As someone that deals with the aftermath of the financial mess, my answer will surprise you. Yes, there should be classes, but it is NOT a vaccination against financial problems, but it might be part of a longer-term multifaceted solution.
My observation is that teaching personal finance in high school is a bit like requiring all students to take the classroom training as part of a driver’s education program when they are 12 but not let them get into a car for four more years. If you provide education before there is a real-world context, then the instruction’s ultimate effectiveness may be lost.
There have been studies, in fact, that show that students that take financial education classes score worse on financial exams. One theory is that going through the class without any real-world application only gives you more confidence and not necessarily more expertise.
While teaching what an ARM (Adjustable Rate Mortgage) would be handy, it would probably be better to have behavioral economics classes instead. An awareness of the numerical number of a grace period or cash advance rate alone does not neutralize the impact of marketing messages and unconscious needs. Awareness about the forces that drive our decision making is far more important at an age when the student can be self-aware. An individual’s money personality is more indicative of their ability to avoid financial landmines than the ability to use a calculator.
Money problems are not about money. The problem of debt for many is a symptom of greater underlying issues. It is a bit like treating an ache in your leg with Advil when the real issue is the leg is broken.
We need to ask ourselves why we can control two cars hurtling down a road at each other with only a painted line separating us and not crash. Or why we can own really sharp kitchen knives and not stab people.
Obviously, we can control certain parts of our lives, but what prevents people from understanding that a big loan payment on my income is not affordable? Is that from a lack of a high school class, or could it be that the lure of pleasure is more attractive than the pain of not?
What fundamental skill is lacking in current education that would prevent someone from recognizing that if their promises to repay each month are near or exceed their potential income, there might be a problem?
When emotion overcomes math, will a high school class on credit cards provide the inoculation hoped for?
If you want to hear where the tragedy is in America today, it is not from a lack of education or awareness. In fact, I have to congratulate the credit card companies for their detail in the terms and conditions they present to consumers. But maybe we’ve all become blind to take the time to read those terms and conditions.
Every time I read one of these long documents, it is all laid out right there, and what was it that prevented the consumer from reading that document for a greater awareness? “Can you believe I got charged a $50 late fee,” people say? “What did it say the late fee was in the terms and conditions of the card?” you ask. “Who reads that stuff?” is the typical response.
No, the tragedy in America today is that when people run into financial problems that there is no independent and impartial safety net to help them in their fall or resolve their situation.
Too many debt relief groups have turned into nothing more than pay for performance operation that rarely has the true interest of the consumer at the heart of it.
Before I step off my soapbox, take a look around and see if you can find a solution in America that will allow consumers to put forward a fair, reasonable, and binding debt repayment plan based on what they can afford. You can’t find that. Yet those solutions exist in other countries. Why not in America?
I tried to implement that solution in America for five years and was fought at every turn by lenders. Instead, what America got at the same time was bankruptcy reform that benefited lenders.
I would argue that while consumers deserve the best care and education possible, as long as lenders’ ethics are the pursuit of shareholder performance over what is good for their customers, the consumer will be a victim regardless of how many classes they have had in school.
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