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July 10, 2014

More good news: American kids suck at handling money

The National Journal gives parents some more nightmare fuel: their kids don't know squat about money-management.

Some of the blame lands on the schools: their failure to impart numeracy as well as literacy has been an ongoing scandal. But parents have to shoulder the larger portion of the blame; after all, the home is where children first come into contact with financial decision-making. How do Pater and Mater handle the household bills? How do they budget? How does credit work? What is a mortgage? Was the new family sedan bought with cash, or financed? All of these things involve basic economic principles that can be applied to later life. Dad and Mom can even instruct the kids on the 401k and Roth retirement plans when the kids are older; the concepts at work are not that complex.

The problem is, obviously, that Mom and Dad aren't imparting this knowledge because they don't understand the economic concepts themselves. (Or maybe just Mom, in these modern Dad-free households.) Many parents approach household economics on a laissez faire basis even Bastiat would find irresponsible.

One of the reasons I admire Dave Ramsey is that he directs sound, simple financial teaching and advice where it's most needed: at average lower-and-middle-class folks. Traditionally financial advice was directed at wealthier people who had money to invest, but in reality it is poorer people who are in more dire need of financial advice because they live without the buffers that wealthier people do. They are one busted water-heater or car-breakdown or medical emergency away from financial disaster.

Basic economic precepts are not complicated, and they can be easily applied to everyday economic life. They are not easily followed, granted, human nature being what it is. Virtue, whether in money or conduct, is easier in theory than in practice. Keynes' "animal spirits" will always have their say.

The problem we face in this country is that we do not lead our children by example. We can teach them to live within their means, budget carefully, and avoid running up excessive debt, but that message rings hollow if we don't lead by example.

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posted by Monty at 12:36 PM

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