A Call for Financial “Driver’s Ed”

One of the paradoxes about filing for bankruptcy is that filers are required to take a financial education course (also known as debtor education) before they can receive their discharge from the court.

While it makes sense to prepare people for their fresh financial start, it seems like the timing is off—think how much good such a course could do if administered before people’s finances spun out of control.

A recent article from The New Yorker examines this problem in the U.S. today and highlights some troubling facts about the current state of financial literacy here:

In one study cited in the article, researchers found that 30 percent of people with “low” financial literacy thought they had a fixed-rate mortgage when, in reality, their rate was adjustable.
In another study, a whopping 80 percent of respondents claimed that they were confident about the correctness of their answers, but a mere 42 percent correctly answered half or more of the questions.
Nationally, individuals are more responsible than ever for their own financial wellbeing, and have to make decisions about retirement savings, credit cards, auto loans, home loans, educational loans and more.

Solutions on the Horizon

The financial reform bill currently before Congress would introduce a Consumer Financial Protection Agency, which would likely limit or eliminate the most abusive and predatory of lending tactics currently employed by some lenders. But some analysts – including the author of the New Yorker article – don’t think such measures are enough to solve our debt woes.

In addition to beefed-up federal consumer protection, the author suggests, we need driver’s-ed-style financial literacy classes for the entire nation. Such classes could potentially provide consumers with enough information so that we realize the limits of our own knowledge and seek advice and help when making major financial decisions.

And he has a point: millions of Americans who don’t choose to file for bankruptcy could benefit from the financial education course required of those who do file – and making such a course more widely available could potentially prevent financial woes like foreclosure, credit card default and unaffordable student loans.

Educate Yourself

Even if no financial education course is mandated nationally, you can take steps to improve your financial literacy (and, logically, your finances):

If you are filing or have filed for bankruptcy, pay careful attention to the debtor’s education course, which should provide helpful tips for improving your financial health.
Accept that there are areas outside your field of expertise that it would be wise to consult an expert on. For many Americans, economics is one such area, and we could save serious money by asking someone for help.
Try taking a financial literacy quiz like this one the Jump$tart Coalition. It can show you your weak areas and guide you to useful resources.

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