“The number one problem in today's generation and economy is the lack of financial literacy.” - Alan Greenspan
There is something very important that has been taken away from our education system.
There has been some chatter recently about collusion with the financial aid department at the universities and the student loan lenders. Remember that most students don’t even read the terms of the loans that they are signing up for. They don’t read it for two reasons: 1-They trust the university and its representatives, and 2-they wouldn’t understand the loan documents even if they did read them.
The Organization for Economic Co-operation and Development (OECD) found that only 27% of young Americans from the ages of 18-24 understand inflation, risk diversification, and can do simple interest calculations. How do we blame the student loan crisis on the students who are taking on these loans when three quarters of them have no idea what they are reading when they are handed loan contracts?
To that further that point, do you really think it is a coincidence that we do not teach financial education in our schools today? We haven’t taught real world money knowledge across the nation since the early 1900s when we were teaching kids how to balance checkbook’s in eighth grade. In my opinion, remember this whole book is just my opinion, there is a distinct reason for this. Because if everyone knew how money worked no one would be falling for these scams.
Insight can be risky
If you were taught financial literacy in schools, you would be able understand contracts. You could understand where every financial service company, from your cell phone bill to your insurance provider, is screwing you. You would understand the ungodly interest of credit cards and pay day loans. You might even understand how to grow wealth and get yourself out of poverty. You would be able to see the inner workings of our economy and government spending and call foul. You could also read the writing on the wall when an economic disaster is coming.
You cannot tell me that personal finance is not a very necessary life skill. We spend countless hours learning about the ancient Egyptians, or physics, or the mating of frogs. Not to take away the importance of those things but when are we really going to use that information in our day to day adult lives? When we absolutely know that money is always going to be a part of every person’s life that enters and leaves a school. Why can’t we just spend a little time teaching how to create and balance a household budget? Or how to understand basic contract verbiage that every 18-year-old is going to have to read as soon as they want a loan for something?
For some unknown reason the Department of Education has no position on this subject at all. It is left up to each individual state to decide whether or not economics, personal finance, and investing gets taught in schools. As of the writing of this books only 17 states out of 50 have personal finance courses in their required curriculum. Data released from the Financial Industry Regulatory Authority's Investor Education Foundation, which seeks to promote financial literacy, revealed high school students who are required to take personal finance courses have better average credit scores and lower debt delinquency and default rates as young adults.
Seems to me that if I was lending billions of dollars every year in student loans, like the Department of Education is, I would want it to go to young adults with the financial wherewithal to budget their money and pay me back.
Higher education brings no solution either
It is not any better when young adults get to college either. Fewer and fewer colleges are requiring economic courses in order to graduate. It’s evident that students do not know how to handle their finances. Nearly half of college students do not manage their personal finances, and 58% do not save money each month. Which leads to another dangerous trap. How many times do you hear of college students being shoved dozens credit card applications literally on campus? It is not only the student loan system that preys on these young Americans.
Not to mention that according to OECD, low levels of financial literacy have also been associated with a lower standard of living, decreased psychological and physical well-being and greater reliance on government support. I hear countless conservative talking heads usually yelling about how important fiscal responsibility is in this country and the answer to getting people off government support is financial education in school. How often do you hear anyone bring that up?
Bottom line is money is still taught in the home from parents to children. This passing of knowledge is best outlined by Robert Kiyosaki’s book Rich Dad Poor Dad. It basically states the simple logic that if your parents were poor they taught you how to be poor. If they were rich, then they taught you how to grow wealth. I myself grew up poor and learned about money from my mother who taught me that “If I have a skill or a trade I’ll never go hungry.” While I’m grateful for this lesson and the subsequent trade I learned that kept me fed, she actually taught me much more with her own money habits that I adopted subconsciously. Habits like: don’t save any money, live paycheck to paycheck, if you start making more money move up in the world to a nicer place, better car, creature comforts but never forget step one, don’t save money. Always be completely dependent on the paycheck from your job.
I have spent the better portion of my life unlearning these lessons. In our society we must take it upon ourselves to learn the ins and outs about how money works. If you don’t educate yourself, or if your parents taught you all the wrong lessons about money, then you’re doomed to be a puppet on a string. Your ignorance of how finances work then becomes a license for the financially educated to steal your money. The old saying goes, “There is a sucker born every minute.” More aptly put in today’s world would be, “There is an endless stream of fools who don’t know the first thing about money. Usually the place to find them is on a college campus”
So, when these young men and women step foot on campus, or even grown adults who don’t know better, like their parents, and sit down with a financial aid counselor to buy their higher education they have no clue what they’re getting into. They don’t understand the fine print on the contracts that they are signing. They don’t even bother reading it because they know they don’t understand it anyway. It’s full of legalese and words intended for you to be confused. Even if their parents are there with them, their financial education is probably not going to be any better than their child’s since they are the ones who taught the child finances. So, they all trust whatever the financial aid officer says. If lack of financial education isn’t by design, then there are just a lot of people taking advantage of it all over this country. It wouldn’t take much for the Department of Education to fix this.
Financial education can make a difference. It can empower and equip young people with the knowledge, skills, and confidence to take charge of their lives and build a more secure future for themselves and their families. Supporting financial education can be viewed by the main public, private, and civil stakeholders as a critical long-term investment in human capital. -OECD