Public schools are often considered society’s repair shop. When something goes wrong, we all look to the schools to fix it. Now that we have suffered a near-Depression experience involving overspending and undersaving, some folks are clamoring for requiring “financial literacy” courses. Some local Kansas districts have mandated them.
And just what would be in a “financial literacy” course?
“Well, enough knowledge about economics and finances that we don’t get in this situation again!” is a likely answer. Problem is, that is a very complicated mixed curriculum.
“Derivatives” were a big part of the problem. Risky loans were bundled and re-bundled. Financial experts had difficulty explaining derivatives to lawmakers in Congress. But we expect school teachers to explain this meaningfully to public school students?
Credit card debt in the U.S. soared, making our economy run hot for several decades. Average personal savings in the U.S. was 9.6% in the 1970s. Credit cards allowed us to buy now, pay later. Savings dropped to 8.6% in the 1980s, 5.5% in the 1990s, and 2.9% in the 2000s. Our annual U.S. credit card debt, over $1.7 trillion, equaled the gross domestic product of Mexico and China combined.
This holiday season, we are trying to spend our way out of the recession. We may see a 2.6% growth in our economy. For comparison, China’s personal savings rate is around 40%. Their government provided a stimulus package that, based on GDP, was four times greater than the U.S. stimulus. By keeping their people hard at work on infrastructure—and saving—their annual growth held above 8%. Which lesson should we teach: spend or save?
At the start of the 1900s, our elderly made up our largest group in poverty until Social Security was implemented. But what would have happened if, instead of having a stable income source, they had an income tied to the stock market during the collapses of 2001 and 2007?
Will we let students ask questions such as: is any CEO really “worth” tens of millions of dollars in salary and bonuses per year? And if CEOs are not producing product worth that much, then don’t other workers have to produce product for which they are getting paid less than its value? How many financial literacy advocates would allow students to pursue that line of thought?
It often costs more to put the label on a can than to put the food in the can. Kansas farmers know that the cost of food at the store is far beyond what they are paid to grow it in the field. This “value added” by middlemen may be more advertising hype than real value. And when the advertising dollars spent to convince us to buy a certain brand exceed the cost of making the product, perhaps students will question whether perceptions should be more important than substance.
They may even question whether competition always saves us money and produces better products? About a million citizens bought the Toshiba HD unit before Blu-Ray won the format battle. At $300-400 per unit, exactly how did Americans’ wasting a total of one third of a billion dollars make this a better “free market” decision?
And just where is the line between charging a small legitimate interest on a loan, and usury. Criminal “loan sharks” one time lent money at such high interest that the borrower could never completely repay the principal. Today, some credit cards and storefront loan operations charge rates that would make the mafia jealous.
The power of compound interest to indenture a borrower, or to build into a retirement income if the savings begins early—is a solid math lesson. And it should be a good relevant-to-real-life problem for a math class led by a math teacher.
These lessons in “financial literacy” are legitimate in history, economics, math and other classes already in our curriculum. The critical factor is not that we mandate course content, but that our present courses are taught by competent and inspiring teachers with the freedom to teach lessons in fairness, honesty, work ethic, etc.
In the 1980s, Kansas addressed the AIDS epidemic by being the second state to mandate sex education. That state mandate of sex education ended in 2005. But solid sex education was always taught by a few competent teachers before, during, and after that mandate.