Can Financial Literacy Stop Another Crisis?
April 11, 2009 by Miranda Marquit
Filed under Finance
Since April is Financial Literacy Month, it is no surprise that there is a great deal of speculation right now about the efficacy of financial education. One of the reasons that we are in the midst of the worst recession since the Great Depression, the theory goes, is that 
financial education is not a priority. Consumers do not have the knowledge necessary to make informed, financially sound decisions. The lack of education with regard to how money works is one of the culprits being blamed for our current financial situation as we country.
There is some merit to this theory. After all, part of the reason we are in this mess is because many consumers thought that they could get easy credit and use it to buy things they wanted immediately. Credit card debt, creative home mortgage financing and the belief that there wasn’t much need for savings are all contributors to our mess. Not to mention the greed of those at the top of the economic food chain. Many of them took advantage of general financial ignorance to make millions on risky propositions.
Will financial literacy solve the problem?
There are some hopes that an increased emphasis on financial literacy will help. After all, if consumers better understand the basics of how debt works, the importance of saving money and understanding how to plan their finances to meet their goals, they are more likely to employ sound financial techniques.
The real test, though, will come when it is time to put the principles learned into practice. Just because I know that I will have to pay a huge interest rate when I charge something to a credit card doesn’t mean that I’ll avoid debt. I may decide that poor financial planning is a fair exchange to satisfy my desires instantly.
So far, the recession is showing a change in the personal finance habits of many. Let’s hope that this recession remains fresh in memories — and that it prompts greater financial literacy and a desire to follow through with what is learned.
image source: sxc.hu
It always takes two to tango. Yes, there were many unscrupulous lenders. But for every liar loan issued there was either a self-deluded borrow or someone ignorant about the terms in the contract they were signing. Education will help some people, but a certain % will be fools no matter what safeguards are put in place.