Dear Secretary DeVos, Please Prioritize Financial Literacy

Congratulations, Secretary DeVos, on your recent appointment to lead the U.S. Department of Education. Now the real work begins.

Your position requires you to prioritize competing educational ideas to promote the mission of “student achievement and preparation for global competitiveness.” While much attention has been given to your advancement of school choice, I write to suggest your department also focus national attention on another key education issue: financial literacy.

As a community college professor, I cover personal finance in my economics classes, but too often the education that I provide to my students arrives too late. Many of my students have already made terrible financial decisions, and it is not unusual for them to reveal that they are considering bankruptcy.

Students communicate that the personal finance section of my economics course is the most valuable, and several students—particularly the older ones—wish they had this personal finance knowledge when they were young because they would have so much more money today.

A basic course that covers economics principles, sources of economic progress (such as economic freedom), public choice, and especially personal finance should be mandatory for all high school students, and should be strongly encouraged at the college level, even for those not majoring in economics or finance.

I am very passionate about this for many reasons, but the bottom line is that financial illiteracy fosters poverty and derails many life plans. Financial literacy, on the other hand, promotes wealth and hope.

Consider, for example, that entrepreneurship is a pathway for the poor to escape poverty. You don’t need a college degree to be a successful entrepreneur, but before you can begin to think about starting a business, you must have your financial ducks in a row. It is a necessary, but not sufficient, condition for success.

Education in financial literacy is empowering. I have seen firsthand the excitement and change in students when they learn how they can accumulate hundreds of thousands of dollars over time by saving only $3 a day.

Students who learn about the cost of raising children as well as the power of compound interest on savings (as well as debt) will have a better understanding about the opportunity costs of their actions and may choose a different path. I realize that this is not a panacea, but it can help.

Many colleges and universities do have school-wide financial literacy initiatives. At my school, Wake Technical Community College, we take a multi-pronged approach. We offer 36 personal finance workshops per semester, as well as games, contests, and challenges that help to strengthen students’ understanding of the material. We even have a related online learning center on our website. Wake Tech has partnered with the Sun Trust Foundation to assist with these efforts.

And some four-year universities have adopted a similar approach. For example, UNC Chapel Hill partnered with Coastal Federal Credit Union to offer financial literacy workshops through its student support office.

However, the problem is that unless a student proactively attends a workshop or completes a course in personal finance, there is no guarantee that he or she will graduate from college knowing these essential lessons.

For example, I spoke with a young man who is a few months shy of graduating from UNC Chapel Hill with an economics degree. Yet he revealed he didn’t know the difference between gross and net pay.

Promoting financial literacy should be a goal that gains support from across the political spectrum. On the left, many are concerned about income inequality as well as wealth inequality. In his famous book Capital in the Twenty-First Century, French economist Thomas Piketty argues that because the return on labor is less than the return on capital, income and wealth inequality result and can potentially undermine our democratic foundations. His solution is income redistribution to reduce the inequality.

Here is another idea: reduce income inequality by educating our future workforce on how to participate in the capital markets and take advantage of the higher return.

Right now, that is not happening. Nationally, financial illiteracy manifests as a lack of participation in our capital markets and through an accumulation of personal debt. This USA Today article, citing data from the U.S. Census Bureau and Federal Reserve, highlights the fact that while “more than 60 percent of households carry no debt on their credit card, the average credit card debt for households that carry a balance is a shocking $16,048.”

Moreover, an April 2016 Gallup poll revealed that only 52 percent of American adults owned stock. This figure is down slightly from 2014 and 2015. Middle class adults and those younger than 35 were the least likely to invest.

The key to taking advantage of compound interest is not income, but time. It is clear that in the U.S. the young don’t save, and when people start to save when they are older, they have to make much larger sacrifices. On the other hand, saving large amounts of money over time requires smaller sacrifices at an early age.

For example, at a 7 percent real return (which is the long-run return of the stock market), the decision to spend rather than save $5,840 ($2 per day) between the ages of 22 and 30 is a decision to give up over $85,000 at age 65! This suggests that spending small amounts of money while young has a large opportunity cost.

The earlier we teach these important lessons, the earlier students can leverage this knowledge and build wealth.

Secretary DeVos, please prioritize personal finance. There are some who will criticize you no matter what you do. They might argue “What good is teaching about investing in the stock market when the working poor barely have enough to eat? Let’s stick to the status quo, and focus more on things such as Algebra I.”

The truth is that not everybody needs to learn Algebra I to succeed, but everybody needs to understand the basics of budgeting, saving, and building wealth.

  • Bob Ellison

    Excellent proposals, all. This stuff can be taught in a non-partisan way, too, so maybe both sides could agree.

    • Illegible Scrawl

      Maybe I’m just cynical, but do the Democrats really want their potential constituents to have financial control of their own lives?

      • Steve Quist

        It was the Democrats who torpedoed Bush’s proposal in 2005 to partially privatize Social Security. One of their arguments was that having more people in the investing class would make it harder to realize their redistribution schemes.

        • tdaly29

          Maybe, just maybe, the Democrats were worried that the Wall Street Banks would treat retirement investments as a means to get even richer. The Republicans are against a requirement that financial advisors put the needs of the customer before the lure of high commission investments.

          Imagine what would have happened to the privatized SSA investments in the Bush/Cheney depression. Looks like the Democrats were coming from a practical, not ideological view of the world.

          The same Wall Street Banks that put people in mortgages they could not afford (liar loans and no doc loans) would have fattened their bottom line while leaving millions of people without any retirement savings.

      • Dude1394

        I too am cynical about it.

    • MarkM

      I suspect when you ask a Republican and a Democrat what a stock certificate should be viewed as representing, you may get 2 different answers. Similarly, there are some fundamental disagreements over what are the real underlying purposes of a corporation, a union, etc. Whether the stuff is taught in a “non-partisan” way will depend on which stuff is being taught.

  • Janetoo

    I could not agree more!

  • dave72

    Financial literacy should be a must for high school freshmen, but who is going to teach it? My guess is few current teachers could do it.

  • no_free_lunch

    The State and its Progressive agenda (read Marxist) have been working behind the scenes for years to dumb down America through it’s education system. The Federal gov’t. has no business interfering here in the first place under principles of Federalism and small/limited gov’t. As in all Socialist schemes, it’s all about control and power (for the elites, not for the masses).

    A basic knowledge of economics and finance is central to understanding individual property rights, which is central to basic tenets of free markets and capitalism. This is the antithesis of communism. A basic understanding of the abstract concept of money seems to have been lost along the way as well. Debt is not wealth, but rather slavery.

    “The education of all children, from the moment that they can get along without a mother’s care, shall be in state institutions.”- Karl Marx

    • George Leef

      I was going to say pretty much the same thing, but you beat me to it.

      For the left, schooling is supposed to be about implanting the right notions about society so when the kids grow up they’ll hector adults about social justice and sustainability and white privilege and so on. Teaching them financial literacy is worse than a waste of time in their view — it works at cross purposes with their goals.

  • AnotherPattyJ

    Great idea, but you don’t have to wait for the government to do it. You could create a syllabus for summer school camps or classes! There is always a market for new fun things for kids to do in the summer while both parents are working (and hopefully saving part of their income).

    • I would definitely send my son–when he gets older–to financial literacy camp!

      • AnotherPattyJ

        There’s the center’s new project!

  • MarkM

    The sad thing is that financial literacy, at least as it involves borrowing and spending, should be very much tied in with the time value of money. In my experience, most time value of money problems are best set up when the student has at least finished algebra 1. That being said, those problems could probably be included as a part of algebra 1 classes – practical examples of why the students should care about algebra.

  • StPeteMike

    Very well said & very much needed.

    BTW, Tony Robbins’ book Money addresses all of these issues in a comprehensive treatise.

  • Dude1394

    Well said. Hammering in the magic of compound interest, automatic savings and the millstone of debt is vital to a prosperous populace.

  • Steve Poling

    Or you can privatize this sort of training through Financial Peace University or another like it.

  • LizardLizard

    Free or almost free online courses (MOOC, Coursera), just Google. Failing that, take out a book on “Managing Your Finances” “Budgeting for Dummies” or some such from you local library, or failing THAT, read almost any article by Suze Orman, available in less than one second on line: