Thursday, November 27, 2008

Financial literacy: A way out of economic crisis

By DeWayne Wickham

Like many other people, I’m feeling the ripple effects of the economic meltdown this country is now experiencing. If the losses I’ve suffered in my retirement account can’t be recovered, I may have to work well into my golden years before I can retire.

I worry that I won’t have the savings to help put the last of my three daughters through college. And I fear that as the value of the nation’s housing stock declines, the equity my wife and I have built up in our home will shrink further and rob us of the financial security we’ve built up over a lifetime of work.

Having spent 20 years of my life in public housing, I know what it is to be knee-deep in poverty and I understand the angst of those whose current financial situation is more perilous than mine.
But if this nation is going to do more than just survive this brush with economic collapse we must realize that a big part of the fix we need is a massive financial literacy education program.

The lack of financial literacy is the tip of the spear that has pierced the soft underbelly of this nation’s economic system. Sure, for a lot of people, greed is a big part of the problem. Too many folks knowingly charged more than they could afford on a seemingly endless supply of credit cards. And a lot of people bought homes with exotic mortgages they knew were a financial sleight of hand.

But there are also a lot of people who didn’t know better – people who accepted the onslaught of credit card offers and too-good-to-be-true home mortgage deals because they were financially illiterate. They are the dupes of the financial mess we now face.

A short term solution to the problem many of these people face surfaced a couple days ago when the Federal Reserve and Treasury Department announced an $800 billion plan to make it less costly for Americans to buy a home, a car and make credit card purchases.

But if we want to avoid a replay of the current economic crisis, the federal government needs to push financial literacy training in our schools. Too many schools graduate students who are illiterate when it comes to managing their money.

They don’t understand the need to live within their means. They don’t know the long-term value of a personal savings account. They buy cars they can’t afford, clothes they don’t need and homes that cost more than they can actually pay.

In most cases, these people are drawn into making bad decisions by the deceptive advertising of credit card companies that bury their true cost in fine print, and mortgage lenders that offer homebuyers deals in which the real cost of a home doesn’t come due until long after the unsuspecting buyers have moved in.

Schools need to do more to keep people from falling prey to these predatory practices. They need to not only teach students how to manage a checking account (which too many graduates can’t do), they have to help them understand the actual cost of a purchase made on a credit card that charges its users a double-digit interest rate.

For a lot of Americans, credit cards are as addictive as crack cocaine.

Schools need to teach students that Social Security was never intended to be a person’s primary source of retirement income. It was supposed to supplement the savings people amassed over a lifetime of work.

The billions being spent now by the federal government to bail the nation out of this financial mess is a short-term fix. Increasing the financial literacy of Americans is a big part of what it will take to find a long-term solution.


Mario P. Lopez said...


I came across to your post (am also blogging about it) and couldn't agree more with you about the urgency to spread financial literacy.

I'm also an advocate so am doing my best (modestly) to help people to become financially aware.

Thank you. Very good post.

DeWayne Wickham, columnist, USA TODAY and Gannett News Service said...

Thanks. In this economy, financial literacy is a necessary survival skill.