A Penny Saved

Education verses legislation! In an article in U.S. News and World Report, a debate was discussed on whether Americans need more financial education or a simpler, more regulated financial system. On the one hand, studies were cited that showed that high school seniors flunk a financial literacy test on practical money questions. In addition, other studies were cited that showed average americans are pretty much clueless regarding basic money matters like interest rates, inflation, and even retirement savings. This points to more education needed.

On the other hand, studies were shown that showed that even if people were exposed to personal finance training, they didn’t do any better in managing their money - in fact one study showed that there was no significant change in behavior five years after taking a money management course. On this side of the debate the conclusion is that financial markets are too complex, and that the financial industry needs reform, including government regulation.

So which is it?

Personnaly, I think both are right, and I will add a third alternative:

1. People do need training. The financial world is complex. I think schools should be teaching  basic finances throughout Junior High and Senior High. I know when I was in High School we had one course (not enough I believe); they taught us how to balance a checkbook, stock market basics, how to set up a budget. I think that and more should be taught (saving for retirement, etc.).
2. The financial markets are complex. As far as regulation, I like free markets and I am leery about over regulation. However, I think better disclosure, both verbal and in understandable writing would benefit everyone. You shouldn’t have to read the fine print to know the details. Clear, precise, and easy understood terms would go a long way.
3. No matter how hard we try, whether we educate or legislate, bad habits are hard to break, and some people will fail regardless of what others do to help them. Sometimes we need to learn the hard way. I want to avoid a nanny state where we are protected from everything. Allow people to experience consequences from bad decisions. Do steps one and two, but let people succeed, and allow us to fail.

So what do you think?