Freakonomics: Financial literacy

[ladelfina]

some good comments:

Are We a Nation of Financial Illiterates? - Freakonomics - Opinion - New York Times Blog

[Marquette]

Interesting article... sort of.

The problem is that the questions aren't financial questions, they're basic math questions. So, does it become harder when you use terms like inflation, or do we just suck at math?

I do remember that, when I was going through my 7th grade work, we used a finance book as the math book that year (I was home-schooled). My mom showed it to a finance major at college who stated that she never went through anything like that in high school and was just now covering the same material I was. I wish some of that had stuck!

[cute fuzzy bunny]

I think it was pretty much sealed when it was found that most college students couldnt explain their cell phone plan or balance a checkbook.

I think they were fair questions. They established that many people dont understand interest, inflation or risk.

You're pretty much screwed if you dont know all three of those. High school students ought to have had enough recency of education and basic math problems to at least answer the first two correctly. People over 50 ought to know all three at least on a majority basis.

[clifp]

I guess those folks on that lame show "are you smarter than 5th grader", are more typical than I thought.

[UncleHoney]

The three questions in the article should be general knowledge for most people, but that's not the problem in my estimation.

You could know how to calculate compound interest with a pencil or even do it in your head, but if you don't know how to SAVE money your are financially illiterate.

There are too many things vying for people's money today for most of them to give a second thought saving some. Even if people just stuffed money in a mattress they would be far better off than spending it or paying interest on something they bought with a credit card.

I say teach them how to SAVE first, then how to be a smart shopper and then teach them how to make their money work for them.

It would be a lot easier to solve someones financial problems if the only problem was where to invest their money rather than how pay off a stack of overdue bills with an empty wallet.

[cute fuzzy bunny]

But....but....but...saving isnt FUN!

Its icky!

[UncleHoney]

Quote:

Originally Posted by cute fuzzy bunny But....but....but...saving isnt FUN! Its icky!

Maybe, just maybe, we could teach them how to save their pocket lint and invest that. We could teach them to collect the lint and drop it off at their local bank every week. After a few weeks we could get them to add a few pennies to the envelope and deposit that.

[Marquette]

I come with stories from 'the street'

My wife went to a decent public school. I asked her what they learned in the way of personal finance in school. She said they learned how to fill out a check in 5th grade but, as near as she can recall, that's all. She's now in charge of the budget and we discuss allocation and expenses fairly often. The folks at our local Bogleheads were shocked when we both showed up, apparently generally only one of the spouses is interested in investing so we were a rarity.

One of wife's coworkers and her husband haven't ever put more than a percentage or two into her 401(k). They can't afford it... which would be legitimate if not for the fact that they make quite a bit and find the money to buy happy meals at McDonalds so they can get the toys (they're 35 yrs old). She also drove all winter on bald tires because she couldn't afford to get new ones, but they just bought a new suv because they needed it.

Another of wife's coworkers is thinking about buying another house and sending the keys back on her current house. The city won't let her put as big of a deck on her house as she wants (crosses the city's easement) so she wants to 'stick it to the city' by foreclosing on her house. Like just about everyone my wife works with, she has a 4 yr degree.

[haha]

Quote:

Originally Posted by Marquette Interesting article... sort of. The problem is that the questions aren't financial questions, they're basic math questions. So, does it become harder when you use terms like inflation, or do we just suck at math? I do remember that, when I was going through my 7th grade work, we used a finance book as the math book that year (I was home-schooled). My mom showed it to a finance major at college who stated that she never went through anything like that in high school and was just now covering the same material I was. I wish some of that had stuck!

We home schooled our kids also. Math lessons were at Longacres and Emerald Downs. Both of these guys fell in love with probability. One of them majored in math, and they both have a deep understanding of odds and risk.

My oldest son when he was 3 or so wanted his mother to read him mortgage tables at bedtime.

We never had a generation gap. All of us like to look for the angles.

Ha

[CuppaJoe]

Original flaw to my way of thinking is: what sort of person would sit still to take a survey? Not I!

[ladypatriot]

DH and I homeschooled our four children. Our children knew the important difference between interest earned and interest paid by the age of 12.

Our oldest children (one grad student, one undergrad student) are aware that their financial knowledge is uncommon among their friends/peers. It was a big family event when we recently paid off our mortgage.

[Independent]

The article promotes the idea that we should spend public school time/money increasing financial literacy.

I'll be contrarian this morning and ask Why?

Most of the time, if individuals make bad decisions with their own money, only those individuals are hurt.

Even it we want to help them, it's very unlikely that High School students will remember anything they learn about something as distant as "prudent long term investing" or "10 questions to ask about your mortgage" long enough for it to make a difference.

It appears that financial illiteracy really did hurt all of us this time because people bought into the bubble. It didn't matter what the asking price was, or the terms of the mortgage, all we needed to know was that prices always go up a lot faster than inflation. Maybe the same thing happened with the tech bubble in the 90's.

So maybe I'd restrict "personal finances" to learning about bubbles.

The rest needs to happen when/if people are motivated by an immediate need.

[cute fuzzy bunny]

Maybe the bank or the feds should have to put everyone who applies for an account/mortgage/whatever through a training class in how it works and what it means rather than just shove a pile of papers under their nose and hand them a pen.

Lots of people hurting themselves financially isnt good for the rest of us either.

[Pete]

If 2/3 of our economy is people spending money, the last thing we need is financial literacy in America.

[Jessica08]

I read this article yesterday and found it to be very interesting. I thought those questions were pretty basic, but I do have a degree in Economics and am halfway through my MBA so it may be easier for me to answer than the average American. Perhaps high school's, or even middle school's should require students to take a general finance course, this way young people can get an early start on proper money money management skills.

[headingout]

I see financial illiteracy hurting us all. The obvious examples being bubbles, indebtedness, foreclosures. A lot of people were happy to commit to mortgages because some smart guy in a suit told them it would be good for them. They didn't have the basic math tools or common sense to decide on their own.

Whether educating kids in high school would change this I don't know, but it couldn't hurt. Without an impulse to save, live prudently, below your means, the other knowledge doesn't matter. Fundamentally I think it boils down to ethics: not taking more than your share, living responsibly so you can deal with adversity and not become a burden to others.