“Knowledge is power,” sayeth the wise man. In no other subject is this more true than finance. Yet teaching universal concepts like equity, lending, capital and insurance remains quite rare, even in higher education. The absence of competent instruction in financial matters for students remains one of the most baffling things about education. The good news is with a little effort, the trend can be reversed and students can learn what they need to know in order to better manage their money.
Believe it or not, if the average well-educated college student (or even graduate) were asked to explain how a standard revolving credit account works, they would be unable to compose an accurate explanation, even if they were given time to prepare. This should be of considerable concern, given that nearly every college student on Earth has at least one credit card.
If their professor were asked to explain how an initial public offering works, the experiment would likely produce the same results. Both of these concepts have a tremendous impact on individual borrowers and investors, yet the overwhelming majority of the people who participate in either have little to no idea what is happening to their money.
Theory is of little use until it is put into practice. Any financial course of study should involve some kind of practical experience. Students should be asked to apply for a brokerage account and learn how to perform a registration of securities. They should be tasked with explaining what cash is and why it is an integral part of any modern economy. They should be asked to describe the details of borrowing $1000 on a credit card, and how that would affect the average bank customer.
These kinds of experiences, when combined with classroom study, will bring into specific relief all the issues a modern economic participant will encounter, and it will make both the theory and the practical more effective in conveying important concepts.
Time in the Market
Practically every important financial concept has a time component. It stands to reason any effective financial education would take advantage of a class term to explain how time can affect an individual’s finances. Tracking investments, servicing a loan or doing due diligence on a public offering are all subjects that would be of considerable value to the average student in higher education, especially if they can be connected to the practical experience section mentioned above.
Financial education is only going to become more important, especially as more people leave the traditional corporate path and forge ahead to claim their own success as small business people and entrepreneurs. It is time higher education caught up to this vital course of study.
David Milberg is an experienced credit analyst in NYC.