Financially Illiterate America

I found this article by route of my morning check on the Drudge Report. The title of the article tells the story: “Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans”. To just play with some numbers lets use the average family size of 2 adults and 1.5 children. Let’s be conservative and say that some of these families are just two adults, which makes the average family size of 3. Multiply that by 2.2 million and you get 6.6 million people. Divide that by the current U.S. population of 300 million and you get 2.2% of the population facing foreclosure on their homes. This is a grim figure.

Simply, there needs to be more control on lending. Clearly, there are people getting loans who should not be and because they are high risk they are paying higher interest which likely makes their odds of defaulting even greater. I can’t help but wonder if these practices are allowed to persist because of the former Fed chief, Allan Greenspan, whose economic growth policy was formed around housing growth. Are we sacrificing the long-term viability of our citizens’ financial health for short-term economic growth?

Another problem is education. Our schools do not teach finance as a subject. Year after year we learn math exercises and English grammar, but we are never taught how to manage our money. This is a basic survival skill in our modern society. Our education system is antiquated. In the past personal finance was not that complicated. You saved if you wanted to buy something and on the rare occasion that you borrowed the terms were simple. The world moves much faster now, partly due to the advances in methods of finance. In order to do business you need to know how to get access to money and the terms of how to use that financial tool. Finance needs to be taught as a part of the standard curriculum.

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