There's no question that the United States is a nation of financial illiterates, and that this contributed to the decisions of millions of Americans to run up credit-card debts, buy houses they couldn't afford, purchase college educations they can't pay for. But does it follow from our widespread illiteracy that education would help us avoid those mistakes?
That's what investment adviser Steven Goldberg argues in Kiplinger. He even finds a guy who works for the National Endowment for Financial Education who agrees. Of course, both of these guys have huge conflicts of interest. Education makes people more confident in their investment decisions and more likely to employ the services of advisers like Goldberg. The guy from the endowment, Paul Golden, is professionally dependent on faith in financial education.
Despite the conflicts, we're sure these gentlemen mean well. But this is probably wishful thinking. Educated people tend to overrate the value of education (just as intelligent people overrate intelligence). Reality, however, is less enthusiastic about education. Despite decades of civics class, the broad public remains shockingly ignorant of even the most basic political facts. There's little to suggest that widespread financial education can make a meaningful difference in overcoming financial illiteracy in all but a select few. Many people are illiterate because they are, for all practical purposes, uneducable.
What's more, it's questionable that even a financially literate people could have avoided the mistakes that led, say, to the mortgage mess. Some of the most financially literate people on earth lost billions on Wall Street betting wrong on mortgages and derivatives. If a Wharton education can't prevent these kind of colossal errors what are the odds that a semester of high school finance would?
Badly in Need of Financial Education [Kiplinger]