Thursday, January 24, 2008

Economic & Financial Literacy: One More Reason...

William Poole, President of the Federal Reserve Bank of St. Louis, recently made a speech before the Financial Planning Association of Missouri and Southern Illinois. In his speech, he talks about recent financial events, and points to five mistakes that led to the current sub-prime mess. I suspect there were others that he didn't mention, but these five are, in my opinion, spot on in terms of major contribution. The list makes the speech a worthy read by itself.

But the more important part of his speech (for purposes of this blog) followed the list. In his section on avoiding future mistakes, he notes how better decision-making (particularly in areas of economic and personal finance) could have helped us avoid the current situation. He talks about economic literacy as well as financial literacy as key parts of a solid education. That last part is worth repeating. He talks about economic AND financial literacy.

Regular readers of this blog know that I am a strong proponent of doing both. I've presented to various audiences on the need to teach BOTH. One without the other only serves to create different levels of dependency. Those who understand the theory too frequently still need help with applying what they know to everyday situations. Those who are schooled in the application and development of day-to-day skills; too frequently know the how, but do not understand the why.

I encourage you to take a look at the speech, and to work within your communities to make sure that the students in your schools are both economically and financially literate. I would submit to you, the current economic situation suggests the opportunity cost of not doing both is too high.

I welcome your comments.

5 comments:

Meds said...

I find the issue of economic and financial literacy to be particularly interesting in my school. I feel my AP Economics students gain a strong understanding of the concepts which will help them achieve economic literacy, but not so much financial literacy. But students that take the mainstream Economics course are on the path for financial literacy, and really don't learn much about economics. Can they both be done justice in just one course?

Meds said...

Actually, one way I do attempt to bring economic and financial literacy together in my AP Economics classes is by incorporating current events every single day. I actually discussed this a little yesterday on my blog, Just Enjoy The Show.
http://justenjoytheshow.blogspot.com/

Tim said...

Actually, you've hit on one of the best ways to combine the two. Use everyday examples to illustrate the concept.

Example: Budgeting is a great way to explain or illustrate scarcity, choice and opportunity cost. Thus, after discussing the concepts in an economics classroom, use a budget to show how people deal with scarce resources, by choosing or prioritizing, and highlight the opportunity costs. On the flip side, in a personal finance oriented course, when doing the budget, explain the economic terms when doing the exercise, and explain why they're relevant.

andrew h. said...

You know I'm right with you on this one! That's one reason I'm so proud of the semester personal finance course that we have have been training teachers to teach for over 5+ years. It's great personal finance and great economics together.

Braun Mincher said...

Anybody who wants to test their own knowledge of Financial Literacy is welcome to take my online 50-question, multiple-choice, Financial Literacy Quiz:

http://www.financialliteracyquiz.com/

We also just released a press release with the 1st quarter quiz statistics in case you are interested in seeing how you compare against your peers (go to the "Press & Media" page):

http://www.braunmincher.com/

Enjoy!

Braun Mincher, Author
The Secrets of Money: A Guide for Everyone on Practical Financial Literacy