Washington is proposing rules, restrictions and the creation of an entire federal agency to stop dumb consumers from repeating the mortgage disaster or something just as bad.
Maryland has another idea. Make dumb consumers smart. Don't let kids out of school without a basic understanding of interest rates, bank fees and scams that will persist no matter how baby-proof Congress tries to make the system.
State officials are about to reveal proposals for personal-finance instruction that could be in the classroom by next fall. While the material will probably be offered as optional, the General Assembly should go a step further and require it for all public high schools.
"I'm actually very encouraged," says Allen Cox, managing director of the Maryland Coalition for Financial Literacy, based at Towson University. Now that we know what happens when 5 million Americans buy houses they can't afford, "there is so much more interest in it now than there was a year ago," he said.
How clueless are people about money? If the housing crisis weren't enough evidence, surveys demonstrate vast and breathtaking ignorance.
Most people don't understand that if they make only minimum credit-card payments they will never pay off their balance. They don't get that a dollar in their wallets today is worth a lot more than a dollar promised for five years from now. They're undereducated about inflation, bounced checks and the importance of putting valuable eggs in multiple baskets. (Check my blog for personal-finance questions people got wrong.)
At The Baltimore Sun financial desk, we sometimes hear from readers who don't understand that a credit-card balance represents a loan from the bank, don't realize they have a 401(k) plan and don't think they have to repay student loans if they can't get the job they expected.
Four in 10 Marylanders who own houses pay more than 30 percent of their pretax income toward mortgages, the Census Bureau reported last week. That means they're near or in the rule-of-thumb danger zone for affordability. Many probably got mortgages with low teaser rates only to be shocked by the size of the payment when the rates adjusted.
Only a handful of benighted states lack requirements for high-schoolers to learn anything about personal finance. Maryland is one.
