The ignorant American.
As the story pointed out, the state of Arkansas does not require any sort of economic education. "It's something we've talked about at the state level," Ken James, director of the Arkansas Department of Education, said. And he predicted it will get "some additional conversation," but that's as far as his predictions go since the schools are having trouble fitting in all the things they are already required to teach. (Light-bulb moment: Maybe this is why the rest of the developed world has longer school days and school years.)
If I were a conspiracy theorist, I might conclude that keeping Americans financially ignorant was part of a plot. If consumers truly understood personal finance, a lot of business plans would fall apart--and I don't mean just the payday lenders who, like cockroaches, seem able to survive every extermination attempt.
Retailers and credit card companies would certainly suffer if Americans suddenly bought only what they needed and could truly afford. (Of course, the credit card companies are already suffering because they extended credit for stuff Americans couldn't afford.) The car makers would be in even worse shape than they are--but they never would have become addicted to those SUV margins. The banking industry would have to go back to making money on interest spreads rather than those fees they keep inventing.
On the other hand, some industries would thrive if Americans knew how to handle money. Independent auto mechanics--not the generally overpriced dealership service departments--would have more business than they could handle. Happy days would be here again for the auto insurance industry, since the approximately 15 percent of drivers who are uninsured would be in the market for competitively priced coverage.
Investment banks that manage 401(k) and other retirement plans would be flush--as long as their fees were reasonable, of course. Otherwise a financially savvy public would take its business elsewhere.
If Americans understood basic finance, the housing market wouldn't be in the mess it is. Homebuyers would have refused to buy houses they couldn't afford, which would have kept housing inflation in check. Few buyers would have chosen adjustable-rate mortgages, and those exotic interest-only nightmare mortgages would never have been born. And a lot fewer people would be upside-down on their houses because they would have known better than to use their home equity to pay for vacations and fancy restaurant meals. They would have actually saved for their children's college educations, rather than assuming they could cash out gobs of home equity when that time came.
Of course, real estate agents would have collected smaller commissions because fewer people would have overspent on houses. On the other hand, more Americans would be able to buy houses and the commission gravy train wouldn't have come to a standstill.
If Americans understood money, they would immediately replace as many incandescent bulbs as reasonably possible with compact fluorescents and would replace every manual thermostat with a programmable one. They would buy the smallest, most fuel-efficient vehicle that can do the job it needs to do, fill it with regular gasoline and keep the tires properly inflated. Financial literacy wouldn't solve the world's energy crisis, but it would reduce demand, which would save money in the short term and put downward pressure on fuel prices in the long term.
If Americans were smart about money, they would know what they are buying. My protege was out of work for a few months, during which time she couldn't make even her minimum credit card payment. Interest and late fees piled up. She didn't realize, until she was employed again and it was too late to make a claim, that she had been paying $15 a month for an insurance product that would have made those payments for her--even though it showed up every month on the credit card bills she couldn't pay. It would be ironic if it weren't so sad.
Gwen Moritz is editor of Arkansas Business. E-mail her at email@example.com.
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|Date:||Sep 15, 2008|
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