I got the September issue of Money magazine yesterday and, as always, there are a few eye-opening articles. Every time I feel like I know everything about personal finance, I find that there's so much I have left to learn. One particular article, on page 24 is titled, "Why You Can't Teach Money."
The article is a Money magazine interview with a law associate professor from Loyola... not economics or finance that you'd ordinarily expect. She "specializes in financial product regulation" according to the article. With that background let's get to the interview... I'm going to paraphrase it, for (a tiny bit of) humor and to avoid having to quote the magazine article in full. I suggest anyone interested buy the magazine and read the article in it's exact form - rather than my interpretation of it.
Q: Why is financial education so bad?
A: It's terrible in so many ways. The people who sell financial products pour in major Benjamins to get consumers to buy their horrible products. This marketing negates any education that others might give. Financial products change all the time and educators can't keep up. "As far as I know, people get pregnant the same way the did when I was in high school."
Lazy Man's Take: I like to think that a good number of people get knowledge that supersedes marketing. I have read a lot of personal finance blogs and financial magazines that give me very sensible evidence on why low-expense, index investing works. It has prevented me from buying more expensive financial products. I'm just confused at the pregnancy parallel - I really don't see the relevance.
Q: Isn't Budgeting (and other basics) fundamental?
A: It's a waste of time. Studies show that high school personal finance classes or adult retirement classes don't help - it may hurt. Those classes give people false hopes that they can manage their own finances and "they end up making worse decisions."
Lazy Man's Take: I think this lawyer is biased towards looking at financial product regulation, her specialty, and not personal finance. There are a number of people who learn to make very solid financial decisions (which I realize is hard to define), by educating themselves - and getting education from other people. If you are reading this right now, there's a good chance you fall into that group.
Q: How now, brown cow? (My mom's way of saying, "Where do we go from here?")
A: Give up on teaching people to plan their finances. Try to show people that there are charlatans out there trying to sell you financial products. Politicians need to regulate financial products and change them into things that help consumers rather than educate them.
Lazy Man's Take: It seems like the best way to get people to realize that there are charlatans out there is to teach people to personal finances. I hate to depend on politicians to do anything for me - especially when I can do them myself.
Q: So How Should Politicians Regulate?
A: People who sell financial products should be required to offer you a safe default product. If you apply for a 50 year, interest only mortgage, you would have to be offered a 30-year fixed option
Lazy Man's Take: I'm not sure how that would help. It would be very easy for a mortgage lender to show how lower payments for the exotic mortgages are "better" than the higher payments for a 30-year fixed. If people were educated to know the difference... oh wait, you can't teach people money.
Q: So I should stop teaching my child about money?
A: No, that would be crazy, especially with their daily spending. Children should be taught to resist buying things that are not good for them - happiness is not bought. Families can teach that better than the government can.
Lazy Man's Take: Whoa... so it's suddenly okay to teach budgeting again? Just three questions ago it was a waste of time to teach children. I believe that children can learn some things better than adults (language as one example), but I'm not convinced that money is one of them. If you can teach children to resist buying things that are not good for them (i.e. happiness can not be bought), then shouldn't you be able to teach adults these things?
Is personal finance education a waste of time? I can't believe that. I can't believe that education is ever universally a waste of time.
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