The Wall Street Journal
By: Karen Blumenthal
June 19, 2010
Don't laugh, but Uncle Sam wants to teach you how to manage your money.
Tucked into the new financial-overhaul bill that Congress is working to finish is a new Office of Financial Literacy to help consumers learn about savings, debt and credit scores.
There is an obvious irony in a debt-laden, budget-challenged government offering financial education. But there is a deeper problem: While nearly everyone agrees that Americans of all ages and income levels could be more financially astute, no one has a good plan for making it happen.
The last major government push started with a 2003 law that allowed people to see their credit records once a year without charge. (Go to AnnualCreditReport.com for more information.) It also established the Financial Literacy and Education Commission, made up of 20 government agencies and led by the U.S. Treasury Department. It was charged with coming up with a national strategy for financial literacy.
Its most-visible product: the MyMoney.gov website, which was launched in 2004 to provide a central spot for government financial information. A redesign in April led to a surge in traffic, but last year the site was getting only about 85,000 hits a month. A related toll-free number gets only about 160 calls a month.
Rep. Rubén Hinojosa, a Democrat from South Texas who sits on the House Financial Services Committee--and a champion of the financial-literacy push--points out that after six years, the commission "has yet to produce a national strategy for financial education to meet the letter of the law."
The government has traditionally focused more on disclosure than on regulation, on the assumption that consumers will make good choices if they have full information. Recent regulations have sought to rein in some unsavory credit-card and mortgage-lending practices, perhaps to reduce the cost of bad practices for the rest of us. At the same time, the financial-services industry keeps changing the terms of its offerings, making it difficult for consumers to stay on top of investing, bank accounts, insurance policies and the like.
Ultimately, the challenge of financial literacy is more about initiative than information. We know we should spend less, sock away more for retirement and compare credit-card rates--and yet many of us fail to do so.
In its first survey of Americans' financial acumen, the Finra Investor Education Foundation--the research arm of the securities-industry regulator--found that about half of those 45 or older hadn't tried to calculate their retirement needs. About half of the almost 1,500 people surveyed also admitted to occasionally carrying a credit-card balance and paying interest. And only one in five knew that when interest rates rise, bond prices fall.
In addition, the survey found that 57% of adults who earn more than $75,000 a year don't shop around for credit cards, and 46% don't compare prices on auto loans. Similarly, most adults don't check their credit records each year.
Financial subjects can be so complex that even those in the business sometimes get it wrong. ING Direct, an online bank, surveyed parents of children 17 or younger on their credit-score smarts and found that more than half couldn't identify most of the factors that make up a score. But the survey wrongly included "keeping a small balance on a credit card" as a factor that could hurt a credit score. More than 90% of parents didn't pick that choice, and they were right: A small balance by itself shouldn't affect a score unless it uses up much of your available credit.
Given the challenges for adults, it isn't any wonder that many young people finish high school with little understanding of inflation or insurance--or know that debit cards have fewer protections than credit cards. Only three states mandate personal-finance courses, though 18 others require that some instruction be included in other classes.
Too often, Americans have relied on "just-in-time education," learning about insurance or debt just as we need it, says Laura Levine, executive director of the Jump$tart Coalition, a group of organizations focused on financial-literacy education. But, she says, you can't wait until adulthood to learn about being frugal, or wait until you want to buy a home to learn that you need a credit record and a healthy credit score to get a mortgage.
So what do you want your children to know? A simple checklist should include helping them learn before high school about the difference between wants and needs, how to save, how much people really earn and how a simple budget works. Later, they can be introduced to the basics of insurance, taxes, debt and investing.
You also may want to tell them it isn't a good idea to run up massive debts, spend more than you bring in and fail to put money aside for the future--like a certain government we could mention.
Write to Karen Blumenthal at firstname.lastname@example.org