Before reading on, if you haven’t participated in this week’s giveaway, open up this article in a new window or tab and add your comments about asset allocation. You can win two interesting books just by leaving a comment.
Thanks to everyone who contributed to the discussion about who is to blame for poor money management skills that lead individuals, especially younger people, into debt and other financial problems. Do we blame the individual solely? The parents, school system, or government? Or does the fault reside with the “evil” credit card companies who use clever marketing?
Here are some of the thoughts presented by commenters. Broadway says:
I believe that any blame must be assigned equally to all parties. Attempting to point a finger at one entity and assigning all or most of the blame to it is what is wrong with society. There are no quick fixes or easy solutions. Society is complex… One solution that I believe will attack the cause(s) is to teach critical thinking skills early (and often) in our educational system.
There’s a lot of discussion about how parents don’t teach their children “about money,” but I think the problem goes far beyond whether parents fail to explicitly discuss compounding interest with their children — the astounding number of parents who actively encourage their children to spend money foolishly on image.
MillionDollarCountdown takes responsibility:
From my point of view its personal responsibility. No one forces me to buy anything. Yes, I know there are advertisements and the peer pressure. But all said and done its me who pulled out the credit card.
* “There is ONLY ONE THING TO BLAME (if you must call it that) and it is GREED!”
* “Maybe there really is nobody to blame. CC companies operate within the law… I think itÃ¢â‚¬â„¢s the responsibility of parents and our educational system to do a better job of teaching people how to manage their finances.”
* “Yes, the CC companies are taking advantage of people that simply are not educated on the issue of personal finance. But is it really their responsibility to ensure that their customers do not abuse the credit they have?… I attended a top notch private college preparatory school… it is inexcusable that they never touched on the issue of personal finance. I think it should be mandatory.”
* “[U]nless we do something to change the sort of thinking that says new clothes are more important than a $0 balance, the debtors are going to outweigh the rest of us.”
Finally, here are my thoughts.
First of all, I loaded the discussion question by asking who is to blame, as if one entity could be the cause of everything that is wrong with society. Of course, that is not the case; there is a lot of stupidity out there. That’s a little harsh. Stupidity isn’t really the issue. Here is what I do see in my unscientific observations:
Step 1. Parents model behavior and attitudes towards materialism. Before kids are exposed to media and are able to comprehend messages from marketers, they watch their parents. They see their parents acquiring things before the children are old enough to understand the concept of money exchange. The message they learn: “Things make people happy, things are good.”
Step 2. Children develop the concept of desire based on what they see in their parents and in older siblings, playmates, etc. They see people having desire for things, and experiencing happiness when those things are received. They don’t always see that sometimes desire must go unfulfilled. Desire leads to acquiring things, which leads to pleasure.
Step 3. Thanks to the child’s environment, children attach the feeling of desire to the objects that appear to be the most desirable by others. Johnny has a T.M.X. Elmo, the toy is fun and Johnny is happy, therefore I want a T.M.X. Elmo so I can be happy (and attract the attention and envy of the social group and move up the ladder).
Step 4. Here’s Spongebob (and any children’s show designed to sell its own merchandise and sell ad space). Children, instead of playing with their friends, get pleasure from watching television. Most of television is designed to sell. Commercials depict kids expressing desire, receiving things, and being happy. Kids immediately relate to the characters in the commercials and know they will also be happy with the things being sold.
Interlude. At this stage, the parents can exert influence, if they choose to do so. It’s hard to compete with social groups and television, but if the parents model moderate materialism and delayed gratification, children may be more prone not to express frustration if they cannot have what they want. In the same vein, excessive spoling and catering to the children’s perceived desires may also damage the situation in the long run.
Let’s fast-forward a little bit.
Step 5. As children mature, they begin to understand the concept of earning and spending money. If they’re not taught by their parents, they will learn elsewhere. Any lack of knowledge creates a void that will be filled in by whoever manages their first exposure. This is why it might be a good idea for some children to get a job during high school. I wouldn’t say that’s a good idea for everyone, but some children may need this hands-on experience before tackling the ideas in a more conceptual manner. Working at a job, with monitoring by parents, can be better for financial education than a class in school, which brings me to the next point.
Step 6. Schools, especially those in the government-controlled public school system, will generally not teach money management classes. Why not? Schools are all ready under pressure to expand their offerings to include humanities, philosophy, arts, music, foreign languages, physical education, and extracurricular activites aside from the science, social studies, mathematics, history, and English core curriculum. There is too much competition for time, not enough teachers, and far too little money. Is money management more important than the other subjects above? Some may say yes, but that doesn’t mean it’s the job of the public school system.
Interlude. There’s the popular belief that the public school system exists to create good, loyal consumers, without much independent thinking. I wouldn’t say that’s the case everywhere, but if it is true, it runs counter to the idea that money management classes should be offered.
By the way, personal finance classes have been shown to do more harm than good for teenagers in at least one study.
Step 7. Before you know it, your children are off to get a full-time job or enroll in a public or private college. Money management courses are generally not found here, either. If the college student is like most, this is the first significant time away from the constant influence of parents. If you haven’t done a good job as a parent by this point, you may just have to pray that they are able to figure things out on their own. It starts with college orientation: these days, you’ll find booths and tables set up with representatives giving away free things (remeber “things” from the earlier stages above?) like t-shirts and Frisbees. The light goes on… all that’s needed for the pathway to endless instant gratification is to fill out an application. The kids are used to applications at this point, having applied to a bunch of schools: one or two they’d never get into, a few safe schools, and several realistic choices.
This is the moment of truth. Perhaps the student is prepared to handle a credit card wisely. However, remember that if there is a void of knowledge, the void will be filled by the first reasonable association. That might be a free t-shirt and the promise that anything can be bought — even necessary things, like food — without any supporting funds. Is it the credit card company’s fault that no one has fully educated some of these children? Of course not, but the credit card companies make a lot of money catering to the empty-headed students, and the companies do not put any effort into fully educating the prospective customers.
At this age, some children (yes, they are children in some ways, even at 18 years old) are not ready to handle the responsibility that is being dangled in front of them like a carrot, even after the best modeling and teaching by parents in earlier years. I’m not saying that there should be a required age before credit is issued, like a driver’s license, but different people develop mentally at different speeds, regardless of the effort parents put into modeling and teaching.
So no one’s fully to blame, but my observations lead me to believe most of the damage is done earlier rather than later, and the point at which parents can have the most influence is also earlier rather than later. The trick is that many kids don’t have the cognitive ability to understand the intricacies (or even the basics) of money management at the time they are most susceptible to their parents. This is what makes development so difficult and creates a “blank slate” that credit companies are eager to fill with nonsense.
On the other hand, parents cannot be quick to fully dismiss societal habits that allow children to move upwards in the social ladder. There is much more that goes into teaching kids how to function in society besides moderating materialistic intentions. Most of the times I speak to parents — I am not a parent myself — who have well-functioning older children, they attribute the situation to luck.
Feel free to share any comments, including your own experiences even (and especially) if they contradict anything I’ve written.
Updated February 10, 2011 and originally published October 12, 2006.