The Tycoon Report

Should Investing Courses Be Mandatory In High Schools?

When I was growing up, we had High School courses like English, Math, Social Studies,and Science. There were no classes on Economics, nor Business, nor Investments. My parents taught me the importance of savings, but never about "investing" in stocks or real estate or commodities. That was for rich people only. We used to laugh at the pictures of the Real Estate Tycoons on the Monopoly board.

We had Christmas clubs, and used to get our savings passbook stamped at the bank each time we put in a few bucks, courtesy of Uncle Davey or Aunt Irene. Money that wasn't saved usually went towards baseball cards- but those were the days when you "flipped" the cards against the wall, well before the days when you put them into $2 plastic holders and sold them on Ebay.

I saw a debate the other day on CNBC between Robert Reich, the former Labor Secretary, and Steve Moore, of the Wall Street Journal. The subject was "should there be mandatory meetings with credit counselors for people taking out mortgage loans". Reich argued that it was a good idea, and would only take an hour of the applicant's time, while Moore said we are creating a "nanny state" by mandating meetings like that. Moore added that it was Congress and the Feds who urged banks to make loans to low income persons, and asked increduously "why didn't they (the borrowers) read the contract?"

I thought about both sides for awhile, and came to the conclusion that people don't read the contracts because they don't truly understand finances and investments, but they are too embarrassed to admit it. So they just sign, putting their trust and faith in the banks who are advising them. And as we have seen, this has now led to huge problems in the housing market.

Financial illiteracy is rampant in American society. Many people have difficulty balancing a check book or doing simple budgeting. Credit card balances are through the roof, and Americans are saving less than any time since the depression. Many people have 401k programs through work, but have no idea what they're even investing in each month. The lessons of Enron and World Com have now taught us to diversify, but not until thousands of people had already lost their life savings.

Although economics and finances are taught in College curriculums, there are still a large number of people who either don't go to college, or who go but do not take these courses. While one can learn all about investing from independent reading, this is not the norm for most people.

So in my mind, the answer lies in teaching mandatory programs of Economics, Finances, and Investing at the high school level. Schools already teach life skills such as Drivers Ed and Computers, and these are additional areas that are just as important.

Perhaps if people learned more about budeting, staying out of debt, and investing, there would be far less need for the high risk mortgage loans, such as interest only, ARM's, or no money down. And those who still choose to take alternative loans will at least understand better what they are getting into. Why wait until you are signing for a mortgage to learn the lessons you could be learning years earlier?

I think Mr. Reich is correct. A one hour, mandatory course is not too much to ask of a person who is applying for any type of non- conventional financing. But the requirement should come from the banks, not from the Federal Government. I think if banks are going to lend money in non-traditional ways, they should have the right to make sure the borrower understands what they are taking on. The responsibility needs to be shared between lender and borrower. Recent attempts to portray one as the lamb and the other as the wolf are simply narrow sighted and skewed.

Since so few parents have the time nor the knowledge to teach their children the financial fundamentals of life, we simply had better leave it to the High Schools to provide the skills that all of us so desparately need. If we continue to send young people out into the world with no financial skills, and then tell them "go invest in Real Estate, stocks, and other financial instruments", then we will continue to endure melt downs like the recent one which may yet cripple financial institutions and markets around the world.