As a parent, I would never dream of handing my car keys to a teenager who hasn't first completed a driver's education class and spent significant time behind the wheel, ideally with me sitting (nervously) in the passenger seat. But every day, parents across America allow their children to obtain keys to the financial world -- credit cards, debit cards, student loans and car loans -- with hardly any instruction on how to safely steer their financial lives and avoid crashes.
This is incredibly dangerous. In many situations, someone who lacks basic financial skills is arguably in as much danger of inflicting long-term damage on themselves, their legacy and others as someone driving a car who has no idea what they are doing. Teens and young adults who don't understand the basics can easily find themselves mired in a traffic jam of financial woes that lasts a lifetime.
At least in a modern car, your teenager is protected by seatbelts, airbags, and an inkling that cars can kill. A credit card or a car loan looks positively harmless by comparison. In the hands of some teens, that makes financial products even more dangerous.
Not too long ago, Jean Chatzky, the financial editor on the Today Show, recently had a great idea for how we can drive this point home, making a clear, strong connection between safe driving on the roads and safe driving in our financial lives. Before teenagers get their driver's licenses, every DMV in the country should include questions about basic financial literacy on their driver's test.
Don't understand the difference between a credit card and a debit card? Can't name the five top factors that determine your credit score (which governs whether you can even get a loan)? Call me the Soup Nazi of the DMV: No license for you! Next!
I know that to some, this proposal may sound extreme. But in reality, the effort to make financial literacy education mandatory enjoys broad support. In honor of National Consumer Protection Week, I recently commissioned a poll to test out this idea. Over 63 percent of consumers of all ages believe that kids in the U.S. learn little to nothing about personal finance. Agreement was even high among young adults, 56 percent of whom agreed that they know basically nothing about how to manage their finances.
How best to address this problem? A whopping 92.3 percent of survey respondents agreed that high schools should offer mandatory courses about personal finance.
These results clearly demonstrate that Americans understand the perils of going through life financially unprepared. For anyone who doesn't understand personal finance basics, the road ahead is pocked with dangerous hazards. Just consider our nation's recent history, where predators in the financial services industry established a dangerous co-dependency with millions of borrowers who had scant knowledge of financial basics. Banks, mortgage brokers and others deliberately used tricks like low "teaser" interest rates and hidden balloon payments to lure millions of Americans into mortgage loans they knew were problematic. Voraciously grabbing for the ring of upper-middle-class life, consumers borrowed to the hilt -- only to drive headlong into an historic pileup of foreclosures and bankruptcies.
How did we careen into the ditch? By failing to teach and learn the basics of personal finance. Only 14 states require schools to offer courses in personal finance, according to the latest study by the Council for Economic Education.