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I got a few comments in yesterday’s post that I wanted to reply to, and I figured I would clarify the point that I made for all of my readers.  In particular I wanted to apply to this portion of this comment, which I thought was insightful and well reasoned (I hope the commenter doesn’t mind): “Well, at least it [financial education] might give people a fighting chance against all of the bad info they get from parents, friends and the media. After all, educating teens about safe sex won’t prevent all pregnancies or diseases because teens will do what they do. But does that mean we decide it isn’t worth it to teach the facts? I would not have been able to claim shear ignorance had I gotten pregnant at 16, but I sure as hell could claim ignorance when I took every cent they would give me in student loans, as I had been taught absolutely nothing about finance.”

First, I do agree with the comments, at least on some level, that financial education should be taught (note that I never said don’t bother, I said it won’t work).  But, in a larger sense, although I agree it should be taught, I think some of the values in this country are so skewed that there is simply no chance that it will have any real impact for the majority of the population.  

The crux of my argument stems from this one point: we have such a history of bad financial behavior in America, that kids are just mired in the idea that bad debt is OK and that fiscal irresponsibility is fine. This comes from commercials and tv. It comes from the government, who wants us to go out and spend spend spend to “help the economy”. It comes from our parents, a lot of whom were in credit card debt themselves or living paycheck to paycheck, or spending as much if not more then they earned.

There is a lot of evidence that cycles perpetuate. For example, the reader cites sex education as an example of why we should have financial education, because although sex education doesn’t always work, it is still important to teach it. However, despite the fact that there is widespread teaching of sex education in most schools throughout the country, teen pregnancies still happen. Notably, they happen far more frequently to daughters who were born to teen mothers themselves.*  

If we apply this concept to a financial education, then this essentially forms the crux of my argument.  Kids are taught that having a baby as a teenager is not the best idea, and they are taught how to prevent it.  For the most part, there are no mixed messages in the general mainstream media, i.e. not a whole lot of television shows or ads present teen pregnancy as a good thing (with the possible exception of that W.B. Show Reba which I always had a serious moral problem with).  Yet, teens still do get pregnant, and a large number of those teens who do get pregnant are repeating the “mistakes” of their own parents.

So, with a generation of kids growing up with parents who were spenders, who carried debt, who charged on cards; it would probably be even harder for financial education to work than for sex education to work.  Although you might be able to explain to them budgeting and wise money management and saving for the future and compound interest and credit card debt, these concepts of fiscal responsibility would go against many of the messages they are bombarded with from every single other possible angle.  They not only have seen bad behavior first hand from their parents, they’ve seen it from almost everyone around them and most media outlets (and the government) are telling them that bad behavior is in fact good.  How many of these kids do you think will be able to rise above the cycle that has been set for them, and “do as I say not as I do”?  Do you really believe that classes in elementary, high school, or even college are going to be enough to counteract everything else going on in the world around them?  

There’s a few other reasons I just don’t think it will make any difference, or at least not any noticeable difference. Look at the bankers who got this country in such a giant mess (well, among the other people who helped!) Most of the executives & CEO’s and bank officials who let this problem get so bad are educated about money and finances. Many of them, if not all, have graduated from top schools and have MBA’s and degrees in business; so presumably they took accounting and economics courses and all that stuff, and were educated about the facts. Yet, they ignored all the warning signs and the sound economic information and acted out of greed and self interest. All the education in the world didn’t make a difference here, because there were stronger countervailing interests going on… and I think on some level the same is true for a lot of the population.

The countervailing interests leading kids astray in their finances may be even worse for teenagers/ college students than for these bankers (albeit the kids are motivated by different things).  Teenage and college kids tend to live in the present, at least as a general rule. How else do you explain so many kids binge drinking** or doing other stupid things in college— instant gratification and immediate pleasure is key. Again, I know that this isn’t true for every single kid… but I think it is true for a majority, and so I think financial education would be an uphill losing battle. If kids are willing to take risks that could cost them their lives or put them in prison (drinking & driving, smoking cigarettes, doing drugs) even though they have been educated about that stuff, then it stands to reason that they would be willing to sign up for a big future debt payment in order to live the way they like in the present.

Aside from which, I just believe that in high school and college kids are not farsighted enough to understand the future. Yes, it might make a difference to a few people if you tell them that student loans and credit card debt are bad. But, I think to many more people it won’t result in one bit of a change. If a kid wants to go to an expensive school and sees all their friends doing it, and gets all the mixed messages about how this will “be good for their future”, then I don’t know if telling them that they’ll have to pay back huge student loans is going to stop them. It’s too easy as a teenager or even a young college student to rationalize that they’ll be making big money after they get out, and most high school and college students also haven’t lived on their own so they have no idea how big of a bite taxes, rent and food and gas and all the other necessities of life take out of their paycheck before they even get to the debt payment.  A lot of parents also can’t or don’t offer objective guidance on these issues because they want to see their kids going to certain colleges, etc. and they also don’t think about or don’t understand the loan burdens that come with these choices.  

Another problem is that there is a segment of the population who simply don’t have a lot of choices.  If a person is living paycheck to paycheck, they don’t necessarily have the ability to make wise financial decisions even if they were educated about how to do so.  If they don’t have the money to put food on the table, they’re going to put it on a credit card even though they know they can’t pay it off at the end of the month and that credit card interest is bad.  They are also not going to be worried about saving for retirement or maxing out their 401K’s or IRA’s.  

So, in sum, I think that there are a ton of reasons why financial education will have no impact for a vast majority of the population.  I don’t necessarily think that means we shouldn’t try.  But, I do think that until we undergo a lot of widespread philosophical changes as a society, teaching a few classes (especially to kids) is just not going to do any good at all.  Perhaps the current economic crisis will be the catalyst to changing out ways, and the next generation of kids will grow up knowing that money isn’t free and that it has to be managed.  Who knows? Do you? 

*Furstenberg, F.F., Jr, Levine, J.A., & Brooks-Gunn, J. (1990). The children of teenage mothers: patterns of early childbearing in two generations

**http://www.cspinet.org/booze/collfact1.htm