In reality, what this country needs isn’t higher education for all, but better education for all. American millennials with four-year college degrees got roughly the same literacy and problem solving test scores as people with only high school diplomas in Finland, Japan, and the Netherlands.
Meanwhile, it’s not a college degree, but financial literacy that has never been more important. Because of labor market dynamics and nosebleed tuition costs, college represents a poor return on investment for a growing number of high school students. But in order to be able to perform this assessment, basic finance skills are required.
Passing a rigorous personal finance class in high school should be a prerequisite for taking on student debt for college. We need to teach kids that debt is fundamentally spending that has been pulled forward, and debt needs to be paid back through reduced spending down the road.
Instead, I fear we’ll reinforce kids’ perceptions that they’re entitled to future spending and can borrow with impunity… And a massive bailout in the form of student debt forgiveness would do just that.
In the meantime, we’ll just continue to make it easier for students to take on burdensome amounts of debt.
Safe (and high-yield) investing,
Alan Gula, CFA
More:
http://www.wallstreetdaily.com/2015/03/18/obama-student-aid-bill-of-rights/
Comments
"debt is fundamentally spending that has been pulled forward, and debt needs to be paid back through reduced spending down the road."
LOL, uh oh I think there's going to be some disagreements with that... (not from me, mind you.)
@scott: With respect to the United States at least, I believe that to be true on all levels, up to and including the spending of the individual states. However, it is not necessarily true at the Federal level, because of the power to "create" money. The fact that there are so many completely contradictory monetary theories, both historical and current, from so many experts, scholastic and financial institutions suggests to me that the exact mechanism at this level is still somewhat of an unknown.
It obviously isn't as straightforward as "creating money also creates inflation", as some would have us believe, or inflation would now be roaring. Equally obvious is that the mere "creation" of money certainly isn't the ultimate answer to universal prosperity.
I believe that the world-wide financial maneuvers that we are presently experiencing will probably add significant knowledge of the actual working mechanisms in this area, as this unique period is analyzed in the future. Things are rarely so simple as some would have us believe, and perhaps I might also say, things are rarely as the simple would have us believe.
Result "students (to) take on burdensome amounts of debt.
That is a disaster for THEM
I wouldn't give you an argument on that. The question, of course, is how to improve things. I'm not at all opposed to Charter Schools or other empirical experimentation- at least we might get some feedback as to what may work and what doesn't.
With the established system, we have politicians who have never been teachers who know that they have all of the answers, and teachers who in some cases have been insulated from the realities of required performance. Many of those teachers, though, have been placed in situations made impossible by simultaneous conflicting demands of parents, local and state school boards, and Federal requirements.
Consider our military services, which have the ability to maintain fairly strict discipline, and where the trainers have clear rule sets, and usually good infrastructure and command support. Even with all of these advantages, they are not expected to accept every applicant, no matter how unintelligent, unmotivated, anti-social, English-language incapable, mentally or physically disabled. Once an applicant is accepted, their career path will be determined by their ability to adjust to the predominant social structure, their intelligence, and proven aptitude to meet required training standards.
Now contemplate a military service which is required to accept any and all applicants, with absolutely no regard for any of the factors previously mentioned. Not too promising, right?
The American public schools were started primarily to provide enough education so as to supply young people to the local labor market. As such, the skills taught after the primary grades were closely tailored to local labor requirements, be that agriculture or otherwise. It's worth mentioning that if a student didn't want to learn, or be there, or was unsuited to the system, the schools generally had no obligation to pander to that individual to the detriment of everyone else.
Now, though, schools seem to be regarded as a one-stop facility to not only educate young people but to take every applicant, no matter how poorly matched, and somehow, while mixing them all into common educational groups, make them into productive citizens. Frequently there is no ability to maintain reasonable discipline, the teachers often have conflicting rule sets, the infrastructure is sometimes inadequate, and command support is typically non-existent.
No "steering" into career paths, no getting rid of the troublemakers, no "discrimination" of any kind. Let me be very clear here: by discrimination I mean the ability to provide different levels of education based upon student interest and ability, NOT any other factor.
Our public schools are expected to handle all of this? What on earth are we thinking?
By some measures, yes. By other measures, no. It depends on where you look. For example (from today's NYTimes), the individual benefits built into the tax code inureery much to the most wealthy, on a per capita basis. http://www.nytimes.com/2015/03/18/business/economy/taxes-take-away-but-also-give-back-mostly-to-the-very-rich.html
With respect to the law of diminishing returns (LDR) - the statement of the law is correct, but its application here may not be. LDR says only that after awhile you'll get less bang for the buck. It says nothing about that bang turning negative. That is, improvements in education may get smaller as more and more money is added (assuming that the money is added to a single factor, such as buildings), but it doesn't say that adding money won't continue to improve education results.
A key qualification (which was correctly stated) is that all other factors are held constant. For example, if you don't add teachers, then adding classrooms won't help much (they can be used for study halls, club meeting areas, etc., but not as classrooms if you've got no teachers to put into them). There's a lower and lower rate of return for adding space if it isn't used efficiently. But add both classrooms and teachers, and you shrink the size of classes, which is generally thought to improve education results.
Increasing spending in multiple areas can pay off. Or not. It depends on what the scarce resources are.
GOOD GRIEF!!!
I'm going to pass on IBD, as I'm already on bp meds. Thanks anyway.
note: you hold Nobodys interest after 40 words...trust me... this is a blog site, not a High School term paper project...
Then don't read here.......
Nobody really cares about your opinion, one way or the other.
Yes indeed, you folks have nailed that one. We're talking early 70's here, when the two-income situation became almost mandatory. I was amazed at the time that very little was being said about that. It certainly seemed like a major sea change to me.
Your many fine posts easily document that financial literacy is a hot debatable topic. It surely is.
From my limited and somewhat uninformed perspective, even the name is debatable; I see it more as financial illiteracy than literacy. We are given undue credit for a knowledge base and understanding that simply does not exist among the general population.
Perhaps my standards are a bit high; I suspect that yours are too. We are not simply financially illiterate, we are also historically illiterate and a whole host of other illiterate categories. I recognize that this is an unpopular judgment, especially among politicians and other cohorts seeking public voting approval or financial support. They have special incentives that bias their assessments.
Countless studies support my position with an overwhelming tsunami of statistical data. Remember the very controversial book by Herrnstein and Murray, “The Bell Curve”, that documented many of our shortcomings.
My introduction into this morass came when I was assigned while in the Army to score some Armed Forces Qualification Test results. Many scores were abysmal; even laughable if not so serious. Not surprisingly, the lower scores were all assigned to infantry units.
Our educational system is failing, but I actually do not blame the system itself. Teachers try to teach. It is a complex interactive problem with many failure points that include parents and the kids themselves. But mostly I blame the culture. Today, we don’t push our children hard enough; we allow things to slide without penalty. Failing kids should not be automatically promoted. That’s a wrongheaded incentive.
Rather than resorting to boring statistical sets, I’ll support my contention with a few carefully chosen anecdotal instances that illustrate this sad state of affairs from a mathematical innumeracy perspective.
Fractions are not easy for some folks. When asked on college entrance exams which is larger, 1/10, 1/100, Or 1/1000, 10% of the respondents get it wrong. A pie diagram would really help here.
A handsome male weather reporter told of a 50% likelihood of rain on Saturday followed by a 50% likelihood of rain on Sunday. Therefore, he concluded that there was a 100% chance of rainfall that weekend. This story was lifted from a John Allen Paulos book on innumeracy.
After the Twin Towers air attack, many folks avoided air travel and substituted car travel as a safer alternative. That’s a bad choice. Many more folks are killed in auto accidents per mile traveled than from plane crashes. One stat suggests that a car driver needs to only travel 12 miles to equal the probability that he will die in an airplane crash.
While in college, students, and especially female students, will avoid taking a class if it has any mathematical requirements. That fear translates to lower future earning power.
Some folks still believe in Astrology. Our profit seeking truncated newspapers still carry regular horoscopes. Decisions, often bad decisions, are shamefully made solely on the signs of the day.
Enough. Here’s an old NY Times article reference that discusses innumeracy:
http://www.nytimes.com/1989/01/01/books/the-odds-are-you-re-innumerate.html?pagewanted=3
In any decision, its important to know or be able to estimate the odds. Base rates are significant.
I read a 2003 book by Gregory Baer that greatly helped along those lines. The book is titled “Life: the Odds”. Its subtitle is “And How to Improve Them”. It is a fascinating very short book. You might want to give it a try.
In a sense, this is an MFO déjà vu moment. Educational shortcomings are discussed several times a year on this Board. I’ve likely posted this before, but allow me to once again Link to a favorite video. It is on the topic of Risk Literacy by Gerd Gigerenzer:
Please, please access it. I enjoyed it, and I think you will too.
Best Regards.
Having said that, I respect others' time and realize that what appears important to me may not appear all that important to them. Therefore, I strive to edit down to a reasonable length. Generally it results in better writing as well. 40 words is "nutso". I see no value in keeping posts that short unless you're working with a very small brain.
No shocker here. I too oppose a 40-word constraint. On the Internet, credibility is a perennial issue. It really can not be established without numbers, references, and interpretations. That takes words. Assertions simply don't do an adequate job, even if they are sometimes hilarious.
Best Wishes.
I'm not sure why we are even considering any particular word-count "constraint". Many of us have been discussing various issues both here and on FundAlarm for a long time now, with many different approaches and writing styles. I can't remember any prior suggestions as to word-counts. As you've probably noticed, my own style can vary from one short sentence to a ranting dissertation.
No one is forced to read any particular commentary, and I'm sure that many of us skim the longer pieces looking for something to "hook" our interest, and if finding that, then read the piece more seriously.
Lets not get distracted by unhelpful and sarcastic comments from an individual who makes no effort to mesh into the community, has no respect for others, and seems to be entranced by his presumed superiority to other human beings.
Interestingly the topic of financial literacy was introduced by this very same individual, which may suggest that there is some glimmer of hope for him. As you've surely noticed, his command of our native language is less than impressive, so when I saw the well-written commentary in his post, I was intrigued, until I realized that it was just a paste & copy from the referenced article. (‡Note) By the way- didn't count the words, but it sure looks like more than forty to me.
‡ literacy (noun) the ability to read and write.
• competence or knowledge in a specified area
It's hard to make issues like that relevant to youngsters in school - though possible through creative approaches. As a child, I sometimes had a lemonaide stand in the front yard in the warmer summer months. Our family was very large, so resources were scarce. Basic needs were provided for, but if you wanted something like a new baseball mitt or fishing pole you learned you best save the money up yourself and so you eagerly accepted whatever odd jobs might become available in the neighborhood. I recall miles spent walking door-to-door delivering Fuller Brush catalogues for a penny or so a copy.
We expect an awful lot from our schools nowadays in addition to the "3Rs" many here recall from our youth. We've added sex education, cultural identity and awareness, substance abuse, health classes and child care, along with education in career fields like food service or auto repair. Than there's the entire field of computers and technology which did not even exist in our youth. All this is being attempted while austerity reigns and school funding diminishes in many states. And we wonder why our kid can't tell us who fought the Hundred Years War or when it was fought.
I don't think it's a knock against my parents or teachers, but my first real education in financial literacy came during my senior year of college when Shell Oil mailed me a credit card without any request in my part or any inquiry into my credit record (I had none). After a year of driving around with "free" gas and paying only the small monthly minimum, I reached the "max" on the account and realized the free ride was over. Time to start paying back instead of continually borrowing. And, once I landed a job, the pile of government backed loans I had counted on for my education suddenly required repayment - a process that left me encumbered to the banks for many years to come. Now that's an education in financial literacy. And one that's difficult to convey to a classroom full of 10 or 15 year old kids.
As circumstances like those above led to an awareness of the issue, I found I already had the necessary working tools at hand, for I had received a generally good high school education which included above all else mathematics, and also some keyboard skills, organizational skills and even reading and writing skills, all of which aided in the formation of a working household budget and a savings plan. Friends and co-workers added to my awareness of the various investment opportunities available to small investors, like mutual funds, and investing began.
I suppose the one area that would have helped in high school was an awareness of the many different investment opportunities available - especially how mutual funds work. Some hands-on simulations whereby one purchased funds or stocks or bank CDs and tracked their progress would have helped. Unfortunately, mutual funds would have been in their infancy in those days if they even existed. And few in the community owned stocks so that inclusion of such training in school curriculum surely would have raised some eyebrows - not necessarily in a positive way. I believe that many schools now do include these types of hands-on experiences for their students.
Sorry Tampa Bay - but this is well over 40 words. You surely dropped-out somewhere into the third sentence. Needn't bother to respond. I sincerly hope you don't.