On Consumerism: Financial literacy: A much-needed school lesson

By ARTHUR VIDRO
By Arthur Vidro

Why do we require a license before letting an applicant obtain a driver’s license? To show that the applicant has mastered basic knowledge and skills.

Sometimes I wish we did the same with financial matters. The unskilled wielding their financial power can lead to ugly financial messes.

Schools try their best to make sure graduates meet a certain standard of literacy – being able to read and understand the written word.

But there are other forms of literacy.

Financial literacy – the ability to understand financial processes – is one of many topics, such as poetry and music and art, that gets placed on the back burner of too many schools so resources can be steered into computer literacy. I don’t care how well computer literacy is taught. But I do care that financial literacy isn’t taught enough.

As of 2020, just 21 states required high schools to teach financial literacy. Half the states don’t even require a single course in economics for its students.

Of course, schools not required to teach a topic may still elect to teach it. But data on schools doing that is not readily available.

The result of this non-requirement? Students graduate who are whizzes at clicking buttons at rapid speed to spend their (or their parents’) money, yet are untrained at spotting scams, and far too quick to part with what should be private financial information, such as bank account or social security numbers.

Imagine a school with a financial literacy course. It could combat the current state of ignorance of far too many when it comes to basic skills such as how to keep a budget, file income-tax returns, secure insurance, open and maintain a bank account, balance a checkbook, and save for retirement.

I used to wonder at the high number of apparently literate adults who lack bank accounts. But it could be a blessing in disguise. Some people lack the financial literacy to handle a bank account successfully.

Let’s focus on just one skill – balancing a checkbook.

“Oh, but my computer keeps track of everything,” some of you might say.

But that’s not the same as your possessing the skill, I would reply.

Let’s take the example of a distant relative named Van.

One summer in his college years, Van earned money with which he bought a used car. Paid for it in full. But the world of car insurance never caught his focus, and soon he came to me and the missus, asking for help dealing with a car insurance statement, one that no longer contained a return envelope.

We gave him envelopes and pens, but addressing an envelope overwhelmed him, as if he didn’t know how. He asked us to do it for him! We were willing to point out who it should be addressed to, but made the college man address the envelope.

Then he asked for money to pay the bill.

“How much do you owe?” I asked.

He told me a two-digit number. I looked at the statement. The TOTAL DUE box contained a rather large three-digit number.

I asked where he had gotten the two-digit number. Van pointed to a line.

That line was for the minimum payment due.

Companies prefer that you make only the minimum payment, so that they can charge you interest – a major source of their profits – for the amount remaining unpaid. Somehow, Van didn’t seem to know that.

When Van had finished his college years (about 15 years ago) he went on a long road trip to visit friends.

Before leaving, he went to an ATM to confirm his account balance. But the ATM didn’t know the full story – Van had written two checks that had not yet been processed. After they cleared, he would be overdrawn.

Because Van lacked financial literacy, he mistakenly believed the account balance reported by the ATM was money he could spend. He never bothered to keep track of uncleared checks.

Over the course of days and nights, as he traveled a thousand miles, he would stop at ATMs and withdraw $20 at a time. The withdrawals took place daily, sometimes several times a day.

Meanwhile, back at home, his mom started receiving daily notices from Van’s bank. Those checks outstanding had cleared and his account was overdrawn. Because he had opted for the bank to cover his overdrafts on checking and on ATM usage (an option I discourage), the bank did so, but each time he withdrew $20 it charged him about a $30 fee. I don’t know if the fee appeared on each ATM transaction receipt. Even if it had, I doubt Van would have read it.

So every time Van withdrew $20, yes, he was getting $20, but was also incurring a $30 fee. If he had withdrawn $100 all at once, the fee would have been $30. But because he took money $20 at a time, after five withdrawals the fee was $150. And growing.

Van didn’t bother to call home, and his mom didn’t know how to reach him. So the amount grew and grew for several days until finally he called.

Van lacked – and probably still lacks – financial literacy. Doesn’t make him a bad guy, but it does make him susceptible to foolish financial decisions and ill-equipped for planning ahead.

If only he could have learned financial literacy in school.

Arthur Vidro is one of The Eagle Times’ recurring financial columnists. His “EQMM Goes to College” appeared in the May/June 2021 issue of Ellery Queen’s Mystery Magazine.