Financial ed doesn’t work

“Financial literacy” training doesn’t help people make better decisions, reports The Economist.

Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102? And would an investor who received 1% interest when inflation was 2% see his spending power rise, fall or stay the same?

Only half of Americans aged over 50 gave the correct answers. In another study, 21 percent of those surveyed said their best retirement strategy was winning the lottery.

Financial education doesn’t help, the Federal Reserve Bank of Cleveland concludes.  “Unfortunately, we do not find conclusive evidence that, in general, financial education programs do lead to greater financial knowledge and ultimately to better financial behaviour.”

U.S. students who’d taken personal finance or money management courses weren’t more financially savvy than those who hadn’t, according to a study by the Jump$tart Coalition for Personal Financial Literacy.

In another study, students “who had not taken a financial course were more likely to pay their credit card in full every month (avoiding fees and charges)” than those who’d studied the subject, reports The Economist.

Cleveland Fed researchers recommended teaching financial literacy to adults trying to buy a house or pay of credit card debts.

But . . . consumer enthusiasm for learning about finance is limited. When a free online financial-literacy course was offered to struggling credit-card borrowers, only 0.4% logged on to the website and just 0.03% completed the course. Those who choose to be educated about finance may be those who are already interested and relatively well-informed about it.

Nearly every proposal for rethinking student aid calls for doing a better job of informing students and parents about what they’re getting into when they take out college loans. But it’s not easy. Is college tuition an investment in productivity? A lifestyle expense? It depends on the student.

Degreed, indebted and unwanted

The Occupy Movement’s Common Thread Is Anger, writes the New York Times.  Many thought a college degree — in any subject — would lead to a good job.

In Boston, a hub of colleges and universities, a higher education theme emerged among protesters. “What did I spend the last four years doing?” asked Becky De Freitas, a recent graduate of Gordon College in Wenham, Mass. “Fluent in Mandarin and French and no one wants to go for that? And it’s like, now what?”

Gordon, a private college, estimates that tuition, fees, room and board will cost $39,040 a year. While most students receive scholarships and grants, De Freitas is likely to owe quite a bit for her Mandarin and French fluency.

College debt will exceed $1 trillion this year, reports USA today. In 2010 alone, students borrowed $100 billion.

Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what’s owed on home loans and credit cards.

Defaults are up, despite federal forbearance options.

The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future.

“Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children,” says Mark Kantrowitz, publisher of

“It’s going to create a generation of wage slavery,” predicts Nick Pardini, a Villanova University graduate student in finance.

Student loans can’t be discharged in bankruptcy.


The trouble with debt-to-degree

The debt-to-degree ratio — how much students borrow per credential earned — favors selective colleges that enroll affluent, academically prepared students; colleges that serve low-income students look bad.

Also on Community College Spotlight:  At a Kansas college, artists from Ghana taught Ashanti weaving, pottery, bead-making and bronze-casting.