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GORDON L. WEIL: Recession shows schools should teach personal finance education

The recession that has led to major unemployment and uncertainty about our economic future was caused by too much debt.

People were induced to borrow more than they needed to purchase housing they could never pay for. Financial institutions supplied them the money from the proceeds of new and questionable investment schemes.

The country has been trying to fix the situation ever since the housing bubble burst.

After drastic federal action to allow banks to continue to function, they are returning to some version of normal operations. So are the large companies — mainly the automobile manufacturers — that also needed government support. And they are paying back the government money used to rescue them.

A new financial reform law has been enacted, intended to prevent wild lending and unwise borrowing. It places restrictions on some risky bank activity, and it offers help to consumers.

It will take a long while for the economy to recover from a downturn surpassed only by the Great Depression of the 1920s and ’30s. And the country’s recent experience and necessary government action will mean that the economy that emerges will differ from what we have known in the past 20 years.

But what about the other side of the equation? The customer. Us.

The economic crisis and the steps that have been taken to put the economy back on its feet are all built on the belief that people cannot take care of themselves and that they need to be protected from borrowing too much, spending too freely and saving too little.

That assumption is probably correct. But it yields only half the answer. We need to get ourselves better educated to cope with an increasingly complex financial world.

Twenty years ago, almost nobody had heard of a debit card or reverse mortgages. People believed that Social Security and their employer’s pension plan would give them a decent retirement.

All that has changed. Yet what most people understand about their personal finances has not changed along with the financial marketplace.

Unemployment, the end of lifetime job security, mysterious mutual funds featuring stocks or bonds, and complex rules on credit and debit cards all contribute to a deep sense of financial uneasiness. 

The answer should start in school. States set the requirements of what students must be taught. For the most part, that does not include learning about personal finance.

Take the Maine Education Department’s “Parameters for Essential Instruction.” It says that public schools should provide a basic understanding of how the economy works and the players in it so that students will be able “to understand issues of personal finance.”

Nowhere in this requirement is there practical, hands-on information about personal finance. While the schools are required to teach about careers, they do not teach about managing your money.

The Council for Economic Education, a national organization that promotes teaching about personal finance, could be a resource to state education departments.

Many people do not feel comfortable about answering questions such as:

• Is it better to lease or buy a car?

• What is the difference between stocks and bonds and why should that matter to me?

• Do you complete or at least understand your own tax return?

• How much credit card debt is acceptable for you and how much would be too much?

• Do you know how to create a budget?

• Can you find good financial help?

• How much should you put away in savings?

The answers to these questions have nothing to do with economic policy or political ideology. No matter who runs the government, people need to know the answers to these questions.

The need for personal finance education cuts across all economic levels. Whether a person is struggling to make ends meet or is prosperous, each person needs to know how to take care of his or her own money.

Banks, brokers and financial advisers paid by people whose products they sell cannot be expected to do more than obey the rules laid down by government. Government cannot deal with each person’s specific needs, and it can hardly keep up with all the innovations and gimmicks developed by financial institutions.

We have to take care of ourselves. The current crisis shows that many people have trusted others too much and have not had the tools to protect themselves against excessive risk and to assure themselves of enough money for their retirement.

The best reform may be for the school curriculum to be revised to include instruction on personal finance.



Gordon L. Weil, a weekly columnist for this newspaper, is an author, publisher, consultant and former international organization, U.S. and Maine government official. 

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