Then severe correction happens on the market, most people are more interest to know what is going on with their stocks every hour instead of wondering what really happen and how to avoid this situation in the future. It is obvious that financial institutions such as Lehman Brothers, AIG, Bear Sterns and all the others abused the financial system.
They played a game with high risk, temporary reward and an absolute loss at the end of the night.
Other people will blame commercial banks of lending to people who can’t afford mortgages or credit card companies of advertising everywhere until they get you in their claws. However, I think the problem has a deeper root; financial education.
I was re-reading an old post I wrote about the lack of financial education in our school. I don’t know how it goes in your country, but in Canada, there is no such thing as credit 101 or basics of financial planning for teenager. However, we have Much Music offering a pre-paid Master Card for people of 16 years old!
I truly believe that we should teach the basic of personal finance to our teenager. At the age of 14, 15, they start working and paying for themselves for specific goods. They have been bombarded by advertisement since they were born and they now have the chance to buy all those goods without asking anybody. In a few years, they will have the right to have a $500 student credit card and max it out to buy new clothe, the latest IPod or a Playstation 3 (hum… I wish I was 18 again!).
I can imagine a class separated in 4 parts:
– Credit 101: we would learn the basic of credit, the impact of interest charges when minimum payment is made on a credit card, how to manage credit cards properly and the result of bad credit over time.
– Saving 101: we would learn how to save money efficiently. How to resist ads’ temptation and how to find good deals (who would not listen if you tell them how to save $25 on their $200 Diesel jeans?).
– Investment 101: we would learn the power of compounding interest, basics of diversification and the advantage of periodic investment.
– Retirement planning 101: This would be joint with Investment 101 in order to show them how saving at the age of 15 for their retirement would make them millionaires. They have to know the basics of retirement plans (such as RRSP’s or 401k) and the impact of inflation over time.
A stronger education builds a stronger society. Since economic is the base of our North American system, it seems normal to me that we teach it to our kids!
Now I just wish one day some politicians will get to this blog and steal my idea 😉