We need to teach kids ABCs of money

The Baltimore Sun

It's great that high school kids can explain the effect of import tariffs on consumer prices. But how about teaching them what happens when your subprime mortgage resets and the payment turns out to be bigger than your paycheck?

Last week the federal Education Department published its first national progress report on high-school economics knowledge. The results were OK -- for what they measured.

Seventy-nine percent of high-school seniors showed at least a basic level of learning. They could explain the risks and benefits of quitting a full-time job to finish college, for example. Forty-two percent scored "proficient," correctly answering harder questions such as using a supply/demand graph to analyze government price controls.

And 3 percent scored "advanced," meaning they aced even tough questions such as predicting how an increase in unemployment affects spending, income and production.

It's a start. Without a solid understanding of economics, "it's impossible today to really be a successful worker, consumer and voter," says Mary Ann Hewitt, executive director of the Maryland Council on Economic Education.

Amen. But high schools could do much better.

These days, when an older generation has created a ready-made case study in borrowing bloopers, personal finance is the economics branch kids need more than ever. They ought to know the dangers of the national debt AND MasterCard debt. But they don't.

Even basic economics is not a required course in Maryland as it is in Florida, Michigan, Indiana and elsewhere, according to the National Council on Economic Education. In some Maryland systems it's not even an elective. In this state, economics is usually folded into government classes along with the Electoral College and the Supreme Court.

Economics makes up only about 15 percent of the material in Maryland's government high-school assessment test. Nationally, fewer than half of high school graduates have taken economics-related courses, according to the National Center for Education Statistics.

Many teachers -- in high school and college -- miss chances to connect economic abstractions to realities kids know.

Yes, textbooks are getting better at this. Harvard's Greg Mankiw uses ice cream cones, cigarettes and oranges as examples in the supply/demand chapter in his book, instead of the traditional "widgets." But only classroom teachers can pull economics examples out of yesterday's newspaper.

Suddenly we realize half the nation's bridges are junk. How do we pay to fix them?

President Bush wants to cut taxes again -- this time on corporations. What are the pros and cons?

Presidential candidate Dennis J. Kucinich would pull the United States out of the North American Free Trade Agreement. What effect would that have?

The main thing schools must do, however, is teach kids about money -- credit pitfalls, stocks as long-term investments, the magic of compound interest. That knowledge was largely untested by the Education Department.

State after state, including Maryland, has no requirement for personal-finance education, according to the National Council on Economic Education.

Most Maryland systems offer it as an elective, but few kids take it, Hewitt says. The Maryland Coalition for Financial Literacy has gotten Harford, Baltimore and Carroll counties to require personal-finance material, but they're still working on most of the others.

This is a disgrace. Kids still learn about personal finance the way they learn about sex -- from friends, or a five-minute talk with a parent.

Wait -- I take that back. High schools teach sex. Kids know more about chlamydia than about bank fees.

And they need financial skills more than ever. The nanny government or employer is dead. You're responsible for your pension now.

You must shop around for telephone, television and electricity vendors. Established financial products such as mortgages and credit cards have gotten scandalously complicated, and some health insurance plans just about require you to be your own actuary.

The subprime mortgage crisis shows the perils of financial illiteracy. Some people losing homes can blame unforeseeable events -- the loss of a job or high medical bills. But for others default was utterly predictable, a matter of calculating the effect of a changing interest rate on a family budget.

A financially literate nation might have avoided the wreck, and that would be better for everybody. Free society works best when members can take care of themselves, which means the economy can take care of itself. I think an economist taught me that.


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