Tuesday, August 24, 2010

Financial Education

Consider the state of finances in the American public today. Reputable banks are seemingly unwilling to lend and loan sharks are all too willing to lend, but at a significant price. The American markets are still reeling from the financial collapse caused by a perfect storm of loose lending practices, greedy real estate agents, and ignorant home buyers. If any one of these had shown some responsibility or foresight, the collapse may not have occurred. As individuals we cannot change the bank’s practices nor the high pressure sales tactics used by the real estate agents. We can however, fix our own ignorance and we should teach what we have learned to the next generation so they may learn from our mistakes.
Solid financial knowledge is scarce in the general public. Advertisements compel us to continually buy with little regard to payment. With our desire for instant gratification, we use our debit and credit cards so often it is difficult to balance a checkbook. The tax code is complex. One of my managers, who has a PhD, mentioned to me that he doesn’t know how to do his own taxes. The news is full of stories about people who bought homes under terms they didn’t understand. In 2006 George McCarthy, a housing economist at New York’s Ford Foundation, said an option ARM is, “like a neutron bomb. It’s going to kill all the people but leave the houses standing.”(Der Hovanesian, 2006) His words were prophetic. Many who took out ARMs lost everything when the rates brought up the payments due on their houses. I believe there are few that know how to use an amortization schedule to their benefit. Even this tool however, is made impotent by contracts which eliminate the ability to calculate interest and predict future payments.
Financial predators are common and often merciless. Payday loan companies peddle their services to the poor and ignorant, earning millions from people who can’t pay their bills. While payday loans have recently been outlawed, the companies peddling them have found ways to stay in business by changing the name of the loan or offering them online. (Quinn, 2010) (Fox11, 2010) Banks gave loans to people who could not afford them, leading to the current housing financial collapse. Credit card companies often charge fees for customers to use their own money. For a ‘secured’ credit card, there is an annual fee, plus the deposit. Customers can only borrow against the deposit and the interest charges go to the company. Capital One and Wells Fargo are among those that offer this type of credit card. (www.capitalone.com, www.wellsfargo.com)
Despite all the bad news, there are individuals who are not only knowledgeable about finances but are also willing to share. There are several philosophies presented by wealthy authors who share their rich experience. On one end of the financial spectrum there are books like Robert Kiyosaki’s best seller Rich Dad, Poor Dad, which stresses business intelligence and becoming wealthy by earning more. At the conservative end of the spectrum are books like David Chilton’s The Wealthy Barber, which takes a common sense strategy to creating a comfortable retirement through savings. As Franklin said, “A penny saved is a penny earned.” (Franklin, B.) The internet provides forums for like-minded individuals to create and share ideas. Columnist MP Dunleavey blogs about her and others’ experiences geared toward female readers in MSN Money. (MSN) “MyMoney.gov is the U.S. government's website dedicated to teaching all Americans the basics about financial education.” (MyMoney) With so much combined knowledge and experience available to us, there is no excuse for the general public to be so ill-informed about finances.
Teaching finance while students are young would open discussions about money. This would hopefully mitigate our existing cultural taboo on financial communication. Communication is essential to educating about money. A basic finance course would educate about balancing checkbooks, reconciliations, and the use of savings accounts and loans. Some high schools are already requiring finance credits. (Wu, 2010) Students would learn how to build credit, compare credit card offers, and prepare for large purchases like a college education, car, or house. These are some of the basics we need to know to live outside our childhood home, to avoid scams, and to negotiate better deals.
We need to start early to teach finances. As the bible says, “Train up a child in the way he should go: and when he is old, he will not depart from it.” (Proverbs 22:6 KJB) By consistently and systematically training financial responsibility in our youth we may rest assured that this nation will not soon suffer financially as we are now. We have the knowledge available to us. We have the need. Considering the state of our nation’s finances, we can and must do better. I’ll end by quoting Benjamin Franklin again, “Being ignorant is not so much a shame, as being unwilling to learn.”
Franklin, B. (n.d.). The Financial wisdom of benjamin franklin. Retrieved August 23, 2010, from http://www.echristianfinance.com/2010/03/the-financial-wisdom-of-benjamin-franklin/
Capital One (2010) Retrieved August 7, 2010, from http://www.capitalone.com/creditcards/products/secured/?sol=11296&tc=1&credit=3&linkid=WWW_0608_CARD_TGAFF01_Z_Z_01_T_CP29601LW
Der Hovanesian, M. (2006) Nightmare Mortgages. Retrieved August 7, 2010, from http://www.businessweek.com/magazine/content/06_37/b4000001.htm
Fox 11 (2010) Payday loans on notice in Arizona. Retrieved August 7, 2010, from http://www.fox11az.com/news/local/Payday-loans-on-notice-in-Arizona-96067344.html
The Holy Bible (1611) [Online], Available: http://scriptures.lds.org/prov/22/6#6
MSN (2010) Meet the Women in Red. Retrieved August 23, 2010, from http://articles.moneycentral.msn.com/SavingandDebt/Advice/MeetTheWomenInRed.aspx
MyMoney (2010) Welcome to MyMoney.gov. Retrieved August 23, 2010, from http://mymoney.gov/
Quinn, D. (2010) Industry shifting to new services as payday lending becomes illegal. Retrieved August 7, 2010, from http://azstarnet.com/news/article_ff55e5ce-2c89-5ccb-9d1f-1bbc73dfff89.html
Wells Fargo (2010), Retrieved August 7, 2010, from https://www.wellsfargo.com/credit_cards/secured/
Wu, A. (2010, July 23) School Credit. Newsweek, [Online], Available: http://www.newsweek.com/2010/07/23/school-credit.html