After discussing the problem of finance illiteracy, James Surowieki of the New Yorker proposes creating high school classes to teach kids about interest rates and mortgage plans.
The government’s new consumer-protection agency has the authority to
“review and streamline” financial literacy programs, but that’s not
enough. We really need something more like a financial equivalent of
drivers’ ed. There’s evidence that just improving basic calculation
skills and inculcating a few key concepts could make a significant
difference. One study of the few states that have mandated financial
education in schools found that it had a surprisingly large impact on
savings rates. And the Center for American Progress has found that,
across the country, education and counselling by nonprofit
organizations, like the Massachusetts Affordable Housing Alliance, have
helped low-income families buy and hold onto homes, even during the
housing bubble. The point isn’t to turn the average American into
Warren Buffett but to help people avoid disasters and day-to-day
choices that eat away at their bank accounts. The difference between
knowing a little about your finances and knowing nothing can amount to
hundreds of thousands of dollars over a lifetime. And, as the past ten
years have shown us, the cost to society can be far greater than that.
I have to admit that my finance IQ has dropped over the years. Because Steve is so good at the money stuff, I've let him take over. He also has a really good sense of direction, so he drives most places on the weekends and I've forgotten how to get places that are farther than the local mall. I had to pick him up at the airport last weekend, and lacking the GPS and Steve, I got lost on the way to the New Jersey Turnpike. But I suppose if one of us is good at finding the Turnpike and at knowing when the CDs mature, that's okay.
Apt. 11d 
At least back when I was in school, “Consumer Math” was a high school course. It wasn’t college track, so I never took it, but that might be an umbrella to use.
Here’s an outline of Dave Ramsey’s high school financial literacy program, which looks like a younger version of Financial Peace University. I don’t know the high school version personally, but I took FPU last year (it’s a 13-week course) and it was very good. There are a number of high school programs out there, including some funded by credit card (!!!) companies.
There’s a very large online personal finance community, with major blogs like http://www.thesimpledollar.com and http://www.getrichslowly.org.
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Oops, here’s the curriculum outline:
http://www.daveramsey.com/school/foundations-chapter-summaries/
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But how long until it gets tossed for cost or other mandated goals, like Driver’s Ed was in my old school district?
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I’m always wary of vocational programs like this, because I always worry that what is taught will be too specific and not generalizable enough.
I think that actually works pretty well for some skills, like driving (and perhaps cooking), but am unsure about how well it works for finances. Does telling people how to, say, balance a checkbook have meaning when we’ll be switching to paying with cards/phones with readouts of balances? I see the financial world as being too much in flux for limited knowledge to be enough to keep people out of trouble.
So, I’d rather stick with trying to teach the kids how to do math well, and to read well for content, and then make sure we regulate the financial industry sufficiently robustly to avoid the most egregious kinds of pits people fall into.
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What about putting a warning label of Starbucks? Something like:
“Psst, $3.50 a day for a year and you could have gotten the transmission fixed. Plus, the new barrista is always putting her fingers in her mouth.”
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When I was in highschool we had a class called “economics” that wasn’t so much a high-school version of college economics as it was things like this- interest rates, basics of the economic system, banking, stock market, savings, etc. It wasn’t totally practically oriented, but it was about basic economic literacy. It was one semester, and I’m fairly sure it was required though I don’t recall for sure. (I think we had it one semester and American Government one semester as required social studies courses, but it was a long time ago.)
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Wow, Linda Hirshman would NOT approve of our hostess.
Just to be clear, I’m not with Linda Hirshman at all. I think specialization and division of labor is fine. At work, I don’t know how to redline or fill out an expense report; I haven’t read a title report or abstracted a lease in years (though I would sort of remember how, if I had to), etc. At home, things are more egalitarian, but I don’t know when my daughter’s next doctor appointment is.
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It occurs to me having closed on a house this week that there’s a whole lot of trust and normativity in the whole process. I know our mortgage is OK because it’s the kind of mortgage that people I trust have, and because we’ve used this broker before, but I sure signed a lot of papers that could have sold my soul to the devil in the fine print. I got the broker from a coworker’s recommendation. What do you do if you’re not connected to people who know what they’re doing? You can check your reality against other people’s and against what you can read in magazines and find on the web, but then there are still articles and web sites out there telling me I can afford a 700K house on my salary.
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Marya, you should hire a lawyer before you buy a house. He won’t necessarily tell you if it’s more house than you can afford, but he will check the documents.
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Isn’t it peculiar that Americans are neck-deep in lawyers and famously litigious, and yet we don’t think to use a lawyer for a transaction involving hundreds of thousands of dollars and piles of complicated documents?
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Everyone in New York seems to. In Oregon? Never. See what I mean about normativity?
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Same for us, no one that I’ve heard of uses a lawyer in my neck of the woods (which is close to Marya’s). And, I’m surrounded by lawyers, so I think this is usual even for those for whom lawyers are a normative sample.
And, yes, I know what Marya means. I’m always signing stuff that feels like I might have sold my soul to the devil, and not worrying about it too much. Even though all this signing is kind of supposed to help us operate in a world with less trust, we clearly don’t. In the end, we are just relying on trust. This Monday, for example, I signed a document that gave a local children’s theater the right to use my daughter’s image, likeness and video pretty much for whatever purpose they desire. I just signed it, ’cause it was easier to do so than not to, but, I’m pretty sure I’d object if I started seeing her picture in advertisements for anything other than the non-profit children’s theater. I’m pretty sure it’s unenforcible, too (i.e. I haven’t really signed away the right to use her video in a commercial production, for example). But, I didn’t consult a lawyer, even the nearby one who was eating breakfast at the same time I was signing the document.
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We had a “personal finance” unit at my high school that involved working through all the basics – from chequebooks and interest to MERs and pension plans.
We also had a competition for who could do the best in the stock market with a $1000 start and three months (all on paper but if I remember right the guy who won should have done it for real as he got up over $9k…this was the mid eighties :)).
Anyways, that unit has saved me from some bad deals and and helped us maximize our not-always-great long-term savings. Just the difference between simple and compound interest and what a MER is helped.
We did get into some credit-card debt at one point and my husband wasn’t so up in arms about it (he didn’t have that unit in school). I don’t think I would have pushed so hard to at least move it to a line of credit and then pay it down aggressively if I hadn’t had that background.
I do agree that some of it is situational though. In Canada when we were buying our first house you had to have 10% down if it was your first mortgage, but then you also had to pay mortgage insurance if you weren’t up to the then-standard 25% down. We decided we would rather have our $100/mo go towards equity than insurance, so we waited a bit longer (helped by a gift and a small inheritance) and shopped at the bottom of the market to get over the 25% margin.
Basically it was the regulation that pushed us to save more and be less spendy. (Plus here you can’t deduct mortgage insurance from income the way you can down there so we couldn’t justify it on the basis of a tax savings.)
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Linda Hirshman wouldn’t approve of me for a lot of reasons, but that’s okay. I don’t approve of her either.
It’s actually a bad thing that I’ve let my financial IQ decrease since I married my hubby. It’s just that I would rather read blogs than plug numbers in Quicken like he does. But I did force myself to check out all the numbers over the weekend, so I’m more up to speed.
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Who would teach the course? Which course will you sacrifice to create space in the curriculum?
IF this were a priority, I’d suggest that the schools contract it out to specialists, rather than trying to find a staff member who is 1) financially literate, and 2) not otherwise committed. Our high school, years ago, contracted driver’s ed out to a local driving school. It would be easier for the accrediting authority to keep track of a limited number of financial ed schools’ staff than the various principal’s wives and refurbished PE teachers who would otherwise end up with the task.
How about extending senior year to end at the same time as the rest of the school? Rather than head off early to summer vacation, the seniors would take courses on financial literacy, job hunting, and online security. Call it Adulthood 101.
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“How about extending senior year to end at the same time as the rest of the school? Rather than head off early to summer vacation, the seniors would take courses on financial literacy, job hunting, and online security. Call it Adulthood 101.”
Calling MH!
I think junior year is more suitable for this sort of thing.
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” It’s just that I would rather read blogs than plug numbers in Quicken like he does.”
Mint (now owned by Quicken) is great for this. I do finances, mostly, in our family. But, my guy is not clueless, because he has the Mint App on his iphone and looks at it.
You have to decide whether you’re willing to deal with the privacy concerns, but if you do, I’ve found Mint to be very very good at keeping track of our spending and savings and accounts. Annoying, though, when the stock market tanks 2.5%.
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Amy, I’m not teaching anything.
BJ, you’ve got it set-up so that you log in to look at your checking account balance, you have to see what happened to the 401k or whatever? Yikes.
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“BJ, you’ve got it set-up so that you log in to look at your checking account balance, you have to see what happened to the 401k or whatever? Yikes.”
Yeah. I do. Is there a way to avoid that? 🙂 Fortunately, I’m too lazy to try to make investment changes based on that information, so I avoid the pitfalls of day-trading.
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