Friday, November 20, 2009

Financial Literacy Fail

One of the questions on this week's homework in my Econ class was:

Your uncle repays a $100 loan from Tenth National Bank by writing a $100 check from his TNB checking account. Use T-accounts to show the effect of this transaction on your uncle and TNB. Has your uncle's wealth changed? Explain.

A disturbingly large number of the students said that the uncle's wealth goes down by $100.  Even the A students seemed to think that paying off a loan makes you poorer.  This is truly frightening.  We have a generation of people who do not seem to understand that a loan is negative wealth.  When I mentioned it to my office mate, he replied that this is a symptom of a flawed education system, and I agree.

In future classes, I will probably spend more time on basic financial literacy.  I designed my curriculum this semester to focus on public policy issues and help the students be informed voters.  But it is probably more important for them and the country as a whole to make sure that they understand basic facts about money.  Teaching this stuff is not technically the purpose of the course, and I shouldn't have to do it, but if I don't do it, then nobody will.

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