Much of the rhetoric we're hearing in the media today talks about the huge gap between rich and poor. Politicians on both sides (including the presidential candidates) discuss this issue, but neither gets to the root of the problem. It's true that the gap between the richest 10 percent of the country and the remaining 90 percent is growing, but from that point on, most politicians get it wrong.
The issue isn't a matter of redistribution, nor is it about protecting current tax rates. (Please note that I'm a big fan of lowering taxes -- but that's a separate issue.) The real issue at hand is that most Americans just don't understand the rules of personal finance. They believe what they hear from friends or people selling them products. It comes down to a lack of financial education.
Schools are turning out students who are not fully prepared for the real world. They might know the basics of history, science, math, and English, but there is no real teaching of money in school. I majored in economics and accounting, so I know first hand how boring the topics can be. But I'm not talking about the heavy theory or detailed rules. I'm talking about simple personal finance -- the money issues that will come up for people in the real world.
Students do not learn about debt or savings, and when they break out on their own, they are left unarmed when sellers of credit come calling. To be clear, it's not that people are dumb -- the sly and ingenious credit card companies make handling credit seem easy. But either way, the new consumers don't see or know that taking on debt at a young age is killing their financial security. Saving at a young age is critical. Simple facts about personal finance are not taught and thus bright people are caught making financial mistakes.
Plans to redistribute wealth take money from those who know what they're doing financially and give it to people who don't know basic financial principles. The current subprime mortgage crisis is a perfect example of that. Hardworking taxpayers are paying to bail out banks and individuals who made negligent transactions. People who were financially ignorant were allowed to take big loans from equally ignorant (or in some cases, criminal) mortgage brokers. Greed from Wall Street made it worse. Had more people known about simple financial principles, this would not have happened, nor would we be arguing about how to pay for it.
Both the Obama and McCain campaigns are talking about ways to solve the problem, but neither understands the issue. It's not a matter of fiscal theory or taxation. It's all about education. I'm not a fan of big government, but this is one place the government can step in and help. If there were mandatory programs for graduation that included personal finance, our economy could be on the right track in a generation or two.
While neither candidate is doing much to solve the real issue here, I think that we as entrepreneurs can begin to fix this problem. Have a brown bag lunch with your staff (even better -- buy pizza to encourage more to come) and teach them about personal finance. If you're not up to teaching the class, bring in an expert. Make sure the expert isn't selling something or else you could be adding to the confusion.
If we start by educating our staffs, we can work to build a financially intelligent country and get back on track at the same time. Plus, isn't this a great benefit to give to the people who make your company work? If you invest in their financial knowledge, I'm sure it will help your bottom line. (For more on this, read Jack Stack's books.)
If any of you want to see an example of a lesson plan for such a class, send me an e-mail and I'll happily forward the one I use to you.