Washington Week: Student Voices (O)

EDITORIAL: Emphasize finances
Staff Editorial
Oklahoma Daily (U. Oklahoma)
10/29/2007

(U-WIRE) NORMAN, Okla. — If you've kept up with business news, you've probably heard pundits talking about "sub-prime lending," the "housing bubble" or the "credit crunch." But if you're like us, these phrases have a tendency to go in one ear and out the other.

The story behind these complex buzz words, however, is an important one, especially to University of Oklahoma students about to enter "the real world."

Unfortunately, economic news is lost on most, underscoring the poor job OU does educating all students about how the economy works and the challenges they're likely to face after graduation.

OU should offer a course that equips students with the financial basics so that they can appreciate the bedtime story that follows.

In a nutshell, the economy is slowing down.

Over the last few years, large commercial banks got cocky and started offering mortgage loans to "sub-prime" borrowers — people likely to default because of poor credit histories or other reasons.

When borrowers defaulted, the banks had to record the loans as losses. Those losses added up. Investment giant Merrill Lynch recently reported a third-quarter loss of $2.3 billion and an $8.4 billion charge for failed mortgage-related investments.

The losses have made investors squeamish. As a result, the supply of credit in the economy has shrunk — hence, the "credit crunch."

This credit crunch not only affects those seeking loans to buy homes, but firms looking to expand as well.

Suppose a widget company wants to increase production. It shops for a loan to finance the construction of a new widget factory, but if it cannot find an affordable loan, it foregoes the expansion.

When you take the aggregate of this hypothetical example, you have an economy that grows more slowly, which means fewer new jobs for recent college graduates.

To counteract the credit crunch, the Federal Reserve Board is expected to slash interest rates again this week. But the Fed must walk a tightrope. An interest rate cut could spur inflation, which is rising steadily because of increasing food and fuel prices.

Although this story is important, it falls by the wayside if students aren't equipped with the basic tools to understand buying a house or budgeting and saving.

That's why we believe OU should do more to explain basic economic concepts, like inflation, to students before they join the workforce. But more importantly, the University should impart the practical knowledge needed to survive — how to manage personal finances and plan ahead.

A simple, one- or two-hour class offered to seniors prior to graduation would go a long way in making students better able to cope with the topsy-turvy financial world.

Unfortunately, University officials have thrust students into that world unprepared. The $10 million credit-card contract OU signed last year that gives Bank of America the exclusive right to sell credit cards on campus and mail directly to your address comes to mind.

Students can learn how to handle their money in one of two ways. They can learn the expensive way — through trial and error — or OU can give them a better opportunity to learn so they can avoid making costly mistakes.

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