Yesterday, Ben Bernanke spoke to teachers across the United States in a video-conferenced town hall-style meeting. Several teachers were invited to participate in Washington, while others attended the meeting from distant locations aided my modern technology. I wasn’t able to watch the live broadcast of the meeting, but I watched the hour-long recording this morning. I was interested to hear the Federal Reserve Board Chairman’s opinions pertaining to financial education.
I was glad to see that Bernanke, while recognizing the important role of an education that includes civic, macroeconomic, and personal finance matters, did not call for a curriculum that requires all students to take money management classes. Instead, he called for the incorporation of education about these important matters into existing required classes, and in some cases, offering Advanced Placement classes for students who wish to take their economic education to a college level. He clearly outlined a difference between lessons pertaining to personal finance and those pertaining to the understanding of economics and the Federal Reserve’s role in the economy.
Bernanke said money management lessons should focus on five core competencies:
- Earnings and income, including matters such as net pay versus gross pay and employee benefits.
- Saving and investing.
Offering these lessons is just a start. Students need to soak in the information and apply concepts to their own lives as they become responsible for their own financial situations. For those who need this type of education the most, teachers sometimes don’t come across as the appropriate role models, and this makes transmission of life lessons difficult. Great role models are much more important for the development of children into responsible young adults, and in some communities, those role models can be difficult to find.
Even when the lessons are effective, there is a generational gap. It takes time for the lessons in a school district to have an effect in its community. Since schools, for the most part, address the education needs of only children, the lessons become part of families’ culture only when those children have children of their own. It’s at that point the the lessons in money management can become culturally absorbed and have a wider effect on the socio-economic status of a community.
But Bernanke raised a great point that I hadn’t considered. Teachers can require students to participate in “intergenerational homework assignments.” I’ve always recognized the importance of parents involving their children in educational opportunities outside of the school, but by requiring students to talk to their parents and perhaps grandparents about sound money management strategies, there is an increased possibility of money management skills being transmitted indirectly from trained teachers to parents currently making financial choices via the student.
For example, a lesson could focus on the comparisons between leasing and buying a car, with the purpose of showing how owning a car outright could have a significant reduction effect on the overall cost of ownership. Part of the assignment could require real world calculations stemming from, if possible, a parent’s choices. The student and the parent could work together to develop the calculations, and as a result, both people involved in the assignment might make better financial choices at the next car-buying opportunity.
Education alone will not solve financial problems and prevent recessions. In his remarks, Bernanke offered a limitation of the efficiency of the market: the invisible hand operated well when the information driving decisions is complete. He pointed out in answer to a question that the primary driver for the recent recession was the fact that financial firms were trading products without having complete knowledge of what those products contained. An education in economics and personal finance might help consumers make better choices, but won’t prevent companies attempting to manipulate consumers and the market at large for their own (and their shareholders’) advantage.
The chairman echoed my thoughts on the value of higher education. When faced with a question about the growing problem of student loan debt, Bernanke justified the existence of a system that allows for wide opportunities for a college education. He stressed that money management lessons — with better guidance from teachers and school counselors — can help students make better choices about going into debt for an education based on their chances of being able to repay that debt with their chosen career path. At the same time, he defended the idea that education expenses are an investment in the future, pointing out how human capital can’t be dismissed in the analysis of a decision pertaining to higher education.
You can watch the entire town hall below, or read the transcript. The transcript only includes Bernanke’s prepared remarks; the bulk of the town hall meeting consisted of questions from around the country and Bernanke’s answers. The questions for the most part sought the chairman’s opinion about what to teach and how to teach it, pertaining to the topics of personal finance, the economy, the markets, and the Federal Reserve itself.