Financially illiteracy is killing America

"600 Words by Esther J. Cepeda"

There are two types of smarts Americans value: book smarts and street smarts. But when it comes to money smarts, we're mostly stupid.

The economy is collapsing in on itself and so many people are completely clueless as to what is happening, it’s absolutely frightening.

I heard a guy say, "I don't have any damn stocks, so why should I give a ---- about the rich bastards who are losing money? They got it comin'," on my train ride home the other day. It's the sort of bravado I've been hearing nearly everywhere since the market meltdown began, and it says more about a regular Joe's lack of connection to Wall Street than it does about his sour grapes.

Nothin' against Joe, he's certainly not alone – the number of people in the United States who don't have basic knowledge of financial concepts is stunning.

That number is – drum roll, please – unknown.

That's right, folks, the ability to read, analyze, manage, and communicate about the personal financial conditions that affect one's material well-being is so ignored in this country that no one even knows what the baseline of that knowledge is! (Just last July the U.S. Treasury announced that for the first time ever they’re going to examine financial literacy among U.S. adults and how they fare in handling their finances at both state and national levels. Preliminary survey data is expected to be released to researchers and the general public in early 2009.)

And wwhhhyyyyy are adults so financially illiterate? Because we do next to nothing to teach kids about the dough they're constantly begging their parents for.

"I'm never surprised by what kids know, but I'm always shocked by what they don't know," John Stowers, a business teacher at north-suburban Mundelein High School, told me last night during a debate viewing discussion spurred by Obama's critique of the post-9/11 consumer spending binge President Bush encouraged by suggesting we go out and shop to show the terrorists they hadn't won.

"Freshmen through seniors, none of them can tell you what fiscal or monetary policy is, what the fed is, who the fed chairman is, or in what city Wall Street is located," Stowers, a third year teacher, railed. "By the time these kids get to high school they have virtually no financial literacy. Oh they can take a debit card and go out and buy things, but they can't keep track of the money in the bank – in fact they don't know the difference between a withdrawal and a deposit! If you tell them that taxes are withheld from their paycheck they don't understand what that means."

Stowers teaches kids from all different socioeconomic, ethnic and racial backgrounds and across the board he’s found that what kids don't know about money is passed down through the family.

"Moms and dads don’t sit down at the kitchen table and say 'I don’t like this president's fiscal policy but I really do like what the Fed is doing with monetary policy' because they don't understand it either," Stowers said. "Why? Because you can live your whole life without knowing that stuff – you can get a job, get and spend a paycheck and just get by… if getting by is all you want to do."

Heck, you don't even need a checking account for merely getting by, just ask the thriving currency exchange and check cashing industry. I did find one startling statistic in a 2007 Time magazine article, which said there are an estimated 40 million adults in the U.S. without bank accounts. That number is surely higher now…it's been a year of vault-busting bank runs.

But why does this all matter? Because a large part of the current crisis is a direct result of people failing to predict the volatility of the terms of home loans in the context of their financial health.

And because, worse, there is a multi-billion dollar educational industrial complex fighting for more money, money, money to spend on curriculum, teacher salaries, research, infrastructure and blahdiddy-blah-blah to educate kids in this country to become thriving, productive members of society. With almost zero effort put into teaching them how to balance a checkbook, read a credit report, or understand the employee benefits offered by a company.

Kids today are required only one consumer economics class in their entire school careers and it clearly isn't enough. "Repetition is the key to really learning something," Stowers said. "You study English for 12 years by the time you get out of high school and you still don't remember how The Great Gatsby ends and yet you only talk about your financial life for one semester."

Along with all the other causes championed for classrooms, we need to insist on teaching America’s next generation how to make, manage, and grow their money or we’re destined to repeat the current economic crisis again and again.

"Financial literacy is as important as any other skill – the stake of the whole country's economy is as important as any other class," Stowers hammered home. "You study math for twelve years, but how many people use the calculus they studied in high school? And yet how many people have a mortgage?"

Esther J. Cepeda writes the "600 Words" & "Pregunta del Dia" columns, and is also the Chief Marketing and Communications Officer for the Illinois Student Assistance Commission. Her views and reporting do not necessarily reflect those of ISAC. "600 words" is a registered trademark of EeJayCee, Inc., Copyright 2008. May be reprinted with permission, contact eejaycee@600words.com

Comments

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I have been reading through several of your blogs. You are doing a lot of good work. This blog did bring a few questions to my mind. Should we start teaching more about finance to kids at a younger age? Should there be more focus on finance, stocks, mortgage, etc. starting in junior high or at least high school? Education and book smarts are great but there needs to be some focus on how to spend, save and generate wealth starting at a young age.