Two Tales Differing By Three Zeros

Recently we went to our old school to see some of the presentations of Money Smart Week.  One was from Adam Carroll about student loans.  Another was from Billy Corben on his documentary Broke about financial failure among professional athletes and especially successful ones.  They were great speakers with interesting stories to tell.

Upon reflection, Adam and Billy’s stories only differed by three zeros.  The athletes were typically in their early twenties when they found ways to destroy millions of dollars and wreck their financial well-being.  The students were in their late teens and early twenties when they laid waste to their financial futures by mounting up thousands of dollars in student debt.

Billy and Adam tell the same story.  Young people have been asked to make complex decisions that few people are equipped to make.  They often over borrow or over spend or both.  The usual cause is failure to understand compound interest and it is exacerbated by poor or dishonest advice.

The actions by the students were less catastrophic for them because most of them could survive their bad decisions but more catastrophic for the rest of us.  When a few hundred athletes wreck their lives it is a disaster for them but not for us.  When a generation has to put off having children and buying houses it hurts everyone.  There is lots of money in fixing the athlete problem.  There is less money in fixing the student loan problem but it is more important.  The first step in fixing the student loan problem is getting good data.  We know about the overall numbers but how do they come about?  Are they just for tuition?  How much is accumulated living expenses.

Adam talks about playing offense (making money) and playing defense (not spending money).  Because tuition has gone up everyone seems to think that that is the sole cause of student debt.  It might be.  It surely is part of it but it seems likely that once you borrow a large sum adding on a non-trivial sum is easier.  We would like to have better evidence.

Student debt is another reason for teaching financial literacy in college.  It might be a required course like personal finance, presentations like Adam and Billy, woven into the curriculum, or all three.  Money Smart Week is a great idea but the turnout at the sessions we attended were disappointing.  It is another area where colleges need to do better.

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