Why a Lesson in Money Plus Math Equals Financial Stability

BY Paul Solman  November 14, 2011 at 3:50 PM EDT

By Elizabeth Shell.

Video: Sheila Bair and Paul Solman talk about how simple math and financial education, like the savings lessons in her children’s book ‘Rock, Brock, and the Savings Shock,’ might have helped avert the financial crash.

Sheila Bair, known for her tenacity and contrarian tenure as chairwoman of the FDIC, has a message she wants everyone to learn:

Don’t buy an inflatable moose head for your wall.

Some context, lest this interior decorating advice seem slightly out of place for a business and economics page: Bair, now senior advisor at Pew Charitable Trusts, believes much of the financial crisis could have been averted (or, at the very least, diminished) by money-and-math education.

Sheila Bair

“I think we would not have had as big a problem if policy makers had been more numerate,” Bair told us recently. “I’ve been a regulator all my life and I’ve seen a lot of bad things happen to consumers. And some that they’ve imposed on themselves.”

Americans are in deep financial distress. As consumers, we’re in debt to the tune of $2.45 trillion. And the Federal Reserve estimates 60 percent of families saw their wealth decline from 2007 to 2009, the most recent data available.

Paul Solman

Investors not doing their homework, loan brokers with financial incentives to push as many mortgages out the door as possible, pay-day loans, subprime mortgages — all were in Bair’s eyes exploitative. Learning simple money principles at an early age would have helped people resist them.

“Money and math skills go together quite closely. And for many kids it would perhaps be a more meaningful education because later in life, most of us are not going to be mathematical engineers or use sophisticated math in our careers. But we will all have personal finances to manage.”

Which brings us back to the inflatable moose head. Bair points to the short-termism (that ‘I have to have this now’ feeling) of many consumers and policy makers as a precipitator of the crisis. So she wrote the children’s book ‘Rock, Brock and the Savings Shock.’

“Educational materials need to focus on resisting those urges for instant gratification and focusing on the long term of, ‘what’s meaningful to you, what do you want?’ This is a cultural problem and hopefully the lesson of ‘Rock and Brock’ is think for the longer term.”

Children listening

In the book, twin brothers Rock and Brock are given a dollar each week from grandpa for doing chores. If they’re good and save their dollar, gramps will double their savings at the end of the week. If they spend it, they get just one buck again. Thus, the lesson: savings grow.

Unfortunately, Rock doesn’t get it. Thrilled with the weekly cash, he impulse-buys all sorts of junk he doesn’t really want or need — like the moose head. Brock, on the other hand, saves his money. By the end of the book, Brock is by far the wealthier of the two and readers have learned what Bair calls the “magic of compounding interest as a mechanism for wealth accumulation.”

Bair’s other children’s book, “Isabelle’s Car Wash,” focuses on risk, investment and entrepreneurship — money lessons she thinks even little kids can — and should — understand.

“I think they can understand risk, investing money in somebody else’s business endeavor. And understanding that if it makes money they make money, if it loses money, they lose money,” she said. “There are a variety of places people can invest their money, and people need to understand the risk before committing their hard earned money.”

Sheila Bair

Finally, a powerful anecdote for better financial education from Duke psychologist Terrie Moffit, whom we interviewed for a story on Sesame Street teaching children how to save. She showed it to a group of bricklayers, welders, and bulldozer drivers building a cottage for her on her North Carolina farm. Afterwards, she writes,

“We had a very serious conversation, as all of them are in their 50s, are of course heavily affected by the poor economy, and are in that 50 percent of Americans who have no savings for retirement. They did not understand why it is better to start saving younger, so I explained compound interest to them, and it was the first they had heard of it. They said, “Why didn’t someone teach us this stuff in high school?” It was quite a moving experience for me.”

Moving indeed.

Videography by Saskia de Melker and Elizabeth Shell. Illustrations by Barry Gott and used with permission.

This entry is cross-posted on the Rundown- NewsHour’s blog of news and insight. Follow Paul on Twitter.