Regardless of who ultimately gets the blame for the financial crisis of 2008, one thing is certain: an American public better-educated about how financial products work would have done plenty to ameliorate the problem. While rising real estate prices made almost any home purchase appear a wise, many Americans failed to do the mental heavy lifting to properly evaluate a financial decision so large.
A well-known credit card company would like to see that change. But how much?
According to a National Bureau of Economic Research study, Americans seriously lack in the financial literacy department. According to the 2008 study adults averaged a C (70-79%) on a 24-item questionnaire on financial knowledge. Most high schoolers got an F.
A large part of our problem might come down to arithmetic. The same NBER paper cites another study that shows only about half of Americans could divide $2 million by five. Some 20 percent of adults couldn’t do a simple interest calculation.
Perhaps if we all understood personal finance a bit better, we’d all be better off. Indeed, according to the NBER paper, those who are more financially literate tend to save and plan better for the future.
Americans actually want to learn more
Only 12 states in our country require any personal-finance education in high school. Meanwhile a Sallie Mae poll found that 84 percent of high school students wished they had better financial education. Both of these stats come from a recent Discovery Financial Services press release, announcing the launch of Pathway to Financial Success — a new $10 million grant program to fund financial education in high schools, and a curriculum to go along with it.
Discover will give grants to public schools seeking to start or expand a financial education program. In addition, Discover is providing a curriculum developed by the Council for Economic Education — a non-profit that seeks to advance financial literacy through the U.S. school system.
The curriculum runs the gamut from textbook word problems to an interactive video game called Gen i Revolution, where a young, diverse, Captain Planet-esque team of financially savvy people must stop the spread of the “murktide” — financial misinformation that threatens the United States. The game requires students to do things as simple as convince a 21 year-old to start saving her money, to showing someone how to maximize the return on $10 million over 20 years — it’s pretty slick.
Orange, orange, everywhere
While this is all interesting, and might convince you of the efficacy of using video games to teach young people about complex topics, one thing about the Pathways to Financial Success stands out: the branding. The door to an imaginary high school: orange. The map of the United States: orange. Students’ No. 2 pencils: strangely orange.
Not that there’s anything wrong with Discover desiring that their brand be contiguous with this publicity effort, but it does bring to mind the strangeness of a credit card company sponsoring financial education. For example the high school lesson on the website titled “Credit: Your Best Friend or Your Worst Enemy?” is honest about the risks inherent in borrowing money on credit cards, but also touts the various benefits of revolving credit products — you can take advantage of sales, they tell young people.
This isn’t Discover’s first foray into financial education either. Its ATM/debit network, PULSE, launched DebitSavvy last September, to help educate young people about the benefits of using debit cards.
On the other hand…
If state governments can’t get it together to make their high school curricula in line with the needs of the times, then there is little harm in private sector investment in it. Ideally, it could help both creditors — by limiting defaults caused by financial illiteracy — and debtors — by educating young people about the risks credit cards pose, especially the high-APR ones targeted at young people.
That said, there is something uniquely uncomfortable about financial-services companies teaching young people how to properly use their products. What if Home Ec were taught using all Paula Deen recipes?