Friday, March 07, 2008

Financial Illiteracy

Listening to radio host Dave Ramsey discuss a recent story in USA Today about how Americans are depending more and more on their credit cards to get by....

Ramsey said that his organization's experience as financial counselors suggests that many people pay their credit card payments and car payments before they pay their mortgage. Could it be that we don't have a "mortgage crisis" but instead have a "credit card crisis?"

I won't go into the math involved, or the collection techniques used by credit card or auto loan companies. Instead, right now I'm thinking about how people get into that kind of mental state in the first place.

Lord knows I've made more than my share of financial mistakes, and will probably make more in the future, so I'm no expert. But shouldn't some of the efforts of the teachers' unions and educational groups go toward teaching our children the basics of personal finance?

I'm not sure what the curriculum would include. Budgeting basics, to be sure. Balancing a checkbook. An explanation of compound interest -- should it take thirty-five years to pay off a credit card? How to comparison shop.

But those are mechanical things, subjects that can be taught like any other in school. I think there needs to be a teaching of a new philosophy, at least new to the current generation -- the principle of delayed gratification. We have been taught since the advent of television that we must have the next thing, the newest trinket, the shiniest object that catches our attention, and we must have it now.

Our grandparents knew about this. The generation that lived through the Great Depression understood what it meant to do without -- our current "poverty level" is the equivalent of what was once considered well-to-do. You saved up to pay cash for a car. You couldn't afford a house until you had a substantial down payment, usually well into middle age. You ate meals at home, and a burger and coke was considered a very special treat.

That mindset created the Greatest Generation. America prospered throughout the 50's and 60's, because of the understanding of adults that nothing is free, you have to work hard for what you get, and sometimes you have to just do without.

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We don't have a financial crisis in America. We have an appetite crisis, one in which we want everything we see, and we believe that it's our right to have it all.

Education should start early, fifth or sixth grade at the latest. By the time our children graduate high school, responsible personal finance should be as programmed in their minds as reading and arithmetic.

Of course, if an entire generation of Americans became financially responsible, the Democrat party would wither and die.

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