COMMENTARY | Earlier this month Education Secretary Arne Duncan warned a special advisory panel that many Americans have a real problem understanding basic financial concepts. Duncan went so far as to say, “to continue to have a population that is relatively illiterate in these matters I think has real negative consequences to our democracy.” He also stated his belief that the current financial crisis is due in part to a poor understanding of personal finance, and suggested as a solution to teach personal finance in public schools as early as kindergarten.
I think Duncan is onto something. Indeed, a 2009 government survey showed that 7.7 percent of U.S. households were “unbanked,” meaning they had no sort of bank account. It also revealed that 18 percent of households used “payday lenders, pawn shops or check-cashing outlets at least once in the past five years,” and all these services charge enormously high interest rates or fees. Furthermore, many Americans are swamped with credit card debt and have poor – or non-existent – investment strategies.
So clearly personal finance is a useful subject to teach our kids. In fact, I myself benefited from such a class when I was in high school. For one semester, my class learned about all the basic financial decisions we’d have to make as adults, from balancing our checkbooks to setting up retirement accounts. I can’t claim that it made me or my classmates financial wizards, but I can say that I set up a checking account after high school and have never paid a single fee, and that I’ve successfully avoided credit card debt and bad loans.
Thankfully, we’re already starting to see some expansion in teaching financial literacy. It’s an idea that’s already taken off as far away as Australia, and back home it’s catching on too. As Aaron Moore, a high school student who was able to take advantage of his school’s financial programs writes, “President Obama often talks about not wanting our healthcare system to be a sick care system, but preventative. The exact principle applies to education, making it preventative. We, as a country, can avoid such economic disasters with financial knowledge.”
Now, I think it would be naive to think teaching personal finance in the schools would solve everyone’s money problems. In fact, many people with credit card debt are probably not ignorant to how harmful it is, but have only turned to it in desperation as a result of the tough economy. However, if we set realistic goals such as getting more people to set up checking accounts instead of using cash checking services, then teaching kids more about finance would be a worthy use of school time.