The Most Important Economic Initiative for the Middle Class? Personal Finance Education

October 7, 2008 by  
Filed under Financial Planning

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.

It is rarely taught in high school and is not featured in most college curricula.  That needs to change and change now.  We need more education, not more regulation.  The free market can work if everyone has equal access to the same information.  The government has committed billions of our tax dollars to fix economic problems arising from greed and ignorance.  The government should use some of our tax dollars to educate middle class consumers in the fundamentals of personal finance.  This may reduce the likelihood that these consumers will produce a repeat performance of today’s credit crisis. 

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.

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5 Responses to “The Most Important Economic Initiative for the Middle Class? Personal Finance Education”
  1. doctor S says:

    Thank you for setting this up and getting me involved as well. A great idea on your part and hopefully all the readers will benefit.

  2. Evan says:


    1) Thanks for setting this up

    2) I don’t think the government forcing a consultation would prove any kind of help to the middle class. A couple reasons:
    (a) This plan is going forward, what about the middle class now?
    (b) More importantly, I believe that the corporations/schools have to want to do those initiatives…if they are forced via the gov’t they will turn into a shame real quick.

    Just a couple of thoughts.

  3. I’ve said for years that the Calculus, Differential Equations, etc that I had to take in school were worthless to me as I’ve never used them again! Some courses that marry real life would have been much more helpful! Ended up learning most of this through the school of hard knocks like most.

  4. PizzaforaDream: Thanks for visiting. If only personal finance and economics were mandatory subjects in a liberal arts education, we would all be better off.

  5. Mr. Money says:

    The big problem with a populace who does not understand personal finance is that those of us who do end up paying for it. The ignorant simply get government help to make up for their deficiency while we get punished via higher taxes or inflation.

    I’m all for coughing up a few bucks now to pay for integrating mandatory personal finance and macro / micro economic courses into our high schools in exchange for a public who actually understands the lifeblood of our society. It’s amazing how few people actually consider a topic that essentially runs their lives.

    As someone who dropped out of a very fine college because the cost was simply not worth it, it’s shocking to me how many people attend “lesser” institutions and rack up 6 figures of debt.

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