The Daily Riff - BE SMARTER. ABOUT EDUCATION.

By Joseph Ganem, Ph.D.

The financial crisis of 2008-09 has prompted proposals in many states to add financial literacy requirements to the high school curriculum. This sudden fervor for teaching our children personal finance presents pitfalls and opportunities for educators.

First, some of the pitfalls: Much of the rhetoric from politicians advocating financial literacy requirements is misdirection.  For example, Maryland Comptroller Peter Franchot advocating in The Baltimore Sun for a proposal in the Maryland legislature wrote:

"Thus, in far too many instances, we entered into financial commitments that we couldn't afford, with terms and conditions that we didn't truly understand, in order to buy things that we really didn't need. If more Marylanders had the benefit of sound financial literacy education, fewer of our friends and family members would be facing the loss of homes and life savings today."

This line of reasoning makes no sense. No amount of knowledge will fix dishonesty and deceit. After all, the executives at failed companies such as Countrywide, Bear Sterns, Lehman Brothers, and AIG, were all knowledgeable, sophisticated investors whose greed led to disastrous financial decisions that bankrupted their companies. Knowledge alone will not substitute for good character and good judgment. It's naive to think that better financial education for the average person will prevent future financial crises when the most financially astute among us made even worse decisions. It's misdirection to blame consumers for the failure of a financial system run by business executives and politicians who knew better and refused to take responsibility for their actions.

Another pitfall is what I call the "check-box approach to education." That is the continual addition of stand-alone requirements that students view as hoops to jump through rather than education to be obtained. Too much of the school curriculum consists of lists of facts to memorize, presented as distinct and separate from each other. There is little integration between all the lists so students often fail to see the relevance of anything that they are required to learn.

But, it is from this second pitfall that I see opportunity. Personal finance education is a laudable goal, even if the motives of its advocates are suspect. However, financial literacy should be integrated into the current math curriculum rather than taught separately. Such an approach would have the added benefit of showing students that math is relevant, because knowledge of math leads to personal financial gain.

Of all the school subjects, math presents the most difficulty because students often don't see its relevance. The truth is much of what is taught in math class is not relevant. Students rarely see adults using the quadratic formula, computing with imaginary numbers, proving trigonometric identities, or solving systems of algebraic equations, for the simple reason that most adults have no need to do these kinds of problems.

However, everyone makes decisions in the marketplace and most of these decisions require comparing numbers. Too often consumers make poor decisions because they fail to understand the context of financial numbers. A large part of this problem arises because our schools fail in teaching students "quantitative literacy," which is educational jargon for facility with numbers and arithmetic. But quantitative literacy is the most important of all mathematical skills because it is the one area of math that impacts all of our lives, each and every day.

A large fraction of my writing and speaking has focused on quantitative literacy applied to personal finance. In my book, "The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy", on Websites I've authored such as ComputeGasSavings, and in talks and seminars I've presented, my goal is to completely change the way people think about numbers when they make financial decisions.

"By jumping to algebra before quantitative skills are mastered, students never understand the motivation for algebra and why it is so important."

For the numerically illiterate, numbers can deceive in both small and large financial decisions. For example, on ComputeGasSavings questions are posed to challenge thinking on some mundane purchase decisions such as:

•  How far should you drive to buy cheaper gas?
•  Is money saved when you buy on sale?

Also posed are some financially significant questions such as:

• Does 0% financing save you money on car?
• Is it worth going to work?

The answers to these questions are not as obvious as they appear, because there is both a benefit and a cost associated with each choice. It is easy to see the benefit, but it takes an understanding of numbers to see the cost. Whether the benefit is more than the cost depends on an individual's circumstances, which means that there are no pat-answers to the questions. You have to do the math to find the choice that is right for you.

On the Website, each question has an article explaining the mathematical reasoning and an online calculator to test different scenarios. From an educational point of view, once the reasoning is understood the questions can be probed deeper. For example, how do these calculators work and how did I program them? (Hint: I couldn't have done it without using algebra.) What other kinds of cost-benefit questions can you pose? What algebra would you use to answer the questions? Can you create Web-based calculators to answer the questions?

In fact, learning to think quantitatively leads naturally to the subject of algebra. This is where our math curriculum goes wrong. By jumping to algebra before quantitative skills are mastered, students never understand the motivation for algebra and why it is so important. Integrating personal finance education into math class can improve math skills and financial decision-making. Math classes can become a model for showing that practical skills can arise from academic achievements.


Joseph Ganem, Ph.D., website here, is a professor of physics at Loyola University Maryland, and author of the award-winning book on personal finance: "The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy".  It shows how numbers fool consumers when they make financial decisions.