Do You Think Public Schools Should Teach Financial Education?

[IHateCreditCards]

Unfortunately financial education has little effect

Even if financial classes are taught...I dont think the students will get much out of it. I took accounting classes, learned how to balance checkbook, write checks, fifo, lifo kind of stuff...it didnt have any impact on how I handle money.

One of the more important classes was typing. Learning to type properly has come in handy more than anything.

All,

While it seems intuitive that providing financial education will help people make better financial decisions, it has been demonstrated over and over again by professors who study financial decisionmaking at prestigious universities such as Harvard University, MIT, the University of Chicago, etc. that financial education has very little, if any effect on people's financial choices.

The problem is fundamentally about temptation and self-control. For example, many people (but not all) who end up with credit card debt are seduced into spending more than they can repay by the companies that issue their credit cards and companies like Amazon that spend a HUGE amount of money tempting people to buy all kinds of things that would be nice to have, but is not really a necessity (and often ends up stuffed in a closet, attic, or basement).

Michael

[rennigade]

On the other hand, we're now seeing a negative effect of this. Many older workers are staying on the job much longer than previous generations because they can't afford to retire. That's making it harder and harder for college grads and younger adults to find work because there is less turnover happening. If folks don't retire at 62 or 65 or 70 because they aren't financially prepared to, the spot that would have opened up by them leaving stays filled for an extra 3 or 5 or 10 years. Now you've got those college grads with all of those student loans who can't afford to pay them. How does that benefit anyone?

Its true...its difficult to find a sweet spot. Its a double edge sword.

[disneysteve]

While it seems intuitive that providing financial education will help people make better financial decisions, it has been demonstrated over and over again by professors who study financial decisionmaking at prestigious universities such as Harvard University, MIT, the University of Chicago, etc. that financial education has very little, if any effect on people's financial choices.

I don't think we do it very well.

Did you know that 38% of American households have credit card debt?

Of course, that means that the vast majority - 62% - do not, so most people are getting the message.

The other thing that those stats always leave out is the reason for the debt. Many people tend to assume that it's all due to frivolous spending. In reality, a lot of it is due to medical bills, often coupled with unemployment forcing people to turn to the credit cards to put food on the table and keep a roof over their heads.

The 38% also includes folks who are playing the credit card game on purpose by taking full advantage of 0% offers and carrying the debt as long as they possibly can.

[Drake3287]

Although I agree it should be taught in school at some point, I also agree with the retired teacher who stated that with so many required topics being mandated there's no longer any time left.

I'd be willing to bet that the majority of us that are both financially conservative and financially stable learned it from our parents. Certainly a lesson not learned by many of the younger generation now.

[LivingAlmostLarge]

wishful thinking on all our parts

[Singuy]

About the part on thinking the government wants people to stay in debt so we can have a booming economy...I think you may have this backwards. The U.S economy will thrive HARDER if everyone had zero debt and invested their money. The only ones that will suffer are the BANKs. Bank's entire business premise is to earn everyone else' interest.

Money is much more efficiently made if you earn interest vs paying out interest. If you have a half a mil saved up, at 8% return that's like a second job earned passively. Imagine all the goods you will buy with the earning potential of two jobs and zero debt!

Currently a large portion of a household's income ends up being paid out in interest (mortgage, CC, Car loans, student debt)..which helps literally no mom and pop's shop or any other entity (except banks) that create jobs .

[Jluke]

Money is much more efficiently made if you earn interest vs paying out interest. If you have a half a mil saved up, at 8% return that's like a second job earned passively. Imagine all the goods you will buy with the earning potential of two jobs and zero debt!
.

So is this “half a mil” in a taxable account?

Most people can’t even put 18.5k in their 401k.

And this is after putting 20% down on a home?

Obviously not for the average worker.

[~bs]

About the part on thinking the government wants people to stay in debt so we can have a booming economy...I think you may have this backwards. The U.S economy will thrive HARDER if everyone had zero debt and invested their money. The only ones that will suffer are the BANKs. Bank's entire business premise is to earn everyone else' interest.

Money is much more efficiently made if you earn interest vs paying out interest. If you have a half a mil saved up, at 8% return that's like a second job earned passively. Imagine all the goods you will buy with the earning potential of two jobs and zero debt!

Currently a large portion of a household's income ends up being paid out in interest (mortgage, CC, Car loans, student debt)..which helps literally no mom and pop's shop or any other entity (except banks) that create jobs .

nah, it's actually kind of a well documented paradox by economists. the economic growth (at least in the US) is driven by consumer spending. It's the spending that creates a multiplier effect, driving additional spending, more jobs, more business spending, etc. Money that people take out of the system by plunking in their savings accounts is taken out of the multiplier effect loop.

the government, businesses, and the banks all thrive on consumer spending and borrowing money

If on the other hand, your economy was driven by manufacturing or some other economic driver, then you could make the argument that saving boosts the economy because the savings itself is somewhat disconnected from the economic driver activity and that reinvestment into the economic driver can be made with the money. if you look at why vegas is the way it is, it's because they have an economic driver pumping money into the economy (tourists spending and gambling money), which makes the casinos rich, and they can reinvest into the hotels with the extra cash.

[disneysteve]

So is this “half a mil” in a taxable account?

Most people can’t even put 18.5k in their 401k.

And this is after putting 20% down on a home?

Obviously not for the average worker.

I think the point is that if you weren't spending so much money to service debt, you'd have a lot more to spend and save. If you bought the house for 2 times income instead of 3.5 times income or bought the 10K car instead of the 25K car or didn't run up a couple thousand on your credit card to pay for Christmas presents and then take a year to pay it off you'd have more disposable income that could go to savings and to consumer spending.

[Jluke]

I think the point is that if you weren't spending so much money to service debt, you'd have a lot more to spend and save. If you bought the house for 2 times income instead of 3.5 times income or bought the 10K car instead of the 25K car or didn't run up a couple thousand on your credit card to pay for Christmas presents and then take a year to pay it off you'd have more disposable income that could go to savings and to consumer spending.

Agree. I got hung up on the casual use of half a mil in a thread where it is claimed the average person doesn’t know financial basics.

I even started a thread shortly after I joined here saying wealthy people don’t pay interest.

[IHateCreditCards]

I don't think we do it very well.

Of course, that means that the vast majority - 62% - do not, so most people are getting the message.

The other thing that those stats always leave out is the reason for the debt. Many people tend to assume that it's all due to frivolous spending. In reality, a lot of it is due to medical bills, often coupled with unemployment forcing people to turn to the credit cards to put food on the table and keep a roof over their heads.

The 38% also includes folks who are playing the credit card game on purpose by taking full advantage of 0% offers and carrying the debt as long as they possibly can.

Steve,

Do you (or anyone else out there) have data over time showing what percentage of U.S. households have credit card debt outstanding? I got the 38% figure from ValuePenguin (good website with interesting stats) several months ago and a few weeks ago they put the current figure for households with credit card debt at 41%, suggesting it is actually risen in the last few months.

Regarding the causes of credit card debt, if you have seen any rigorous statistics, I would love to see them. I am aware that medical bills and loss of employment are big factors. So is divorce.

Michael

[moneybags]

Although I agree it should be taught in school at some point, I also agree with the retired teacher who stated that with so many required topics being mandated there's no longer any time left.

I'd be willing to bet that the majority of us that are both financially conservative and financially stable learned it from our parents. Certainly a lesson not learned by many of the younger generation now.

I definitely did not learn to be financially stable from my parents! I actually learned it from my 6th grade math teacher. She would always talk about using coupons, merging her old bar of soap onto the new, etc. It gave me a sense that financial stability was possible.

I live in Illinois where Physical Education is mandatory for grades 1-12. They could use some of this time for financial education, but I wouldn't count on the state to mandate it, especially since they can't handle their own finances.

[Singuy]

So is this “half a mil” in a taxable account?

Most people can’t even put 18.5k in their 401k.

And this is after putting 20% down on a home?

Obviously not for the average worker.

They can't because they don't try. It will take many years using the average household income of 53k to hit half a mil in a taxable account. It's not like you wake up one day and wish half a mil into your account. It takes years of working more than the average 40 hours workweek, finding the cheapest possible rent you can bare(such as living with roommates), and living on bare essentials to hit these numbers. This means you need to live in a state with LCOL and low/no state income taxes as well. Every dollar not spent must be invested and eventually through compounding interest you'll hit your number.

But people want new cars, nice neighborhoods, cities with stupid HCOL, and a 40 hour work week. You'll be surprised how far financially you can get by living poor and working extra hard for 5 straight years. Too bad no one is willing to live poor for 5 straight weeks even.

[Jluke]

But people want new cars, nice neighborhoods, cities with stupid HCOL, and a 40 hour work week. You'll be surprised how far financially you can get by living poor and working extra hard for 5 straight years. Too bad no one is willing to live poor for 5 straight weeks even.

No surprise for me. I’ve made 6xk-9xk over 17 years (slow increases) and have 4xxk for retirement. 140k in taxable and 200k in home equity. 200k debt.

17 looonngg years

[Gailete]

Personally I would like to see financial education given in conjunction with old fashioned home ec. Intertwined all those things like life intertwines them. It isn't like in real life, where you spend a week dealing only with money, then a week trying to cook, then a week mending and sewing, and so on. I would love to see it as a three year course, where the students are given a scenario which shows their income, and from there they have to budget, learn how to shop (field trips to grocery stores and WM), learn how to cook basic meals, read the want ads and craigslist for affordable apartments, how to furnish the apartment (yet again craigslist, WM, thrift store, high end furniture stores, and the list can go on, also how to get a job and make a resume. The students not only live in their scenario, they discuss what they are learning with each other, why the 'richer' student can budget 6 bags of good Halloween candy, while the poor student needs to be clever to even get one to hand out.

Anyways I would love to teach a course like that. I think the length of time, and making it personal would have a good impact on most of the students. You will always have students that thinks everything is 'boring'. Over the last few years, I have been buying silverware at my local thrift store. The jackpot days are when I can get expensive Oneida knives, forks or spoons for 10 cents apiece. I've looked them up on the Oneida website and each ONE of them was being sold for $10+. I haven't managed to get a whole set of them, but boy using them gives me such a nice feeling. But that is something students can learn in classes that encompass all aspects of personal living. Knowing how to find high value items for the lowest price. Those are the kind of skills kids need and appreciate. I bumped into a couple of college guys at the drugstore once trying to figure out which was the best deal between brands, I spoke up and told them about generic pain relievers and they saw that I was right as they were lower cost and the ingredients were the same. You could tell a lightbulb went off in their heads. That is the kind of teaching kids need.