken civic ties. Household finances, something all neighbors share in common, could be that topic, but communities first have to take back what finance means in America. Arguably, it was the mid-80s when the term lost its connection to the common citizen as the economy underwent financialization. Culminating for average Americans in 2008 with the financial crisis, finance over the last forty years traded its folksy roots of household budgets and pensions for credit default swaps and high-frequency trading.
Against this backdrop, the pseudonymous Satoshi Nakamoto created bitcoin as a proposed alternative to a financial system he saw as being untethered from society and unaccountable for its mistakes. His innovation birthed a movement that’s booming today. Followers see crypto as a tool open to all and controlled by none — the re-democratization of finance. For those spurned by financialization and alienated from their fellow citizens, cryptocurrency (crypto) promises a future unmoored from institutions as intermediaries and dispatches the need for physical community.
Therein lies the rub. While the above description likely appeals to those with libertarian leanings, bitcoin and other all-virtual instruments like non-fungible tokens (NFTs) are entering the mainstream just as Millennials assume societal leadership roles and Generation Z, considered digital natives, graduate and become tax-paying citizens. Both generations have comparatively higher feelings of depression and loneliness compared to their parents and grandparents. They also are getting married later and having fewer children.
Millennials and Gen Z need more community ties, not less. Blockchain technologies that virtually circumvent physical community will likely deepen our divides, exacerbate our low levels of trust, and further fetishize niche financial instruments.
Circumventing our thinning national trust through technological anonymity further distances us from our neighbors, which is less a solution for our current predicament than it is an escape hatch. Instead of turning away, we need to be re-engaging and rebuilding our communities, with specific focus paid to those Millennials and Gen Zers who will take the nation’s reins in the coming years.
In the near term, we should encourage people to start their financial lives IRL and in their communities. Local credit unions (CU) satisfy both of these conditions. CUs differ from traditional banks in that they’re cooperatives owned by their members, and they generally have a brick-and-mortar presence in or at least near the community they serve.
This nearness fosters trust and strengthens community ties. The Credit Union National Association’s (CUNA) latest polling suggests that respondents affiliated with a credit union (CU) demonstrate comparatively higher levels of financial stability and community trust compared to their bank-affiliated neighbors. Financially, CU members surveyed were 16 points more likely to have $500 in emergency savings compared to their traditional bank customer peers. Socially, 56 percent of CU members trusted their credit union compared to just 40 percent of those at a traditional bank who said they trusted their financial institution.
In general, people trust the transparency of their local credit unions more than they do the opacity of larger financial institutions and corporate banks.
Longer-term, we must equip the next generation of citizens with civic and financial literacy education suited to our current and future community challenges. Fortunately, we’re making progress on this front. Next Generation of Personal Finance (NGPF) tracks financial education legislation efforts across America: Since 2018, 10 states have guaranteed high school students will complete at least one semester of personal finance. In 2022 alone, 20 states have proposed 40 bills related to personal finance education. These efforts are a starting point for what must be a continuously evolving conversation that reverses our tendency to think of ourselves as consumers before thinking of ourselves as citizens. However, such legislation is only a small part of what it will take to prepare our next generation of civic leaders to overcome the alienating effects inherent in much of today’s technology.
Financial literacy month offers an excuse to recenter conversations about money and transactions in the context of communities, rather than lone individuals. Few of our online connections are worthy of the label “community.” Let’s stop mistaking faddish interests for true investment.
Ted Delicath is an Army Officer with a Masters in Security and Conflict who currently works at the McChrystal Group.
