08/11/2010 11:34 am ET | Updated May 25, 2011

The Missing Mandate: Financial Literacy

As legislators and lobbyists congratulate themselves on the 2300 pages of legalese drafted to reform Wall Street banks and the financial services industry, not one paragraph addresses a major reason why the meltdown occurred: how American consumers learn to manage money. According to several mortgage banking studies, nearly 70 percent of the victims of foreclosure admit they did not understand the terms of the deal they signed or the long-term impact on their lives.

Congress had plenty of chances to address this problem. More than 30 bills focused on financial literacy have been introduced since 2006. All of them died in Senate or House committees. None were included in this recent reform bill.

Money, like sex, is supposed to be taught at home but in a 2008 Charles Schwab study, 69% of parents interviewed reported they were more prepared to discuss sex than money with their children.

Parents groomed on three decades of TV advertising whose vocabulary is liberally sprinkled with four letter words --shop, sale-- cannot teach what they don't know. Now they are miserably discovering two new four-letter words: debt and poor. These nonstop shoppers learned the hard way how one afternoon of reckless spending at the mall can take a decade to pay off.

Money management is a lifetime skill that has to be taught, nurtured and developed like personal hygiene and proper table manners, yet only 18 percent of US school systems have required any personal finance classes in their curriculum. Sixth graders don't need to know the intricacies of credit default swaps but they are quite capable of learning comparison shopping, planning a budget based on a weekly allowance and understanding the difference between wants and needs. Sallie Mae's survey of 2008 college graduates indicated that 84% said they needed more financial education to manage their affairs.

More than 300 nonprofit national agencies advocate for financial literacy under the Consumer Federation of America. They depend heavily on private grants, corporate partnerships and volunteer trainers; thus, their influence on schools and public policy is limited. The present economic debacle has made state education departments aware of the blatant need for financial education. Currently, 38 states are considering financial literacy for their high school curricula; only nine states have made it mandatory. Funding, as always, has all states grasping for any lifeline to address this issue---which can be a mistake.

Enter Wells Fargo, Bank of America, Chase and Citigroup and their foundations. They have partnered with the National Council on Economic Education to distribute "one size fits all" financial literacy material for high school students with little or no diversity in its content.

What is appropriate for upscale students in Greenwich or Grosse Point where students check stocks on their Blackberries will not work for children of immigrant families in the South Bronx or Houston's ninth ward where parents use check cashing stores and pay bills with money orders.

The solution is simple and twofold: create a national financial fitness campaign like the President's physical fitness program. NCEE could sponsor a financial knowledge challenge focusing on pragmatic concepts of daily finances, investing and planning for money issues that arise in everyone's life. Imagine how different the last few years would have been if a national financial literacy program had become an educational mandate after the 1987 market crash. Fewer foreclosures and bankruptcies and less credit card debt for a start.

The four letter words our children should begin learning in primary school are: cash, cost, save, plan and know (what you're signing) which can begin with something like the hundred pennies game created for six-year-olds by Girls Incorporated in their "Money Matters" after school program launched in 1999 with phenomenal continued success.

Financial literacy funding could come from fines charged to Wall Street bankers for their malfeasance; the recent $300 million paid by Goldman Sachs would be a nice beginning. Secretary of Education Arne Duncan would find this a slam-dunk since his entrance into educational administration was as executive director of the Ariel Financial Academy in urban Chicago. Duncan's recent partnering with the Treasury Department to support financial education is a small beginning but not nearly enough.

The kindergarten constituency can't vote, pay taxes or hire a lobbyist, but they will inherit the current debt. We should arm them with some tools to cope with that impending problem. Grade school students love finding innovative solutions to money problems and the challenge of how to stretch and save dollars. Working with young children also means they don't bring their parents' money anxiety into the classroom so they don't know yet how hard finances can be. For them whether it's a major recession or the hundred pennies game, it's just a game.

A life-changing game.