Financial Literacy

As the nation slowly recovers from the worst recession since the Great Depression, states across the country are looking for ways to better protect themselves from future economic downturns. While long-term economic development planning is vital, perhaps the most effective tool Maryland can use to combat future downturns is to take the important steps necessary to educate our children in the basic principles of financial literacy. Our national economic crisis has painfully reminded us that far too many Marylanders lack an adequate understanding of the proper use of credit, the risks of excessive debt, the principles of sustainable household budgeting and the importance of saving for the future.

Comptroller Peter Franchot has been going back to high school as part of his push for requiring that seniors take a course in financial literacy in order to graduate. The proposal for a graduation requirement has met with resistance from lawmakers and educators who are wary of imposing curriculum mandates, but Franchot said the recent recession has convinced him that basic personal finance concepts must be taught. Franchot, the state's chief tax collector, has visited seven high schools since the school year began and plans to push for legislation during the General Assembly session that begins in January.

Financial literacy is necessary to reduce the likelihood that our country will repeat the mistakes that have brought our economy to its knees. Basic consumer education is sorely lacking in our public schools and should be a graduation requirement - not an elective. Sadly, even the smartest consumers and brightest economists were unprepared for the alphabet soup of creative and complex mortgage products such as YSPs (yield spread premiums), CDOs (collateralized debt obligations) and NINAs (no income no asset loans)

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.

The young business associates were sitting around a conference table last week, telling me about the philosophy and strategy of someone they greatly admire in their field, an investor who doesn't gamble wildly and knows exactly what he's buying. "Warren Buffett takes a company that's doing well," Vir Mirchandani said, "and makes it stronger." "His principle is he invests in companies where he knows what they're doing," Nikhil Sinha added. Just then, Maddy Bencivenga popped into the room and announced: "Warren Buffett just bought Constellation Energy."

Americans are getting advice on pocketbook issues from many people these days, including financial planners, credit counselors, consumer advocates and representatives for financial literacy groups. Most of the advice is good and well-intentioned. But I fear the approach is misguided and potentially dangerous. Here is some of the most common advice we hear over and over: Get a handle on your spending by writing down every penny you spend over the next month. Then review where your money went and make conscious decisions on where to cut back if necessary.

Rotary celebrates 80 years in county The seven Rotary Clubs in Howard County will celebrate 80 years of Rotary in Howard County from 7 p.m. to 10 p.m. on Friday at Howard Community College's Horowitz Visual and Performing Arts Center. The event is open to the public. Tickets are $80. Net proceeds will be going to the Polio Plus project to assist in matching a $100 million challenge grant from the Bill and Melinda Gates Foundation. Information: Chuck Walsh, 410-203-1093. Financial literacy program Saturday County Councilman Calvin Ball will present the second Financial Literacy Summit on Saturday at Howard Community College's Cafe on the Quad, Rouse Company Foundation Student Services Hall, 10901 Little Patuxent Parkway, Columbia.

Take this mini-quiz: 1. If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease? 2. If five people all have the winning number in the lottery and the prize is $2 million, how much will each get? 3. You have $200 in a savings account that earns 10 percent in interest each year. How much would you have in the account after two years? Answers are below. But if you're like most who have taken the test, from the University of Michigan's Health and Retirement Study, you won't ace it. When 1,700 boomers in their 50s took the test a few years ago, most got the first question right.

Incoming high school students for 2007 and beyond will now officially be required to take financial literacy to graduate, after the Board of Education voted to revise its policy. That decision was one of several involving revamped or revisited items before the school board, which also unanimously voted to approve a school-related fundraising policy and reviewed guidelines for a new audit committee that would help oversee the school system's financial reporting processes and review internal controls.