The Most Important Economic Initiative for the Middle Class? Personal Finance Education
This is the Mr. ToughMoneyLove contribution to the synchroblog project in which nine personal finance bloggers are simultaneously answering this question: What is the most important initiative that the next administration should undertake to improve the economic health of the U.S. middle class?
The concept that permeates all aspects of the current economic crisis is that too many people assumed too much risk. A significant factor at the foundation of this risk-taking is ignorance on behalf of middle class consumers who purchased homes they could not afford using sub-prime loans that contained outrageously bad terms. Although it is convenient to say that these borrowers should have known better, the task at hand is to make sure that they in fact know better than to repeat such behavior in the future.
Personal finance education in the U.S. is pathetically non-existent.
Enact a Middle Class Tax Credit for Personal Financial Advice
The first aspect of my proposed government initiative is to offer a one-time tax credit (not a deduction – a credit) of up to $750 for any middle class (less than $75k income) taxpayer who pays for financial planning advice from a certified, fee-only finance professional. There is a huge demand for such advice but many are reluctant or unable to pay for it. This tax credit makes the government (taxpayers) pay for it. I would rather that my tax dollars be used to prevent a problem than to cure one. In essence, the government is fulfilling a public education function that should have been part of every high school education. The payoff will be signiicant and sustained if even a small percentage of working adults makes better financial decisions (and related voting decisions) based on the personal finance advice they receive. If the IRS can afford to allow yearly deductions for tax preparation assistance, we can surely afford a one-time tax credit for personal finance advice for those who need it most.
Require a Personal Finance Consultation for all Subprime Mortgage Loans
The sub-prime mortgage loan business has proven itself to be untrustworthy and dangerous. I am not so unrealistic to think that the sub-prime market will disappear. Instead, we should do what we can to insure that sub-prime borrowers are not uninformed victims. That is why I propose that the Federal Trade Commission, Fannie Mae, and Freddie Mac legally obligate all sub-prime borrowers to seek and obtain personal finance counseling about the loan terms and alternatives before any loan documents are signed. The government requires credit counseling before filing a personal bankruptcy. Why not require similar counseling before someone enters into a major transaction that history has shown may lead to foreclosure or bankruptcy? Obviously, this counseling needs to be provided by a certified professional who has no affiliation with the lender.
Require a Personal Finance Consultation for all Student Loan Applicants
The third component of my proposed initiative is also require all college students to received independent personal finance counseling before taking out any student loans. The student loan industry is more than a business – it’s a racket. Colleges have become addicted to credit – credit assumed by their students. Without ithis free flowing credit some colleges would disappear. Fine, let them disappear. So many young adults are taking on enormous student loan debt without any analysis of the long term ramifications. Alternatives exist but students have been brainwashed by the education industry to believe that borrowing your way through college is 100% acceptable. We need to educate these young adults in critical life financial skills in hopes that they will not join the ranks of the debt addicted before they even join the workforce.
So that’s the Mr. ToughMoneyLove proposal and I’m sticking to it. For other ideas offered by my fellow synchrobloggers, please follow the links below to read each of the other contributing blogs.
- Blunt Money: Long-term thinking
- Cash Money Life: Pork-barrel spending
- Clever Dude: Accountability
- Finance Your Life: Energy crisis
- Fiscal Zen: Confidence in banking/lending
- My Dollar Plan: Education
- My Journey to Millions: Less government intervention
- Student Scrooge: Education