Education and the Economy

To graduate from a four-year college, and often from high school as well, most students needs to study a foreign language. Unfortunately, students at every level are permitted to graduate without knowing much about money. The JumpStart Coalition, which promotes financial literacy among the young, surveys high school seniors on this subject, and while the results improved a bit this year, they were still pretty dismal: "This year, 65.5 percent of students failed the exam and 6.1 percent scored a C or better." (The full survey is here.)

This has always been a pet topic of mine. A relatively small investment in teaching kids about personal finance might not only improve their lives as adults but also promote economic growth by leading to better spending decisions and more savings and investment. This could become even more important if the Bush administration moves ahead with any plans for privatizing Social Security.

One way to sell colleges on the idea: more financially savvy graduates will be able to donate more money down the road. The payoff should be highest for arty colleges that don’t produce the kinds of MBAs who will later endow chairs, buildings and the like with just a fraction of their wealth. In fact, given the focus of college presidents on fund-raising, it’s odd that this kind of education hasn’t been given more emphasis by now. Maybe administrators are using the wrong discount rate.

Addendum: Gary Leff of View from the Wing sent a thoughtful email arguing persuasively that college administrators are unfortunately using the right discount rate from their own point of view, because any possible donations are many years off into the future, far beyond the relatively limited term of the average college president. By contrast, the costs (in academic capital as well as dollars) of requiring kids to learn something about money are all too immediate. So it doesn’t happen.