Crisis in the classroom

Universities and high schools everywhere are aiming to improve our understanding of today’s complex financial markets, but will education help avoid another meltdown?

Economics department Chairman Lorne Carmichael teaches his ECON 360 Labour Economics class last week.
Economics department Chairman Lorne Carmichael teaches his ECON 360 Labour Economics class last week.

From taking out mortgages that couldn’t be repaid and trading assets that were barely understood in the last few years, it seems many people didn’t know what they were doing with their money.

The rampant borrowing and risk-taking that brought about the financial meltdown of 2008 has some arguing Canadians aren’t adequately educated in finance.

For those in finance, some experts argue financial markets have become extremely complex and there isn’t sufficient training for bankers and traders to understand them fully.

For the general public, the problem is a lack of public education as to how markets work and the importance of responsible borrowing. This has resulted in an enormous amount of Canadian household debt—reportedly $1.3 trillion, according to the Certified General Accountants Association of Canada.

The government is responding with the launch of a task force on financial literacy, aimed at improving Canadians’ financial literacy. In 2004, British Columbia introduced a mandatory finance class for grade 10 students.

Wei Wang, a finance professor in the School of Business, agrees early education in finance can reap large benefits.

“Everyone should know a little about economics,” he said.

Because arts and engineering students may not have the chance to study economics or finance, Wang said he was surprised when he learned finance classes aren’t mandatory in high school, adding that some new commerce students lack some basic knowledge.

“At my second-year compulsory finance course, I remember when I first pulled out a Globe and Mail and asked people some quotes and what it means, no one knew. It probably doesn’t matter for everyone to know and understand [newspapers] but everyone will eventually start making income. You need to know what’s happening.”

He said poor consumer decisions had a role to play in the recession.

“[The recession] was originated by the sub-prime crisis, in which people who didn’t have credit borrowed a lot of money to finance their houses. So [educating the public], and telling them to not borrow money to buy things, it will help it from happening again.”

An ideal finance education shouldn’t be too deep, Wang said. An overview of critical terms like interest rates and supply and demand should suffice.

The recession had more to do with irresponsible lending than a misinformed public, Wang said. Financial advisors may not always tell customers the truth, but that’s where basic finance classes come in handy.

“Understanding economics will help people ask the right questions,” he said.

Lorne Carmichael, chairman of the economics department, said he doesn’t think educating the masses helps the economy.

“Certainly in United States I think it’s true that the level of individual spending was high. People were supporting the economy by buying stuff even if they didn’t have the income to support it. And they were encouraged to do this by lot of public policy that made it easier for them to do it,” he said.

“When you’re in a situation like the current situation, people tend to save money, which is the right thing for them to do. But the problem is when you’re in recession you need people to spend money. For us to say that we need to educate them in what’s personally best for them doesn’t mean that they’ll do what’s best for the economy.” Carmichael said the recession was a good education in itself, and those affected know the lesson already. For the younger population who remained unaffected by the crisis, he’s not sure how effective education will be.

“It’s something everyone learns as they get their first pay cheque and start having a whole lot of expenditures. I suppose it would help to teach when they’re in class, but lot of them will not learn until it hits them in the face,” he said.

Last year, the economics department changed ECON 110, the introductory economics course, to incorporate current economic events.

There are currently no mandatory finance classes in Ontario. In Kingston, high schools offer elective courses in business and economics.

At Lasalle Secondary School, soon they’ll be educating Grade 12 students on personal finance management.

Ms.Tincivero, the school’s principal, said there’s a downside to making finance courses mandatory.

“Making any other course mandatory would be detrimental at this point for students, who only have two optional courses as it is. As important as the information is, there are other ways we can get it to them,” she said.

Tincivero said she thinks finance education shouldn’t be left to schools alone.

“I think that like a lot of things, it’s a shared responsibility. If we work together to create after school programs for both parents and students that would be beneficial.”

Some Queen’s commerce courses are open to non-business students. Student Awards also offers a money advice service, where students can make an appointment with an Awards Officer to receive advice on budgeting and other financial matters.

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