Personal Finance 101

It’s easy to laugh at the comic books put out by the Fed.

No, you didn’t read that wrong. The New York Fed really does have a series of comics, and they’re available both in free print versions and on its website. Included are such titles as “The Story of Banks,” “The Story of the Federal Reserve System,” “The Story of Foreign Trade,” “The Story of Monetary Policy”—you get the idea.

Not all the materials are technical, of course. “A Kid’s Guide to Money” attempts to teach budgeting to whatever generation is now replacing the Millennials in the long parade of evermore-entitled American self-seekers, while “Wishes and Rainbows” is more philosophical: A little girl finds the secret to raising colorful flowers in a black-and-white world. How to distribute them? Allow the market to dictate the price of scarce resources? Sell off the community’s wealth to more-developed neighbors with superior technology? From each according to his abilities, to each according to his means?

Granted, the Fed is making the satirist’s job pretty easy here. You don’t need to be super-hip to take campy delight in the books’ stodgy, unconsciously-patronizing-to-the-kids tone and cheesy graphics, which are pretty much what you’d expect from educational materials mandated by bureaucratic fiat. (Reading through them, you can almost hear the fluorescent lights humming in some grim federal building in the most forlorn corner of L’Enfant Plaza.) One activity book opens, “An old rock group called the Rolling Stones once sang….” Another features characters whose similarity to the stars of Hanna-Barbera’s Scooby-Doo franchise is just this side of legally actionable. Still another features two not-fun videogames (here and here).

But quickly the laughs give way to chagrin. And a dawning sense of alarm.

Why alarm? Because what quickly becomes apparent is that for all their lameness, these materials are trying to address a real need. Specifically, the need for financial literacy, which, on the evidence of certain events in the housing and credit markets of not too long ago, would appear to be sorely lacking in today’s America.

The Fed isn’t alone in throwing its hat into this educational ring. In 2011, Virginia’s public schools made a combined economics/financial-literacy class mandatory for graduation. Other states have similar requirements on the books. Meanwhile, many colleges now mandate that their charges take Personal Finance 101 immediately upon enrolling.

These curriculum changes may, of course, be motivated by whatever fad is now sweeping the graduate schools of Education and so filtering down to the state bureaucracies. But I prefer to reject such cynicism, however justified. I really want to believe that America’s public officials are indeed finally waking up to reality, that they recognize that in an increasingly post-pension world, a world where people are living longer and where Social Security cannot be relied upon to maintain one’s standard of living after retirement, the good citizens of the republic must, sad to say, learn to make intelligent decisions with their money. Nowadays this has become even more imperative, given that the country’s financial-services sector has become ever more aggressive—and ever more devious—in its strategies to separate folks from their hard-earned dollars.

Whatever the case, the teachers would appear to have their work cut out for them. A 2010 study by the University of Arizona found that college students all too frequently indulge in “risky coping strategies.” Among these “strategies”: postponing necessary health care and using one credit card to pay off another. Meanwhile, a financial-literacy workshop hosted by a community-outreach association in the Bronx tries to render its participants “work-ready.” Its activities include teaching 22-year-olds how to read their paychecks and explaining that check-cashing counters are frequently not the best option for those in need of funds. One attendee confessed she’d bought two pairs of headphones the day before the workshop, for reasons unclear even to herself. Several students were surprised to learn that credit cards are not a form of free money.

Astonishing, I know. But lest you come to the conclusion that such cluelessness could only flourish between East Tremont Avenue and the Bruckner Expressway, there is abundant evidence of its pervasiveness in all sectors of American society. Annamaria Lusardi, a Dartmouth economist who heads up the Financial Literacy center, has found that a majority of Americans do not understand the idea of compound interest. And Broke, U.S.A., journalist Gary Rivlin’s ground-level view of the Great Housing Scam of the 2000s, describes scores of people—rich, poor, and everything in between—who refinanced out of low-interest mortgages, or who thought they had signed fixed-rate agreements when they had really signed adjustable-rate ones.

When you combine this total lack of comprehension with Americans’ ever-growing sense of entitlement—our sense that not being able to pay for the things we want should be no impediment to our buying them—you have a disturbing sense that our culture that is in deep trouble.

Maybe the Fed is onto something, after all.

“A Kid’s Guide to Money,” page 4:

“We all have a limited amount of money that we can use to buy things. Sure, it would be nice to have whatever we want whenever we want it, but because money is scarce, we have to make choices. When you make a choice, you give up one thing in exchange for another thing. This is how adult life works.”

A sobering lesson. Would that we had learned it back in 2004.

Posted by on August 8th, 2013 at 2:17 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.