Financial Education Takes a U-Turn
The financial literacy movement is taking a U-turn. We once taught our kids that, as adults, their money would be their business and we presented them with the tools to manage it well, from A to Z. Now we're moving toward teaching them to please just get the basics right and rely on vast new consumer protections to take care of the tough stuff.
I'm not saying which is right. These are extreme views and both sides have evidence to support their position. What's important is that you, a parent training your kids in money matters, understand the shifting landscape.
The old, more sweeping approach to financial literacy was embodied in George W. Bush's famous vision of an ownership society. When Bush sanctioned the President's Advisory Council on Financial Literacy in 2008, he charged the council with improving financial education in schools and the workplace. "We want people to own assets," he said. "We want people to be able to manage their assets." Ownership and the wealth that should spring from it was the reward for navigating a complex financial system that left people with lots of choice -- if only they knew how to choose.
But the Bush plan flopped. Millions of people had never learned enough about money to successfully marry personal responsibility with limitless opportunity; when the economy turned down in 2008 folks ended up crippled with credit-card debt and holding mortgages designed to bankrupt them.
The first sign that financial education was moving a new direction came in January 2010, when President Barack Obama reauthorized the president's advisory council but decided to give it a more utilitarian name: the President's Advisory Council on Financial Capability. "Literacy" became "Capability," suggesting that the council was moving away from the lofty goal of teaching money mastery to teaching money basics.
The new direction took further shape when Obama dismissed all previous council members except the highly regarded Ted Beck and John Hope Bryant, and tabbed as chairman his Chicago buddy and campaign fundraiser John Rogers, who is a distinguished money manager. He filled out the council with these people.
Outgoing advisory council members that I spoke with agreed that the new regime is much more interested in teaching the financially unsophisticated masses the difference between gross pay and take-home pay than they are with teaching high school students about the stock market or how to use the rule of 72.
Specifically, the new regime is being charged with "advising the President on financial education efforts; promoting financial products and services that are beneficial to consumers, especially low- and moderate-income consumers; and promoting understanding of effective use of such products and services."
That could mean just about anything. But in practice the new council will focus on people's ability to make simple decisions about credit cards and cell-phone plans without screwing up their life. The thinking is that new gatekeepers like the Dodd-Frank mandated Consumer Financial Protection Bureau will make sure things are understandable and eliminate the big pitfalls.
Studies suggest that the 27% of Americans who graduate from college are more or less ready to handle most money issues even if they were never formally instructed how to do so -- and that most others will never be financially adept regardless of efforts to teach them. So getting back to basics may be just what we need as a country. But you should want more in-depth money knowledge for your kids. As always, the big lessons are left to the Bank of Dad.
If you have a question about kids and money, I'll find the answer. Email me at dankadlec@dankadlec.com.
Photo courtesy Flickr user TheTruthAbout