Stephen Dubner at the Freakonomics blog at the Times has a must-read entry about financial illiteracy in America, and the subject's absence from school curricula:
I’d like to think I’m at least adequate in taking care of my family’s finances and everything that includes in the modern world: real-estate and insurance decisions, saving for college and retirement, investing and tax planning, etc. But it has been a bit of trial-by-error mixed with trial-by-fire — and to be honest, I was very fortunate to have an older brother who is smart, frugal, patient, and who worked for many years in finance. If it weren’t for him, I’d be in considerably sadder shape.But here’s my point: I’m not exactly undereducated. I had 13 years of public schooling, 4 years of college, and another 2 years of graduate school — and after all that schooling, I don’t know if I learned enough to answer all three of Lusardi’s questions correctly. The subjects simply didn’t come up. Just as they apparently didn’t for the two-thirds of the older respondents to Lusardi’s questions.
I have similar story. Basically I wouldn't know jack about anything finance related if weren't for a fellow I work with named Karl who happend to press into my hands a book called The Four Laws of Debt Free Prosperity. The book sounded, and was, fairly cheesy, but it was short and in those few brief chapters made me realize that I had been out to lunch on an extraordinarily important subject, a subject that--if ignored--could literally ruin a person's life.
So it's always been sort of crazy to me that they don't make a serious effort to scare kids in high school into never, ever running a credit card debt, or show them how a steady and conservative savings plan begun early enough can make them into millionaires when they are old. And I never understood the point of quibbling over various ways to refine Social Security when a large number of Social Security recipients will have frittered away their incomes over the span of decades because they simply did not know what they were doing with their money. Financial literacy seems to me the first and most important step in establishing a sane set of policies dealing with retirement and supporting the elderly crowd, and yet in our politics it's treated as an afterthought.
3 comments:
One problem is, there are a lot of very rich people that profit off of financial illiteracy. How much power do they have in perpetuating the ignorance that makes them rich?
I disagree that there's "a lot of very rich people that profit off of financial illiteracy". Rich people tend to be fiscal conservatives, and any fiscal conservative would be thrilled if every American knew what a mutual fund was and how to calculate compound interest. It is important for rich people, as a class, that the lower classes understand income disparities as an emergent property of a fair economic system (lest they start demanding socialistic redistributions of wealth), and this is a lot easier if those lower classes understand the basics of how money makes money (and debt makes debt).
Finance isn't a zero-sum game: if a bunch of people suck at finances, it doesn't necessarily mean there is a big group of rich guys who are going to benefit more than if those people didn't suck. I think most rich guys would view more financial literacy as a win-win for society in general.
Maybe some fair & rational fiscal conservatives would agree with you, but you can't deny that there is a group of individuals that profit off of the financially illiterate. E.g. Hip-hop culture. Some suits are making some big green off of "bling" and "rims" and other financially irresponsible purchases (these aren't irresponsible for everyone, but they are for the target audience - low income, typically minority populations).
Obviously, there was a HUGE portion of the economy that was trying to take advantage of low-middle income individuals who had aspirations of owning homes, but were not financially knowledgeable enough to recognize a bad home-loan when they saw one. There are financial predators out there, and they try take advantage of the financially ignorant. This time, it came and bit them in the ass, and bad economics does not escape karmic retribution, but that doesn't stop the short-sighted loan-shark.
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