Educating Md. students in finance is the smart move
October 2, 2009
Washington is proposing rules, restrictions and the creation of an entire federal agency to stop dumb consumers from repeating the mortgage disaster or something just as bad.
Maryland has another idea. Make dumb consumers smart. Don't let kids out of school without a basic understanding of interest rates, bank fees and scams that will persist no matter how baby-proof Congress tries to make the system.
State officials are about to reveal proposals for personal-finance instruction that could be in the classroom by next fall. While the material will probably be offered as optional, the General Assembly should go a step further and require it for all public high schools.
"I'm actually very encouraged," says Allen Cox, managing director of the Maryland Coalition for Financial Literacy, based at Towson University. Now that we know what happens when 5 million Americans buy houses they can't afford, "there is so much more interest in it now than there was a year ago," he said.
How clueless are people about money? If the housing crisis weren't enough evidence, surveys demonstrate vast and breathtaking ignorance.
Most people don't understand that if they make only minimum credit-card payments they will never pay off their balance. They don't get that a dollar in their wallets today is worth a lot more than a dollar promised for five years from now. They're undereducated about inflation, bounced checks and the importance of putting valuable eggs in multiple baskets. (Check my blog for personal-finance questions people got wrong.)
At The Baltimore Sun financial desk, we sometimes hear from readers who don't understand that a credit-card balance represents a loan from the bank, don't realize they have a 401(k) plan and don't think they have to repay student loans if they can't get the job they expected.
Four in 10 Marylanders who own houses pay more than 30 percent of their pretax income toward mortgages, the Census Bureau reported last week. That means they're near or in the rule-of-thumb danger zone for affordability. Many probably got mortgages with low teaser rates only to be shocked by the size of the payment when the rates adjusted.
Only a handful of benighted states lack requirements for high-schoolers to learn anything about personal finance. Maryland is one.
For sure, many Maryland kids get the basics in economics or social studies classes. Carroll County and a couple of other districts teach separate personal-finance classes. But there is no standard to ensure that high school graduates can understand the credit-card hustles they'll get the minute they accept their diplomas.Two years ago, the General Assembly created a task force to upgrade financial literacy in public schools, starting in kindergarten. Pros have been working on material and will soon show it to the state Board of Education.
It looks like a good start. They're focusing on entrepreneurship, saving, investing and credit management. They should emphasize the ability of compound interest to enrich or impoverish people over time. If it were up to me, they would basically order kids never to carry a credit-card balance.
Whatever the content, the key is making city and county systems teach the stuff - in a semester-long course to every high school student.
"There's always bureaucratic push-back because it's not their idea, not their initiative," says Maryland Comptroller Peter Franchot, who is a strong advocate of financial literacy. "If we don't order it, it probably won't get done."
Franchot wants the legislature to require personal-finance courses for high school but let each locality customize the instruction.
Gov. Martin O'Malley "would be very open to mandating a financial literacy curriculum" but wants to learn more about how it would be implemented, said spokesman Rick Abbruzzese.
Those guys are Democrats. Financial literacy is a natural for liberals. School instruction is a way to empower lower-income kids who aren't learning financial skills from their parents.
"I'm already teaching my parents what I'm learning here," a student told Franchot when he visited a class at Westminster High School.
But this is a bipartisan issue. Carroll County Republican Del. Susan W. Krebs is on the financial literacy task force.
Conservatives will never get their "ownership society" if millions lack the knowledge to become successful owners of houses, businesses or financial assets. If people were competent with money, we wouldn't need the Consumer Financial Protection Agency being proposed in Washington.
Arguments for the free markets Republicans prefer are based on the notion that people are rational, that they know what's good for them and act accordingly. That little theory got gutted by the folks who took on mortgage payments that left no room in their budgets for gas or food.
Mandatory personal-finance classes can help raise a new generation of rational Marylanders. That'll be good for them and, if it helps avoid another $2 trillion financial meltdown, everybody else, too.