A tough teachable moment

If the current mortgage/credit crisis teaches us anything, it’s this: Americans don’t know as much as we should about handling our money. Indeed, the national culture has become one of indebtedness, from the federal government to individual households. Too many of us have forgotten a basic lesson about borrowing: The bills always come due eventually.

In Washington, politicians of both parties satisfy constituents with spending on everything from needless farm subsidies to boondoggles in military weapons systems, all the while insisting that taxes don’t need to increase to pay for any of it. It’s no surprise, then, that individual consumers have taken up that model with enthusiasm, indulging in home remodeling, new cars and expensive vacations, forgetting that their paychecks have not gotten fatter.

Financial literacy requires lifelong learning, and money lessons should begin as soon as children are able to count. Ideally, they should be taught at home.

But if the nation’s financial health can be threatened by excessive consumer debt, we can’t just assume that parents will teach their children such things as the implications of compound interest.

That means schools will have to take up the job of teaching personal finance. Thankfully, Georgia is among the 20 states that require some form of personal finance training. That’s good news.

The Georgia State Board of Education in 2004 wisely approved a new curriculum that enhances economics course work in all grades. Personal finance training is “explicitly added at all grades,” according to the Georgia Council on Economic Education.

“As much as you may not admit it, your future will be about your financial realities,” said Brooke Stephens, a personal finance author and teacher based in Brooklyn, N.Y. “The major crime in this country is a lack of financial literacy, a lack of financial education,” Stephens said.

It wasn’t always this way. As a nation, we’ve heard the tales of how grandpa and grandma’s generation eschewed credit in favor of using, and saving, cash. They had grown up during the scarcity of the Great Depression, and they had learned through painful experience that money was to be spent wisely and well, usually on necessities.

So how did we get to this point in less than half a century?

Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta Inc., likens the shift in credit availability to the swinging of a pendulum. Into the 1970s, unsecured debt — in devices such as credit cards — was relatively hard to come by. Bankers were picky about who they gave lines of credit to.

A generation ago, most American consumers had little debt, borrowing money only for the biggest purchases — such as homes or automobiles. Some had store credit cards issued by major retailers such as Sears. But many others purchased smaller items such as clothing or Christmas gifts on layaway, a system that allowed the consumer to pay a small amount weekly or monthly. But the consumer usually took the items from the store only when the bill was paid in full. That had the advantage of forcing a certain discipline in purchasing.

The advent of equal lending laws and scoring programs for credit risk helped loosen lenders’ purse strings. Bankers could better quantify risk and price credit offers accordingly. More credit became available. While the wider availability of credit helped boost the economy and enhanced the lifestyles of Americans, those generous lending practices clearly had a downside: the mountain of consumer debt hanging over households.

It’s now clear that the increase in credit wasn’t matched by a rise in knowledge. “Consumers didn’t really as a total group get their arms around the fact they had to seriously assess how to handle all of the credit being made available to them,” said CCCS’ Boas.

(It seems that bankers really didn’t know what they were doing either, if the current financial meltdown is any indication.)

Just because someone dangled tempting credit offers before consumers doesn’t mean they had to run up the charge cards, consumer advocates say. “Caveat emptor exists for a reason,” said Stephens. “Adult responsibility when it comes to money is asking enough questions to understand (exactly) what I am doing.”

Even worse, debt lost its stigma over time. “We brag about it,” said Stephens. “It’s almost like a social joke — I’ve got so much debt, I don’t know who’ll get me first, the IRS or my landlord. That’s not funny to me.”

In order for the nation to get back on track, we need to instill a culture of money management, if not outright thrift. But it’s a bigger job than just helping the current generation of students spend money wisely.

The problem goes all the way up to Washington, where profligate spending means that those same schoolchildren will spend their adult years paying off a national debt they are not responsible for creating.

— Andre Jackson, for the editorial board