Time to Teach America a Lesson

Our recent economic climate has made financial topics very popular. It has turned conversations from "Isn't it a beautiful day?" to "Did you see the Dow slip 250 points today?" If your business is not doing well, or maybe landing a job has become a struggle, just blame it on the economy and your neighbors will understand and sympathize. The United States has become a culture of debt and excess. Consumerism is a fundamental element of our society. Many Americans are driven by their immediate "wants", thus failing to recognize or simply ignoring the possible negative long-term consequences. The current recession is a good indicator that we are paying the price for those actions now.   

Everyone knows that history has a unique way of repeating itself. The government is cyclical in nature through periods of regulation and de-regulation. I think it is fair to say that we are currently heading into a period of regulation and reform in a myriad of industries, including the health and financial sectors. Our government and industry leaders are navigating through this recession by learning how to avoid the mistakes they have made in the past, so as to not repeat them in the future…what have you been doing lately?  
 

This is an important teaching opportunity not just for financial service firms and huge global companies, but for all consumers in our society. After all, wasn't it you who defaulted on your mortgage and was forced into foreclosure? The classic household statement says that, "the rich get richer, [the middle class struggles with debt], while the poor get poorer". If this is true, what is the difference between these social classes that continues to divide our country in this hierarchical manner? I believe it has to do with financial literacy. Money topics are historically not taught in the school systems, but within the family unit. Now is the time to spread the wealth … not through increased taxes, but through knowledge. 
 

Financial illiteracy among the American people has quickly become a national issue. All consumers in our society operate within the basics of our economic structure. Whether you buy a candy bar on credit or are purchasing a home, financial literacy is an integral part of everyday life. With that said, why has it been an ignored topic in our school systems? In addition, why hasn't this national crisis received more media attention? After all, the average worker has only saved enough to cover 60% of his expenses post retirement and 95% of college graduate students are carrying credit card debt averaging $4,000. With numbers like those, it isn't any surprise why parents nurture a negative attitude in their children when it comes to money matters. Statements like, "money is the root to all evil" or "money is a bottomless pit where happiness is just an illusion?" have become common household opinions for the lower and middle class that struggle with debt. 
 

I grew up in a middle class society where I struggled with money issues all my life. I have tackled financing a car, paying for college, and budgeting credit card debt, all with relatively little knowledge about how these debt instruments actually worked. I lived in a world where focusing on monthly payment amounts rather then the relative interest percentage received was a common protocol. Now as a senior in college, earning a dual degree in accounting and finance at an undergraduate business school, I have finally found the truth behind financial freedom… and it wasn't taught to me during my quantitative finance lecture. Throughout my education, I have never received a tutorial on the basics of financial literacy. When it comes to complex economic theories, or the derivations of a discounted cash flow model, I could do them with my eyes closed. However, the formula that goes into my credit score, well that's a different story. 
 

So which is more important: economic theory or financial education? I don't think I am in any position to make such a decision. However, I would venture so far as to make the bold statement that financial literacy is more useful in everyday life. Topics surrounding budgeting, saving, and investing have a direct impact on everyone's daily lives. These topics not only influence the individual, but the direction of the overall economy as well. 
 

So where is the tie in? We have been in economic troughs before, but why now is the teaching opportunity more relevant then ever? It is because we are the major reason for our current recession. That's right, you and I. There are a slew of other reasons why our economy was on the brink of failure earlier this year; however the ball stops with us… the consumer. We racked up uncontrollable credit card debt, we signed mortgages we couldn't afford, and we didn't invest in our future retirements. Sure, the banks should have never allowed "no credit, no problem" debt instruments to be made available to the vast subprime mortgage market, however we should have never signed our names on the dotted line. The absence of financial education hurt the nation as a whole, as well as the individuals involved. We need to take responsibility for our own futures and mend the mistakes we have done in the past by educating ourselves today. We need to instill a sense of financial discipline into our society. 
 

So where do we start? We start with mandating personal finance classes in middle and high schools. We start with creating classes at the collegiate level to address specific concerns students have around their loans and debt management skills. We start with mandatory tutorials for first time homebuyers concerning mortgages, and all the other liabilities that are associated with owning a home. We create mandatory classes for those who have foreclosed on their home or went bankrupt before they are issued credit again. We teach consumers to embrace the concept of money with the confidence that it could enhance happiness, rather than act as a product of greed or evil.  
 

What is being done instead? The media has pointed fingers at every decision maker and industry leader imaginable. From Main Street to Wall Street, we have collectively sought answers from everyone but ourselves. The government has responded by interfering with capitalism through means of infusing money into the economy… only to increase our taxes on the back end anyway. The only way to rebuild this fallen economy is by starting with its foundation… the consumer. Mistakes that are not learned from are complete failures. If we navigate through these tough economic times by being proactive in empowering our consumers and teaching them the dynamics of how money works, not only the individuals, but the nation as a whole will benefit.