Lack Of Education Has Contributed To Economic Woes

Posted on November 8, 2011

For years, I’ve been writing about the failure of our educational system to teach financial literacy. Why has no one has mentioned the possibility that today’s financial crisis might have been averted if basic money management had been part of our school curriculums? Anyone with minimal financial literacy should have been able to see the problem coming. It doesn’t take an economist to understand that you can’t live forever on borrowed money. This is especially true when a significant portion of the borrowers aren’t credit worthy.But, if you think we are currently in a crisis, just wait. You ain’t seen nothing yet! Let me offer a simple example before I give you the big picture. Imagine a family living a standard of living that costs $5,000 per month, but their total household income is only $4,000. They draw upon their credit cards and lines of credit to get the extra $1,000 per month needed to support their lifestyle. In the beginning, the payments on the debt are manageable and everyone is happy, but as the debt grows, the debt service becomes a significant burden. Eventually they face a crisis; they either have to earn more, spend less or be forced into bankruptcy.

That’s where our nation is today and the current crisis is just the tip of the iceberg. Here are some staggering numbers to which no one seems to want to pay attention. As of November 2011, after all the bailouts, the federal debt was just shy of $15 trillion, but that doesn’t include the unfunded portions of Medicare, Medicaid and Social Security. When these amounts are added the total rises to $116.3 trillion. That’s over $1,000,000 per taxpayer. But wait! There’s more. Add to this nearly $3 trillion in state and local government debt and almost $16 trillion in consumer debt and you have a nation facing eventual bankruptcy unless we rein in spending and start paying off the debt.

Over the past 40 years, we have created the most envied standard of living in the world. The problem is, it has been done with massive debt. The current financial crisis is nothing more than a gentle breeze rattling the house of cards compared to the inevitable collapse that could come if we don’t start getting our house in order. Just as the family in the earlier example will eventually exhaust their ability to borrow and be forced to take drastic and painful measures, like Greece, so will our country.

Currently over 25 percent of our federal debt is held by foreign countries. Japan and China hold over $1.5 trillion of it. Imagine what would happen if either country stopped investing in US treasury back securities and decided to unload the ones they already hold. It would make today’s financial crisis look like a mosquito bite compared to a rattlesnake bite. It probably wouldn’t kill us, but it would sure create a painful experience that practically everyone would feel. Don’t think it couldn’t happen. Neither did the Greek population. The moment the rest of the world fears that we are becoming overextended, they will do like any other lenders and cut off our credit.

Today’s dilemma is how to get politicians to make responsible decisions when those decisions may cost them reelection. Reining in run-a-way spending and asking constituents to make sacrifices is not popular. Lacking basic financial literacy, it’s impossible for most people to understand that the euphoric feeling which accompanies an increasing standard of living is unsustainable when it’s done with borrowed money. That’s why I’m such an advocate of placing special emphasis on teaching personal financial literacy in our public schools. An educated populace will be better able to understand and accept the tough decisions that are needed to put our financial house in order.

Until elected officials stop putting reelection ahead of what’s best for the citizens, we are going to continue having economic problems. More government intervention is not the answer! As Gerald Ford said in his address to a joint session of Congress on August 12, 1974, “A government big enough to give you everything you want, is big enough to take away everything you have.” We have to educate ourselves so we can understand and deal with the problems. Thomas Jefferson said, “If a nation expects to be ignorant and free…it expects what never was and never will be.” We need more personal responsibility and fewer government bailouts.

Here’s a tip! Visit the website www.usdebtclock.org to see the problem and how rapidly it is accellerating. Then think! Individually, there may not be much you can do to influence out of control government spending, but you can put your own house in order. A good place to start is by learning basic consumer economics. If you have been living above your means and have racked up a pile of consumer debt, now is the time to go on an austerity program. Reduce your spending to a bare minimum and start paying off your debts. When you become debt free, your future will belong to you instead of being owned by your creditors. Tomorrow’s income can be used to start a regular program of saving and investing instead of making debt payments. That’s the way to secure your future. The more wealth you can build, the less impact tough decisions will have on you when they finally have to be made.

As many Americans are now discovering, the dream of owning your own home can quickly turn into a nightmare when you don’t follow sound financial principals. I believe lack of financial education has contributed as much to people losing their homes as the unscrupulous lenders who made them their loans. We all have to take the blame for tolerating this major failure of our educational system, but we don’t have to keep tolerating it.

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