The President's "Deficit Commission" is composed of members of both political parties, who are expected to make recommendations to deal with the burgeoning national debt. Fat chance! The entitlements are off the table.
Instead, the commission is exploring various ways to raise tax revenues through the mantra of "tax reform." No effort is being made to curb spending, other than military spending. This is a complete waste of time and taxpayer money.
Without a plan to phase out the entitlements, medicare, medicaid and social security, there is no hope of dealing with America's long term public indebtedness.
The Commission reports its findings on December first. At that point there will be an effort, no doubt, to ram through the commission's so-called bi-partisan suggestions that all amount to higher taxes and a weakened military. Even that won't help.
Monday 25 October 2010
Wednesday 20 October 2010
The Daunting Task Ahead
Krugman and other Democratic loyalists are forever pointing out that the national debt was a much higher percentage of GDP at the end of World War II and therefore we should not be concerned about the high debt levels of the present day. These arguments are completely disingenuous.
During World War II, America mobilized a huge effort to produce guns, tanks, aircraft and other war-related goods. When the war ended, there was no longer a need for all of this spending and spending levels were dramatically reduced almost overnight. There were no "hard decisions" about reducing spending. The war was over.
Today, spending is driven by entitlement programs that large parts of the American public depend upon and expect to see continued. Spending, long run, can only be reduced by essentially eliminating these entitlement programs -- restraining them won't work for the same reasons that they have never been restrained.
Both federal and state spending is mostly driven by entitlements. It isn't fraud and "wasteful" spending. It is the entitlements. It is not the war in Iraq and the war in Afghanistan. It is the entitlements.
So, unless Krugman and his loyalist band of the Democratic faithful are proposing massive cuts in entitlement spending, which last I checked they weren't, America faces a massive debt crisis that will, in the end, require the same solution that Europe is now moving toward -- eliminate the entitlements.
During World War II, America mobilized a huge effort to produce guns, tanks, aircraft and other war-related goods. When the war ended, there was no longer a need for all of this spending and spending levels were dramatically reduced almost overnight. There were no "hard decisions" about reducing spending. The war was over.
Today, spending is driven by entitlement programs that large parts of the American public depend upon and expect to see continued. Spending, long run, can only be reduced by essentially eliminating these entitlement programs -- restraining them won't work for the same reasons that they have never been restrained.
Both federal and state spending is mostly driven by entitlements. It isn't fraud and "wasteful" spending. It is the entitlements. It is not the war in Iraq and the war in Afghanistan. It is the entitlements.
So, unless Krugman and his loyalist band of the Democratic faithful are proposing massive cuts in entitlement spending, which last I checked they weren't, America faces a massive debt crisis that will, in the end, require the same solution that Europe is now moving toward -- eliminate the entitlements.
Wednesday 13 October 2010
QE2, The Yuan, and The Beat Goes On
Stock markets around the world have rallied by double digit percentages since early September. The financial news, of course, must explain this. (Explain the unexplainable -- that is their mission).
Enter "QE2:" QE2 means the Federal Reserve buys huge (think Trillions of dollars) amounts of treasury securities. This is the equivalent of printing money. QE2 is thought to be the great solution to our current malaise. The fear is that we may be collapsing into a deflationary spiral and only QE2 can save us. This is ridiculous of course. Printing money is never an intelligent monetary policy and there is certainly no evidence of deflation in the US economy.
Another non-issue is the Yuan. Tim Geithner simply cannot let a day go by without blasting Chinese authorities for not raising the value of the Yuan (and thereby further crushing the value of the dollar). This is no solution to our woes either. It is time to send Geithner back to to school to sit through a few economics classes. Geithner has no clue.
No one knows why markets go up except that when folks are especially negative on the future that typically leads to good markets. That's probably why we are where we are. The average shareholder has no particular interest in QE2, the Yuan, or any other irrelevancies.
Enter "QE2:" QE2 means the Federal Reserve buys huge (think Trillions of dollars) amounts of treasury securities. This is the equivalent of printing money. QE2 is thought to be the great solution to our current malaise. The fear is that we may be collapsing into a deflationary spiral and only QE2 can save us. This is ridiculous of course. Printing money is never an intelligent monetary policy and there is certainly no evidence of deflation in the US economy.
Another non-issue is the Yuan. Tim Geithner simply cannot let a day go by without blasting Chinese authorities for not raising the value of the Yuan (and thereby further crushing the value of the dollar). This is no solution to our woes either. It is time to send Geithner back to to school to sit through a few economics classes. Geithner has no clue.
No one knows why markets go up except that when folks are especially negative on the future that typically leads to good markets. That's probably why we are where we are. The average shareholder has no particular interest in QE2, the Yuan, or any other irrelevancies.
Monday 11 October 2010
Asset building or debt management?
At the risk of making my blog look dangerously like a travel diary, I write this having returned from Oxford University where I spoke about financial capability at a conference composed of academics, the insurance industry (mostly Allianz), and policy makers. Oxford has a magnificent campus, and I could devote many paragraphs describing the beautiful Corpus Christi college, where the conference was held, but I will instead write about financial capability.
As you may know from previous posts, FINRA Investor Education Foundation supported the National Financial Capability Study, a project done in collaboration with the U.S. Treasury. The National Financial Capability Study consists of three linked surveys: (1) the National Survey, a nationally projectable telephone survey of 1,488 American adults; (2) the State-by-State Survey, a state-by-state online survey of approximately 25,000 American adults (roughly 500 per state, plus the District of Columbia; and (3) the Military Survey, an online survey of 800 military service members and spouses. At my visit to Oxford, I presented the data from the National Survey, administered to respondents between May and July 2009.
The National Survey shows that financial capability is low in the United States, and this lack of financial capability has important implications not only for policy but for the economic system in general. As I discussed at the conference, when people talk about financial security, they tend to focus on asset building. With the shift that occurred in the past twenty years from Defined Benefit (DB) to Defined Contribution (DC) pension plans, individuals have been put in charge of deciding how much to save for retirement and how to allocate their pension wealth. They have to make those choices in the face of financial markets and financial products that are increasingly more complex. As documented in the National Survey, people do not seem well equipped to make the necessary financial decisions. Only 30% of Americans can correctly answer three basic questions related to calculating interest payments and to inflation or risk diversification, concepts that are at the basis of most financial decisions. Several studies have argued that many workers are poorly managing their retirement accounts and pensions funds. We had a glimpse of this with the failure of Enron, which revealed that many Enron employees were heavily invested in company stock; not an ideal way to diversify risk. But DC pensions have not matured yet, and it will be another twenty years before we see how individuals have fared in mostly independent management of retirement savings and investments. Current pensions are mostly paid out by DB schemes, and even the baby boomers who are starting to retire will rely mostly on savings that were part of a DB plan or a mix of DB and DC plans.
If we want to talk about financial security and witness the impact of lack of financial literacy on financial behavior, we have to turn to debt. One other important recent change in the economy has been an increase in opportunities to borrow. Consumer credit, like DC pensions, was rare in the past but has now become available to a large share of individuals, and decisions about how much to borrow have shifted onto individuals. Consider credit cards. Credit card offers arrive in the mail and one can borrow a large amount of money by simply using more and more cards. No one is checking to see whether individuals are borrowing an amount that they can realistically repay. With sub-prime mortgages, almost anyone who wanted a mortgage could get one; banks were not checking to see whether borrowers could afford the loan contract they were getting into. I have used before the analogy of a water faucet: with plentiful and readily available credit, the faucet was fully open and one could draw as much water as was desired; it was up to the consumer alone to decide when to turn off the tap.
What are the consequences of these changes to the economy, and how well are consumers doing on debt behavior? Unlike poor asset building and asset management, the consequences of poor debt behavior can be seen in the short run. Personal bankruptcy rates have skyrocketed, tripling in a matter of ten years. Most sub-prime mortgages went bust, sinking both the banks and the consumers who engaged in them. I hardly think I have to tell you the statistics that have resulted from the National Survey (although being an academic, I will, so bear with me), because American’s problems with debt have been so widely apparent in the last few years. But the findings from the National Survey clearly document just how widespread debt is in the U.S. population. For example, 23% of Americans have engaged in high-cost methods of borrowing in the past five years (payday loans, pawn shops, and the like). In other words, more than one in five Americans has borrowed at interest rates that can be as high as 1000%. Fewer than half of those who have credit cards pay their bill in full each month, and a sizable share of those who borrow on credit cards engage in behavior that generates not only interest payments but also fees. One disturbing result is that many of those who use credit cards in ways that generate interest payments and fees are close to retirement—the people who should be at the peak of their wealth accumulation are instead borrowing at rates that are much higher than those earned on their assets. Another equally disturbing feature is that many of those who carry credit card balances do not know the interest they are paying on their balance. Similarly, many mortgage borrowers do not know some crucial terms of their mortgages. And while about half of the population have retirement accounts, many have been borrowing on those accounts, in effect borrowing on themselves.
These finding bring me to three thoughts. First, it is very limiting to assess financial security by looking at asset building only. One of the ways to help people achieve financial security may be to help them manage their debt. In any case, one cannot look at one side of a household balance sheet (assets), without focusing on the liability (debt) side. Second, we have clearly seen how poorly individuals manage debt when they are put in charge of it without any consideration of what they know and how they make financial decisions. Third, there may be another crisis brewing around DC pensions. In twenty years, when workers with DC-only pensions start retiring and are confronted with the decision of whether to take their pension payments (however small or large) in a lump sum or to annuitize, we will fully understand the consequences of the shift in pension plans. We can act now and prevent a potential crisis by empowering workers with both financial knowledge and help.
Walking through the beautiful gardens of Corpus Christi and the New College in Oxford it was difficult to think of financial crises and their devastating consequences. But mistakes can build up silently and explode without much warning. We all need to be better prepared to live in today’s world of individual financial responsibility.
As you may know from previous posts, FINRA Investor Education Foundation supported the National Financial Capability Study, a project done in collaboration with the U.S. Treasury. The National Financial Capability Study consists of three linked surveys: (1) the National Survey, a nationally projectable telephone survey of 1,488 American adults; (2) the State-by-State Survey, a state-by-state online survey of approximately 25,000 American adults (roughly 500 per state, plus the District of Columbia; and (3) the Military Survey, an online survey of 800 military service members and spouses. At my visit to Oxford, I presented the data from the National Survey, administered to respondents between May and July 2009.
The National Survey shows that financial capability is low in the United States, and this lack of financial capability has important implications not only for policy but for the economic system in general. As I discussed at the conference, when people talk about financial security, they tend to focus on asset building. With the shift that occurred in the past twenty years from Defined Benefit (DB) to Defined Contribution (DC) pension plans, individuals have been put in charge of deciding how much to save for retirement and how to allocate their pension wealth. They have to make those choices in the face of financial markets and financial products that are increasingly more complex. As documented in the National Survey, people do not seem well equipped to make the necessary financial decisions. Only 30% of Americans can correctly answer three basic questions related to calculating interest payments and to inflation or risk diversification, concepts that are at the basis of most financial decisions. Several studies have argued that many workers are poorly managing their retirement accounts and pensions funds. We had a glimpse of this with the failure of Enron, which revealed that many Enron employees were heavily invested in company stock; not an ideal way to diversify risk. But DC pensions have not matured yet, and it will be another twenty years before we see how individuals have fared in mostly independent management of retirement savings and investments. Current pensions are mostly paid out by DB schemes, and even the baby boomers who are starting to retire will rely mostly on savings that were part of a DB plan or a mix of DB and DC plans.
If we want to talk about financial security and witness the impact of lack of financial literacy on financial behavior, we have to turn to debt. One other important recent change in the economy has been an increase in opportunities to borrow. Consumer credit, like DC pensions, was rare in the past but has now become available to a large share of individuals, and decisions about how much to borrow have shifted onto individuals. Consider credit cards. Credit card offers arrive in the mail and one can borrow a large amount of money by simply using more and more cards. No one is checking to see whether individuals are borrowing an amount that they can realistically repay. With sub-prime mortgages, almost anyone who wanted a mortgage could get one; banks were not checking to see whether borrowers could afford the loan contract they were getting into. I have used before the analogy of a water faucet: with plentiful and readily available credit, the faucet was fully open and one could draw as much water as was desired; it was up to the consumer alone to decide when to turn off the tap.
What are the consequences of these changes to the economy, and how well are consumers doing on debt behavior? Unlike poor asset building and asset management, the consequences of poor debt behavior can be seen in the short run. Personal bankruptcy rates have skyrocketed, tripling in a matter of ten years. Most sub-prime mortgages went bust, sinking both the banks and the consumers who engaged in them. I hardly think I have to tell you the statistics that have resulted from the National Survey (although being an academic, I will, so bear with me), because American’s problems with debt have been so widely apparent in the last few years. But the findings from the National Survey clearly document just how widespread debt is in the U.S. population. For example, 23% of Americans have engaged in high-cost methods of borrowing in the past five years (payday loans, pawn shops, and the like). In other words, more than one in five Americans has borrowed at interest rates that can be as high as 1000%. Fewer than half of those who have credit cards pay their bill in full each month, and a sizable share of those who borrow on credit cards engage in behavior that generates not only interest payments but also fees. One disturbing result is that many of those who use credit cards in ways that generate interest payments and fees are close to retirement—the people who should be at the peak of their wealth accumulation are instead borrowing at rates that are much higher than those earned on their assets. Another equally disturbing feature is that many of those who carry credit card balances do not know the interest they are paying on their balance. Similarly, many mortgage borrowers do not know some crucial terms of their mortgages. And while about half of the population have retirement accounts, many have been borrowing on those accounts, in effect borrowing on themselves.
These finding bring me to three thoughts. First, it is very limiting to assess financial security by looking at asset building only. One of the ways to help people achieve financial security may be to help them manage their debt. In any case, one cannot look at one side of a household balance sheet (assets), without focusing on the liability (debt) side. Second, we have clearly seen how poorly individuals manage debt when they are put in charge of it without any consideration of what they know and how they make financial decisions. Third, there may be another crisis brewing around DC pensions. In twenty years, when workers with DC-only pensions start retiring and are confronted with the decision of whether to take their pension payments (however small or large) in a lump sum or to annuitize, we will fully understand the consequences of the shift in pension plans. We can act now and prevent a potential crisis by empowering workers with both financial knowledge and help.
Walking through the beautiful gardens of Corpus Christi and the New College in Oxford it was difficult to think of financial crises and their devastating consequences. But mistakes can build up silently and explode without much warning. We all need to be better prepared to live in today’s world of individual financial responsibility.
Krugman is a Broken Record; Hooray for Mortenson
In his column this morning, Paul Krugman continues to beat the dead horse of "too little stimulus." Not satisfied with a $ 13 Trillion national debt, is apparently in favoring of moving the US totals toward Greece numbers. It would just take another $ 3 Trillion to get there. Perhaps, Krugman wishes to squeeze Greece out of the headlines. This is Krugman's plan to make American number one (in debt).
It should be noted that Krugman did not receive a Nobel Prize for his work on macroeconomics. This doesn't stop him from holding forth as if he is the high priest of macroecnomics Fortunately, few outside the Obama White House, share Krugman's views and the public has long since jumped off the Krugman train.
Three economists shared the Nobel Prize, announced this morning. One of them, Dale Mortenson, is my old professor and a member of my Ph.d dissertation committee. Mortenson is a great economist and a marvelous human being. Three cheers for Dale Mortenson!
It should be noted that Krugman did not receive a Nobel Prize for his work on macroeconomics. This doesn't stop him from holding forth as if he is the high priest of macroecnomics Fortunately, few outside the Obama White House, share Krugman's views and the public has long since jumped off the Krugman train.
Three economists shared the Nobel Prize, announced this morning. One of them, Dale Mortenson, is my old professor and a member of my Ph.d dissertation committee. Mortenson is a great economist and a marvelous human being. Three cheers for Dale Mortenson!
Sunday 10 October 2010
Obama Adopts the "Big Lie" Strategy
Desperate for something to say on the campaign trail, President Obama is now simply telling baldfaced lies. Worse, hundreds of millions of dollars are being spent on television and on radio to bring those lies to the public.
What lies? That foreign money is being washed through the Chamber of Commerce and is financing campaign adds across the country.
If the lies are truth, not lies, the Chamber is subject to criminal prosecution, since such money be a violation federal law. Obama does not object to George Soros, not an American citizen by the way, spending literally billions to help elect Obama president, but he now libels the Chamber of Commerce.
This man, Obama, has no shame and no sense of decency. If the Chamber is using foreign money, then give Eric Holder, your Attorney General a ring and begin the prosecutions. Otherwise, quit lying.
Incidentally, Mr. Obama, you might let Eric Holder look into MoveOn.Org and countless other Democratic organizations who have never publicly revealed their donors. Why has this only become of recent interest to the White House? November 2nd cannot come too soon. Congress should hold hearings on Mr. Obama's lies regarding campaign finance. This man, Obama, has no shame.
What lies? That foreign money is being washed through the Chamber of Commerce and is financing campaign adds across the country.
If the lies are truth, not lies, the Chamber is subject to criminal prosecution, since such money be a violation federal law. Obama does not object to George Soros, not an American citizen by the way, spending literally billions to help elect Obama president, but he now libels the Chamber of Commerce.
This man, Obama, has no shame and no sense of decency. If the Chamber is using foreign money, then give Eric Holder, your Attorney General a ring and begin the prosecutions. Otherwise, quit lying.
Incidentally, Mr. Obama, you might let Eric Holder look into MoveOn.Org and countless other Democratic organizations who have never publicly revealed their donors. Why has this only become of recent interest to the White House? November 2nd cannot come too soon. Congress should hold hearings on Mr. Obama's lies regarding campaign finance. This man, Obama, has no shame.
Saturday 9 October 2010
9.6 % and Counting
No good news for the President. Unemployment remains historically high and nothing in the foreseeable future will change things. The hardest hit are the "legally protected groups" -- minorities, high school graduates and older workers. This is not unusual.
Congress has mandated all sorts of special rights for these "protected" groups and as a result they will be the last to be hired and will only be hired when the economy is truly frothy. All of the "unprotected" groups, mainly white males between 18 and 40 years of age, will do much better. They are cheaper to hire, easier to fire, and less likely to sue for a workplace grievance. It's as if we designed our labor laws to favor white males and to penalize minorities and others. Whether by design or not, that is certainly the end result.
Obama's dream was to expand government and have the government hire those who support him politically. To some extent, Obama's dream was fulfilled by the Stimulus Act of 2009. But, alas, the public woke up and have called for the expansion of government to end. Bereft of ideas, Obama is now complaining that ordinary Americans simply are not smart enough to understand his policies!
The Obama Administration is now granting waivers to companies who plan to drop health care insurance for their employees. More than 120 large companies, including McDonald's, have now received government-granted waivers from the onerous requirement of Obamacare. What this means is that Obama decides who must obey the new law and who gets away with ignoring it. So much for the rule of law.
The bankruptcy (literal and figurative) of the Obama Administration is on display daily as key Administration figures desert the sinking ship. The tsunami is coming. 24 more days until November 2nd.
Congress has mandated all sorts of special rights for these "protected" groups and as a result they will be the last to be hired and will only be hired when the economy is truly frothy. All of the "unprotected" groups, mainly white males between 18 and 40 years of age, will do much better. They are cheaper to hire, easier to fire, and less likely to sue for a workplace grievance. It's as if we designed our labor laws to favor white males and to penalize minorities and others. Whether by design or not, that is certainly the end result.
Obama's dream was to expand government and have the government hire those who support him politically. To some extent, Obama's dream was fulfilled by the Stimulus Act of 2009. But, alas, the public woke up and have called for the expansion of government to end. Bereft of ideas, Obama is now complaining that ordinary Americans simply are not smart enough to understand his policies!
The Obama Administration is now granting waivers to companies who plan to drop health care insurance for their employees. More than 120 large companies, including McDonald's, have now received government-granted waivers from the onerous requirement of Obamacare. What this means is that Obama decides who must obey the new law and who gets away with ignoring it. So much for the rule of law.
The bankruptcy (literal and figurative) of the Obama Administration is on display daily as key Administration figures desert the sinking ship. The tsunami is coming. 24 more days until November 2nd.
Friday 8 October 2010
Leave China Alone
The level of the Yuan (the Chinese currency) is not even remotely a cause of the economic problems that the US faces. Appreciating the Yuan (and devaluing the dollar), a program advocated by Tim Geithner, is silly policy. The US has a miniscule savings rate and as long that is the case, we will have a huge trade imbalance (almost by definition, since whatever investment activity occurs in the US must have the savings provided from some external source).
It is becoming a bedrock of American economic polical life to blame someone else for our own foolish policies. By blaming others, you never face up to reality.
The cold, hard truth is that Obama's policies have damaged the prospects for a US economic recovery. It is not clear that Obama cares one way or another. He seems focused on other matters. But, Americans care. We will eventually have an economic recovery with permanently higher levels of unemployment. This will be the Obama economic legacy -- economic stagnation and slow economic growth.
Hopefully, after November 2nd, we can begin to remove some of the roadblocks to economic growth that the Obama team has put in the way of the economy. Most of the country would like to return to the bad old days of prosperity, even if Obama prefers not to.
It is becoming a bedrock of American economic polical life to blame someone else for our own foolish policies. By blaming others, you never face up to reality.
The cold, hard truth is that Obama's policies have damaged the prospects for a US economic recovery. It is not clear that Obama cares one way or another. He seems focused on other matters. But, Americans care. We will eventually have an economic recovery with permanently higher levels of unemployment. This will be the Obama economic legacy -- economic stagnation and slow economic growth.
Hopefully, after November 2nd, we can begin to remove some of the roadblocks to economic growth that the Obama team has put in the way of the economy. Most of the country would like to return to the bad old days of prosperity, even if Obama prefers not to.
Monday 4 October 2010
Advice to Parents
Having offered advice to students in a recent blog post, I want to turn now to parents to talk about how they can be advocates for their children’s financial education. As I have mentioned in previous posts, financial literacy is a necessary skill in the modern world, akin to the skills of reading and writing. Just as, with modernization, written literacy became a critical skill, the realities of today’s economies have made financial literacy a critical skill.
What changes have made this a reality? Today’s young people are very aware of and widely exposed to money, and there are many transactions that require an understanding of basic financial concepts, from deciding what to do with allowance or gift money to managing a mobile phone account to allocating earnings from an after-school or a summer job. As they finish high school, young people confront one of their most important financial decisions: whether and how much to invest in education. The wage difference between college- and non-college-educated workers has been increasing, with individuals without a college degree seeing their wages stagnate or even decrease. Lack of a college degree may mean a lifetime of low wages. On the other hand, the cost of education has been increasing rapidly, requiring astute decisions about which college to attend, in which state, and at what cost.
And when they enter the world of work and young adulthood, today’s young people will have to make many other important financial decisions. With the shift in retirement-planning responsibility from employers and government to individual workers, young people will be in charge of deciding not only how much to save but also how to allocate their retirement wealth, and they will have to do so confronting financial markets that are increasingly complex in terms of products offered and management and understanding of those products. Not only asset building but also debt and debt management will be increasingly important. Opportunities to borrow have expanded and, in addition to financing education, young people will have to learn how to manage credit cards and other, often more expensive, methods of borrowing. In such an environment, mistakes are easy to make and, as the financial crisis has indicated, can be very expensive, and costly mistakes may ultimately mean that you—the parent—are supporting your child far beyond the time you had expected to (I know, a scary thought).
There are several reasons why financial education should be offered in school. First, the level of financial literacy is very low; in my view, too low for young adults to be able to make savvy decisions. Moreover, current studies show that financial literacy is unequally distributed in the young population. According to studies from the Jump$tart Coalition for Personal Financial Literacy, only about 9 percent of high school students can be deemed financially literate. And this small proportion of students is disproportionately comprised of white males who have financially sophisticated parents. Thus, students are going to start out on very unequal footing, and differences can only grow larger over time. And even for those belonging to the more financially literate group, it is not clear that reliance on parental know-how and guidance is an effective way of learning; parents’ experience may not apply in a rapidly changing economic environment, in particular one in which young people will be competing in global financial markets filled with people from other nations, who have been exposed to formal financial education in school.
So, what can be done to promote financial education in school? One good start is to request that your child’s high school participate in the Financial Capability Challenge. The Challenge is a voluntary online exam and classroom toolkit that helps educators teach high school students about saving, budgeting, investing, use of credit, and other important skills critical to developing strong financial knowledge and capability. The next online exam will take place between March 7 and April 8, 2011. Educators and students who score in the top 20 percent nationally and who are among the top scorers in their school will receive official award certificates.
The Financial Capability Challenge is an excellent initiative, and it provides a good incentive to both students and teachers for gaining financial education. More than 76,000 students and 2,500 educators in all 50 states participated in the 2009–2010 school year Challenge. I participated in one of the award ceremonies last spring and saw what a rewarding experience it was for the students, teachers, and parents, and I was proud to be able to be part of it.
Become an ambassador for financial literacy by asking your school to participate in this program. Make sure your children will be prepared for the new world they will be facing: for the decisions they’ll need to make about their own education and for the financial markets they’ll have to participate in if they are to provide themselves with a financially sound adulthood.
Educators can begin registering for the Challenge today at http://www.challenge.treas.gov/.
Help spread the word!
What changes have made this a reality? Today’s young people are very aware of and widely exposed to money, and there are many transactions that require an understanding of basic financial concepts, from deciding what to do with allowance or gift money to managing a mobile phone account to allocating earnings from an after-school or a summer job. As they finish high school, young people confront one of their most important financial decisions: whether and how much to invest in education. The wage difference between college- and non-college-educated workers has been increasing, with individuals without a college degree seeing their wages stagnate or even decrease. Lack of a college degree may mean a lifetime of low wages. On the other hand, the cost of education has been increasing rapidly, requiring astute decisions about which college to attend, in which state, and at what cost.
And when they enter the world of work and young adulthood, today’s young people will have to make many other important financial decisions. With the shift in retirement-planning responsibility from employers and government to individual workers, young people will be in charge of deciding not only how much to save but also how to allocate their retirement wealth, and they will have to do so confronting financial markets that are increasingly complex in terms of products offered and management and understanding of those products. Not only asset building but also debt and debt management will be increasingly important. Opportunities to borrow have expanded and, in addition to financing education, young people will have to learn how to manage credit cards and other, often more expensive, methods of borrowing. In such an environment, mistakes are easy to make and, as the financial crisis has indicated, can be very expensive, and costly mistakes may ultimately mean that you—the parent—are supporting your child far beyond the time you had expected to (I know, a scary thought).
There are several reasons why financial education should be offered in school. First, the level of financial literacy is very low; in my view, too low for young adults to be able to make savvy decisions. Moreover, current studies show that financial literacy is unequally distributed in the young population. According to studies from the Jump$tart Coalition for Personal Financial Literacy, only about 9 percent of high school students can be deemed financially literate. And this small proportion of students is disproportionately comprised of white males who have financially sophisticated parents. Thus, students are going to start out on very unequal footing, and differences can only grow larger over time. And even for those belonging to the more financially literate group, it is not clear that reliance on parental know-how and guidance is an effective way of learning; parents’ experience may not apply in a rapidly changing economic environment, in particular one in which young people will be competing in global financial markets filled with people from other nations, who have been exposed to formal financial education in school.
So, what can be done to promote financial education in school? One good start is to request that your child’s high school participate in the Financial Capability Challenge. The Challenge is a voluntary online exam and classroom toolkit that helps educators teach high school students about saving, budgeting, investing, use of credit, and other important skills critical to developing strong financial knowledge and capability. The next online exam will take place between March 7 and April 8, 2011. Educators and students who score in the top 20 percent nationally and who are among the top scorers in their school will receive official award certificates.
The Financial Capability Challenge is an excellent initiative, and it provides a good incentive to both students and teachers for gaining financial education. More than 76,000 students and 2,500 educators in all 50 states participated in the 2009–2010 school year Challenge. I participated in one of the award ceremonies last spring and saw what a rewarding experience it was for the students, teachers, and parents, and I was proud to be able to be part of it.
Become an ambassador for financial literacy by asking your school to participate in this program. Make sure your children will be prepared for the new world they will be facing: for the decisions they’ll need to make about their own education and for the financial markets they’ll have to participate in if they are to provide themselves with a financially sound adulthood.
Educators can begin registering for the Challenge today at http://www.challenge.treas.gov/.
Help spread the word!
Sunday 3 October 2010
The End of the Obama Agenda
Whatever the outcome on November 2nd, the Obama agenda is finished and cannot be resuscitated. Most of the economic agenda was aimed at pumping up the income of union and public sector employees. The health care system has been trashed and the financial sector lies under the most burdensome regulatory environment in history. Meanwhile ordinary Americans are still losing their jobs, their homes, their credit cards and their health care insurance. No wonder life is tough for Democrats.
The Obama answer to the enormous backlash to his first twenty one months in office is that the public doesn't understand his program. Unfortunately, for Obama the public does understand his program and has been opposed to it from the beginning.
Having nothing to run on but an incredibly unpopular legislative record, the Democrats, actively encouraged by President Obama, are resorting to mud slinging and personal attacks. That's about all they have left. This is the new politics that will be Obama's legacy to the American system.
Obama says that Americans don't understand. Yes, they do. The two biggest lies in the past two years are: 1) No one will lose their health insurance; and 2) We are bending the (health care) cost curve down. It's hard to imagine anyone in America, including folks in the White House, believe those lies anymore.
It is an Administration in shambles. The rats are leaving the sinking ship. The dream is over. Interviewed on public radio, students who lead the charge for Obama in 2008, were unanimous in their view that "Congressional elections aren't cool...I don't even know who my Congressman is...." So the students will sit this one out, but the adults will not sit this one out.
The Republicans will gain 65-70 seats in the House and 8-10 seats in the Senate. The era of Obama is over.
The Obama answer to the enormous backlash to his first twenty one months in office is that the public doesn't understand his program. Unfortunately, for Obama the public does understand his program and has been opposed to it from the beginning.
Having nothing to run on but an incredibly unpopular legislative record, the Democrats, actively encouraged by President Obama, are resorting to mud slinging and personal attacks. That's about all they have left. This is the new politics that will be Obama's legacy to the American system.
Obama says that Americans don't understand. Yes, they do. The two biggest lies in the past two years are: 1) No one will lose their health insurance; and 2) We are bending the (health care) cost curve down. It's hard to imagine anyone in America, including folks in the White House, believe those lies anymore.
It is an Administration in shambles. The rats are leaving the sinking ship. The dream is over. Interviewed on public radio, students who lead the charge for Obama in 2008, were unanimous in their view that "Congressional elections aren't cool...I don't even know who my Congressman is...." So the students will sit this one out, but the adults will not sit this one out.
The Republicans will gain 65-70 seats in the House and 8-10 seats in the Senate. The era of Obama is over.
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