There's a resolution going through Congress that designates April as Financial Literacy Month. It's a nice idea, and the timing makes sense (particularly in regard to that dreaded day of April 15). But when looking at the resolution and its ceremonial limitations, I feel like borrowing a line from the Peggy Lee songbook: Is that all there is?
One can argue that the acute lack of financial literacy helped create today's economy, particularly if you buy the line that millions of borrowers were completely baffled over the details of their mortgages and signed the loan documents without fully understanding them. But it goes beyond homeownership – take a look at the credit card debt levels in the U.S. if you want a good cry.
Devoting a single month to the subject of financial literacy is not enough. This subject calls for an ongoing campaign that would involve the combined efforts of the federal and state governments, the educational system, the financial services industry (particularly the mortgage banking sector) and the media. This would involve a four-step approach.
First, I would propose that any loan applicant (especially residential borrowers) be required to pass a financial literacy exam before that individual can be approved for any funding. This could be a standardized exam, not unlike those infamous SAT offerings from high school, and it could be used in any location across the country. If a borrower passes this exam, it would effectively cancel any argument that the borrower ‘didn't understand' the requirements of the loan documents. If the borrower fails the exam, however, then it should be required for the borrower to take a financial literacy course before trying again.
That leads us to step two – creating a standardized financial literacy course curriculum that lenders can offer to potential borrowers. This is where the financial services trade groups can come in, by creating plug-and-play lessons that can be used efficiently and inexpensively by any lender. Many mortgage lenders are already hosting such courses, but others aren't and they need to get on board.
Third, I would strongly suggest the U.S. Department of the Treasury create a new public service announcement (PSA) campaign to play up the importance of financial literacy. Government-sponsored PSA campaigns can be highly effective (remember Smokey the Bear and McGruff the Crime Dog?). Furthermore, it wouldn't be such a bad idea to put some pressure on the media (particularly broadcasters) to ensure these PSAs get quality placement (many PSAs turn up as filler in the less popular broadcast time slots). A government-sponsored PSA campaign also tends to carry more weigh than a trade group-sponsored offering.
Fourth, an effort needs to be made to introduce financial literacy into the American school curriculum, particularly in the K-12 classes. I'm less concerned about kids learning about isosceles triangles as I am about their knowing how to save money, how to maintain a budget, and how to understand the basics of borrowing and lending money. Considering the cost of education, it's not a bad idea to instill such values in today's youth (who will be tomorrow's borrowers).
Obviously, I don't have details for what these exams, courses or PSAs would look like. However, I think if someone took the time to think these out carefully and ensured they were implemented on a consistent basis, the result would benefit everyone and help turn around many of the serious problems facing the country today. If anything, it's better than an empty resolution stating April is Financial Literacy Month. Really, every month should be Financial Literacy Month!
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
