Consumer Literacy - A Case for Doing the Numbers
We are bombarded daily with advertisements for new cars, used cars, leased cars, rental cars, sales, auctions and swaps. When you can’t tell the “no-down” from the “low-down,” I say it’s time to slow down. Do the math. Don’t cringe! The fact is things cost money. And money is all about numbers.
Any time you are not paying cash, you need a calculator or a clear head for something called “credit math.” You are buying two separate things: (1) the wheels and steel you will drive off the lot and (2) the money you need to pay for it. Each of these two things makes a profit for someone, and their profit comes out of your pocket. Subtraction and addition, in other words. Throw in some multiplication and division, fractions and percents. Those are the basic functions of credit math.
The mathematical relationship between buyer, seller, lender and borrower is the very crux of our economy. And, at its most basic, a fundamental failure of that relationship is what set off the global economic crisis. Bankers and brokers took advantage of the fact that, in layer after layer of transactions, the person signing the documents had no clue what they meant but assumed that someone, somewhere did. Financial illiteracy got us into this mess.
Consumer literacy should be a matter of national security. All Americans should know how to ask - and get answers to - questions that affect financial health: Can I really afford this loan? What is the difference between credit and debit, or debit and debt? What is my interest rate? What’s an APR? When should I pay cash? Why do I owe this late fee? What factors go into a credit score? How do I protect against identity theft?
Finally, consumer literacy is getting some attention. An article in today's New York Times laments the dearth of financial skills training in standard curriculum. It will be a long time before budget-strapped high schools offer such courses, but there is some evidence that money matters are creeping into the classroom. The National Endowment for Financial Education has produced a number of programs for use in schools. One useful tool mentioned in the NYT piece can be accessed online here While it is billed as “40 Money Management Tips Every College Student Should Know,” there is plenty of good advice for all of us.
