Why Can't We Stay Out Of Debt?

Quick: what's the best way to stay out of debt? Most Americans don't have the answer, but some lawmakers think that part of the solution to debt reduction may be to institute financial literacy classes as part of a K-12 curriculum. In a recent study, more than 60 percent of college freshmen surveyed said that they learned their financial literacy skills from their parents.

That could pose a problem, since most working adults aren't financially literate themselves. A recent consumer survey conducted at FinancialLiteracyQuiz.com shows that less than half of all respondents knew how to define the prime rate and just over one-third knew what the current prime rate was. In more practical terms, only 4 of 10 Americans knew that credit card fraud liability is limited to $50, and only half of respondents knew that property taxes and mortgage interest is deductible.

Currently, just seven states require financial literacy coursework as part of a state-mandated K-12 curriculum. As markets tighten, and consumers struggle to balance their personal debt loads, increasing financial literacy among consumers should be of prime importance. Even basic skills, like balancing a checkbook, calculating a loan payment amount or the repayment value of a loan, or understanding the impact of compounded interest are being lost.

Questions remain, however, regarding the efficacy of such literacy programs. Critics charge that the subject matter is too complex, and the material changes too quickly to develop meaningful educational programs. In addition, there is little proof that such programs have any effect on consumer decision-making and behavior when it comes to financial literacy.

Most credit counselors advocate a combination of personalized counseling, consumer protection legislation and education to help consumers – young and old – learn the basics of financial literacy and debt reduction.