Financial Education Problem
There is NO better time to write about education in the financial markets than in a crash / downturn! The age old saying, “everybody makes money when markets go up – you get your education on the way down”. Well, what have we learned through at least 14 market crashes (downturns of 20% or more), numerous pull backs, and a ton of personal wealth wiped out? Well, how to fuck it up more (sorry for the language)!
First, I am not a writer. Second, I am NOT an expert in finance – in fact I’m so down the list – I don’t even think I am. However, if I ever give an opinion, I try to follow these rules. 1) It needs to be based on some statistics or facts. 2) If I give (or complain about) a problem – I better at least give a solution. 3) Have an open mind (can have the ability to change that opinion).
We have a financial education problem in this country!
I can NOT stress this enough – I am NOT talking about HIGHER education, getting degrees in stats, MBAs, and PHD’s in finance. I am talking about a SIMPLE understanding of financial principles.
Well, what are financial principles. A person that has at least accomplished / gone through secondary education should know; what a stock is, what a bond is, what a budget is, how a loan works and interest rates, what you really pay on a loan over time, how compounding interest /investing works(retirement), importance of income, what is an asset, what is a liability, what is risk, your credit score, AND accountability and evaluate how these effect you.
I think we could have the definitions of these done in 10 minutes. NO, we need to understand them, and how this affects you short and long term. We are great at teaching definitions (or looking up on google) – we are HORRIBLE at teaching its effect and having accountability.
This is not asking too much. We teach kids words, BUT we also teach them how it goes into a sentence, paragraph, and story. We teach risk all the time. There’s a reason that polar bears aren’t pets, a reason we get out of the way of a tornado, a reason we don’t jump off skyscrapers.
*By the way – don’t give me the BASE jumper scenario. Give that person nothing (no squire suit, parachute, etc.) and my bet is on the ground winning 100% of the time!
Why don’t we teach these principles with financial matters? Only 13% of parents speak about financial topics (Journal of Accountancy 2019) with their children. Only 67% of parents think they are even qualified.
This is not to bash parenting, teachers, community leaders, bankers, etc. Education (of any kind) does not fall on one individual element. People learn from real world experiences, parents, relatives, teachers, coaches, friends, bosses, etc. However,
We have HORRIBLE parenting on financial matters!
We have HORRIBLE education in our schools – or NONE at all!
We have LITTLE (to none) financial assistance in communities – This is programs, clubs, learning platforms at libraries, etc.
We have HORRIBLE education done by our banks / financial institutions /media.
For centuries we passed down value’s, traditions, and education through the “family” structure. I can get into how this has eroded over time (busy schedules, social media, both parents working, laziness, divorce rates, etc. etc. etc.), but we rely on our educational system more than ever to give our children their foundation/ life skills.
If you don’t agree / believe me that is fine – I think you would at least agree, we can do better. I mentioned four areas in my opinion that we do horrible (parenting, teaching, community outreach, and banks), I want to give my reason’s.
Parenting Simply, this is based on time and obligation. Yes, I am aware that there are “bad” parents, good parents, and everything in between. However, a parent spends the most time with that child than anyone else ever will (hopefully). A parent has the obligation to teach their kids how to survive in the world. You can’ t play with a hot stove, need to eat, don’t play catch on the expressway, have shelter, values, and on and on. Yet, as I mentioned above only 13% bring it up.
Education I am not blaming teachers. I am blaming the administrators that make the curriculum. In our educational system (mainly secondary public education) in the US it has mainly moved to “core” and “non-core” (electives) classes. There are 20 “core” classes and NONE of them are on personal finance and only two have any sort of connection (stats and accounting). As of 2020 only 4 states made personal finance a REQUIREMENT to graduate (FL, NE, Ohio, and RI according to Forbes). Folks, what in the heck is CORE other than basic life skills? In my opinion (and it’s not worth a lot) the educational system is based to testing (not to evaluate your kid, but the teacher), college admittance tests, and keeping up with the “Jones’. This is great for the higher educational system (the universities that are going to make oodles of money) – but what about all the others. In our country a child is mandated to go to school through 12th grade. The stats from OUR government (educationdata.org from 2020) is that 63% go on to some form of college – what about the other 3rd or 38%. Good luck, have a nice day, go find a tent! We can do better.
We simply don’t teach the content!!!!!
Community Programs First, the topic of finances is not sexy / fun. Second, its more of a “private” matter because we live in the “keep up with the Jones” world. Third, there is liability associated with it. Fourth, it’s a broad topic (some people successful and looking for more avenues to invest, some are going through bankruptcy, some a divorce, some a death, etc.). I can’t give you any exact stats, but I will give this info from my area. Zero programs at local library (to be fair – some of this might be due to the pandemic), Zero groups in neighborhood, One program at our church, 3 of 138 total programs in the county. The church and county I would not title them under personal financial education (I would title them more under the OH SHIT program of how to solve a specific issue). Thank goodness for Clark Howard!
Banks / Financial Institutions / Media I remember when banks used to run day camps for kids (River Forest Trust in IL), give out piggy banks to save, actually want you in their location (now they want NO employee’s), work with families. Not anymore, its all about the bottom line and creating / keeping you in debt. Media – this is funny to me. I love and respect a lot of these people. However, media people giving their “pick of the day” is nothing more than drama, filler time, and a starting place. What they DON’T disclose is whats their conviction in that trade (what percentage of their portfolio did they risk), whats their expectation for that trade, whats the results, I could go on and on. Again, some of these people are the best in the business – but only use as ideas to start your own research. The media is only looking at the SHORT term, because that’s all they have your attention for is 30 to 60 min. Financial Institutions (ex. Coinbase, Robinhood, Gemini, etc.) should mandate online education and then testing to qualify for margin. Actually, FINRA should get involved and have a simple, basic test for people that would like to trade on margin, options, etc. They are great at giving tests – I’m not talking the series 7 –but more like the SIE (or simpler) to make sure people understand the basics. I get that it’s a free country. I want EVERYBODY to have access to trading, to have the control/ability to make of their own wealth. It’s CRAZY, STUPID, MORONIC, and INSANE to let a person go online, set up an account, put funds in the account (assuming more than $2000), and then be able to trade on margin 50% above deposit amount, and maybe loose it all in about 2 hours! Don’t get me going on options (again a beautiful tool if used properly), etc. I do not like any bank / financial institution but I at least respect TD Ameritrade and the tools they provide. I’m sure there are many more banks that have those resources as well – job well done.
ALL people, ALL economic classes, and ALL age’s need BASIC education in personal finance! The reason being, is an estimated 88.6% of ALL people will be exposed to at least one of these markets in their lifetime. 9 out of 10 folks!
131 million Americans have a personal loan
There are 365 million open credit card accounts in America. Shit, I think that is more than the total population!
67.9% of Americans will own a home / real estate in their lifetime.
55% of Americans own stocks
32% of Americans own 401k accounts
85.4% of Americans drive cars (71.8 % are bought on loans)
83% of graduates from for-profit colleges had taken out loans (based to sept 2019 #’s)
100% of Americans eat
SOLUTION
Never bitch about a problem unless you can provide a solution. Some solutions are quite difficult, expensive, and /or take a great deal of time to figure out. NOT this problem. Two of these (parenting and community outreach) can be cured quickly, with little cost, and only needs a little desire. One of these (education in schools) can be done with just a little more will power, and the last (media, banks, etc.) you have no control of. Let’s focus on us, our communities, and our counties and states – this
Parenting – I firmly believe that most parents want the best for their children. I mentioned many times now that an estimated 13% talk to their kids about finances. Heck, I don’t think parents like to talk about finances themselves or between partners because its hard, involves sharing, and putting most people in a box (called a budget). So, this is hurdle #1 – getting parents comfortable to talk about expenses, budgets, etc. with their children. This can be EXCITING – this can include dreams / long term goals! Ex. If we cut back in this area, we can go to Disney. We save to this point – were getting a bigger home. Hurdle #2 – What happens if the parents don’t know personal finance. This is where community outreach (churches, neighborhood groups, libraries, etc.) needs and should be available. Hurdle #3 – making time or making it a priority! Don’t think I need to explain this one. Hurdle #4 – You’re a shitshow yourself (disaster) financially as a parent. Get over it, these are the best examples to give them on what not to do, how you’re going to overcome it, etc. The greatest lessons can be learned from the “struggles”, “down turns”, and “challenges” of life. This can ALL be done quickly, very little expense, having a little will power, and being humble!
Education In Our Schools – This might take just a “little” bit of effort. First, find out what your state and high school curriculum is. Go to your local high school website – this will be published. If economics is an “elective” course – make sure your child signs up. Trust me, this has a better chance of becoming useful than basket weaving.
Local School Boards. Think of how stupid we are!!!!! Take a deep breath and think of this. I don’t care on what side of the isle politically you sit. Look at how much attention has been put on gender topics (sports, bathrooms, etc.), testing, and CRT – all for good reason. However, personal financial education probably has more to do with income inequality than anything else. Your economic future doesn’t care if you have a vagina, penis, or anything in between. Mandate that personal finance is a core class in every state. Board meetings usually are not public (if you live in a state with Sunshine Laws they will), if public – go to the meeting and request / put on the record. Vote in local elections (has way more of an impact than national elections). If private school board meetings – get the number of signatures to be put on agenda (goes by population totals per county). Again, be involved in at least your child’s selection of classes – these costs nothing and can be done ASAP. Getting it mandated will take an election. Working / stressing the importance to the school boards just takes getting involved.
Secretary of Education in your state. This is the “single” most important person that can make things happen inside the Department of Education. Vote!
Community Programs – This is where community outreach (churches, neighborhood groups, libraries, etc.) needs and should be available. We can organize bunco, pool parties, easter egg hunts, poker night, safety meetings, crazy HOA meetings, swimming lessons, bingo night, trivia night, pet days, Christmas parties, how to get a divorce night (ok – just kidding), movie night, concert in the parks, meal trains, etc. BUT we can’t have a financial group (just once a month on different topics)? OK – this is not a fun topic, or could be embarrassing – then put it online. Life changes by the second, and very few professionals know everything (what happens in a death, divorce, taxes, re-location, home catches on fire/ insurance, college options, starting a business, etc. etc. etc.) on all topics. This simply starts at the grass roots level with a little will power.
Banks / Media / Financial Institutions – This is NOT going to change. Banks have moved from a more “supportive/for the long haul” stance to a “almighty dollar/bottom line” stance. I am convinced this changed with the ATM machine/going plastic – but that’s an argument for another day. The national financial media is NEVER going to change -they only have your attention for so long. Social media CAN change – but won’t because of ego’s, being selfish, and instant gratification. Good Luck!
Financial Institutions (the exchanges)- They can at least help. We test for EVERYTHING in this country. We test elementary children to death, we test pilots, we have driving tests, swimming tests, we have medical test, we have tryouts for EVERYTHING, but we CAN’T have a basic, simple test for trading, options, and crypto?