Do we need a debt course and exam before taking on debt?
Massive debt levels with individuals, governments, and corporations are creating big problems in Canada and around the world:
- The Financial crisis of 2008 occurred because of major debt problems with subprime mortgage lending.
- All of the problems in Greece are a direct result of debt problems
- Closer to home in 2011, US President Obama had to make a public plea to Americans to raise the debt ceiling
- In 2008, The Canadian government had to step in and prevent banks from lending out 40 and 35-year mortgages
- In 2010, The Canadian government-mandated rules where credit card companies have to show how long it will take to pay off credit cards with only minimum payments
- Mark Carney is so reluctant to raise interest rates because of fear of what it will do to our fragile economy given the massive amounts of debt
Many people suggest that the root of the problem starts with a lack of financial literacy, especially at a young age. If you think about it, there are very few formal financial education programs in schools so maybe we are developing these bad habits at a very young age. In fact, I’ve seen a number of examples this year:
Marius in med school
Some participants in one of my workshops were talking about a 20 something medical student who was given a $100,000 line of credit for school and then used it to buy a $60,000 car.
Credit cards to 19-year-olds
I recently talked to a couple that has a son (Jake) with a history of trouble with the law. Their son was caught shoplifting at the age of 16. Part of it was just for fun but part of it was because he did not have money to buy some clothes he really wanted.
The parents have been working hard to get him back on track and teach him about the value of money and how to get a job to earn money. They were teaching him about setting up a budget and a bank account. So when Jake came back from the bank with a bank account and a credit card, his parents were shocked at how easy it was for Jake to get a credit card at the age of 19.
A 28-year-old with too much debt
I had parents who wanted to pay me to counsel their 28-year-old daughter on her finances because she had racked up 8 credit cards to the max along with a line of credit, a car loan and some personal loans from her grandmother.
What’s the solution?
When I hear stories like this I can’t help but wonder if we need to force people into getting a debt training license like we issue driver licenses. Just this past weekend, I spent 4 hours taking an online boating course and an exam to get my boating license because we are planning our holiday in the BC Okanagan. The course and the exam weren’t tough but it was time-consuming. Although some of the course was common sense, I learned some important things about driving a boat.
Maybe before adults can get a credit card, a line of credit or a mortgage, they have to take a debt course and exam so they really understand the prudent ways to use, manage and take on debt.
Maybe they should have to take a course to understand the serious problems that come from excessive use of debt. We put warning labels on cigarette packages so people understand the risks of smoking, maybe we need to find a way to warn people about the dangers of debt when abused.
Do you think a debt course or exam would help people manage debt better? What solutions can you suggest to help people understand the risks of using debt incorrectly?
Comments
I’m all for it Jim. Maybe next we can outlaw soda pop!
The only problem with that is I like Soda pop.
Thanks for stopping by Kevin!
Just like anything else that requires time and patience, certain people will avoid it if they can. So it that is what you are looking for then that is a partial solution. However a better solution in my humble opinion is make it universal. Make it part of the school system. With a great reminder in grade 12 before they launch themselves into the world. I sometimes wonder why our school systems focus on impractical learning when life is so dependent on practical day to day items. Food shelter personal relationships money needs vs wants. As a parent I will be helping to insure that my children understand the implications of their decisions and how almost every company wants to separate you from your money.
A lot of people have talked about putting more financial education into the school curriculum. It makes sense to me but there are some challenges there as well. Are teachers in a position to teach financial education? Do all teachers want to teach financial education?
Teachers are not subject matter experts in most areas. That is why when specific subjects that have experts available, teachers can bring in experts into the classroom that are, so that when questions are asked, which should happen but we’ve all been in high school, they have the experience to answer them on the spot. Teachers want to teach otherwise they wouldn’t be in the system. Subject specialty is a luxury. So do they want to teach financial education, I am willing to be there are teachers that are not only willing to do it, but are doing it right now. Some teachers may even want to sit in on the class or at the very least talk to the expert when they are there. As far as testing goes, until the federal or provincial jurisdiction decide that it is worth it for the betterment of the country/province (snicker, their interests) we won’t see anything change. Teaching by example will have to do for now, and boy are their some bad examples out there.
I think it would be a great idea though I really think that kids should be thought as part of the curriculum – money management skills especially in Gr 12. Our daughter is going to university in Sept and we have told her that she needs to have a certain amount of cash before she can go. She has a part time job and has been “kind of” saving We have failed in not teaching her the correct way she should be budgetting her money so this week she is going to be having cashflow meetings with me so that we can show her that when she is out on her own she will understand the importance of budgetting even if it means you get another job or you dont buy that top or go out to dinner just because you want to – its only when you can afford to!
It’s important that parents get involved, especially financial savvy ones. Teaching her to live within your means is a good lesson … just not a fun one! Good luck!
Maybe it should be more like the mandatory waiting period for buying a firearm? We might see more cases of buyers remorse if you can’t immediately have your purchase when you pay with credit.
Interesting idea Robb! The problem is I pay with my credit card just like you do but we both pay off our credit cards so does that mean we have to suffer and can’t take our purchases home?
I think a debt course would be great! People have to take a drivers license test before they can drive, why not do the same thing when it comes to borrowing money?
I think this is a great idea. I agree with some of the above comments that it should be part of a cirriculum but I think it should be part of Universities; A first year course that teaches you money management. English classes are required to graduate, life skills such as money management are just as important.
Absolutely a must! I often thought about the idea of students taking a mandatory class on financial literacy, and on how damaging debt really is..but by mandating a class or an exam before getting a credit card or loan will hit even those who are already done with school. Love the idea…