Don't Teach Financial Education? Are you crazy?

I recently read up on an interview CNN Money had with law professor Lauren Willis on the importance of teaching financial literacy, or rather the importance of not doing it. I was actually puzzled about some of the reasoning behind the idea. To wit:

Lauren Willis, an associate professor at Loyola Law School in Los Angeles who specializes in financial products regulation, says that's the wrong move. She argues that trying to teach consumers to make wise money choices is not only a waste of time and resources, it may be dangerous.

Dangerous? Let me be clear: I think we should approach the teaching of personal finance very carefully. If there are classes that focus directly on this topic, it should probably be carefully evaluated. But to not include it at all in high school or college curriculum raises concern to me. However, here is the point in the interview that concerned me the most, a back-and-forth on budgeting (and shouldn't it be taught):

Q. But aren't basics such as budgeting always applicable?

A. Teaching them is a waste of money. Studies show that sending people to either high school personal-finance classes or adult retirement seminars does not result in better financial behavior.

It may do the opposite. Financial literacy classes give people the illusion that they can successfully manage their finances. So rather than seek help, they end up making worse decisions.

Q. Then what should we do?

A. Stop trying to turn everyone into a financial planner. Instead, try to get everyone to understand that the people selling you financial products often don't have your best interests at heart.

The strange, almost contradictory language I see here is striking: You shouldn't teach people to budget because they may (heaven forbid) try to manage their own money instead of seeking (often overpriced) help, yet you should make sure to tell people seeking help is risky because they may be overcharged.



Here's how I feel about it. Teaching someone how to budget is not difficult. It's pretty simple addition and subtraction. Take out a sheet of paper (or spreadsheet), add up your income and subtract your outgo per month. If you're in the red, that's bad. Avoid that (by increasing income or decreasing spending.)

I would question the studies that determined why teaching people to manage finances don't work. Is it the way it's taught? Is it because most high school kids don't have to shoulder the burden of paying rent or a mortgage and a set of bills?

Bottom line—I think it's the lack of teaching and awareness that causes people to make risky mistakes. The biggest example being the housing debacle the country is still feeling right now. Many people signed on to risky mortgages that have affected the entire market and have caused many banks to fail (and of course, lenders were complicit in these behaviors). Now, we have the government stepping in this week and assuming the debt of big lenders Fannie Mae and Freddie Mac because they are "too big to go under."

This is all because of shady lending practices and consumers who took on the debt without being more educated on the associated risks of such loans. Education is important and counts. At minimum, I think budgeting should be a base minimum teaching for children and adults. Shoot, I still have a lot to learn.

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