How to Prevent the Next Global Credit Crisis

Educate, and educate early.

That is our stunningly simple solution to making sure there is no "next" global credit crisis. Two weeks ago, as we kicked off our 12th year of Foolanthropy, The Motley Fool's philanthropic campaign, we made the case that the only true antidote to future crises was financial literacy.

It's become clear that the average American finds him- or herself under a mountain of debt, with too much house, too little savings, and too superficial an understanding about money.

Get out the plastic
That's a problem at the individual level, as well as the societal level. Because the truth is, financial literacy is simply not a priority in our nation.

Sixty-two percent of school-age Americans responding to a 2006 Jump$tart personal finance survey received failing scores. Still, only seven of our 50 states require high school students to take a personal finance course to graduate. Nationwide, less than half of all teachers get support from administrations to use financial curricula.

We are nation not of savers but of borrowers, and our dependency with credit is developed early. According to the Young Americans Center for Financial Education, the number of young adults declaring bankruptcy has increased 96% in 10 years, and by the time college students reach their senior year, 56% carry four or more credit cards, with an average balance of $2,864.

Adjustable-rate mortgage, anyone?
The lack of a basic financial education means that many Americans are ill-equipped and ill-prepared to make sound long-term financial decisions. Even if you are not among them, realize just how interdependent and connected we are when it comes to our financial lives (and financial futures). When one group takes uneducated risks -- like, say, subprime borrowers wanting cheap credit to buy real estate -- it can directly and substantially affect the rest of us.

While increased regulation and government involvement will certainly have some effect in the short term, we believe the only true, sustainable, long-term solution is plain:

Educate, and educate early.

Think about it: We as average Americans and "Main Street" investors have no direct control over Wall Street greed, banking regulations, or lending standards. But if we each educated one young person about credit, about saving and investing, about compound interest … we'd make a big difference at the grassroots level.

Announcing Foolanthropy 2008
That is the aim and mission of this year's Foolanthropy campaign. In October, we kicked off Foolanthropy 2008 by asking our community to vote for one out of four organizations that takes an innovative approach to financial education.

Today, we are proud to announce the winner of that community vote. Foolanthropy 2008 will be supporting DonorsChoose.org, a dynamic nonprofit organization that provides a way to fund specific projects in public schools. Teachers from across the United States post project proposals, and "citizen philanthropists" choose to fund the project that appeals to them.

The partnership between DonorsChoose.org and The Motley Fool will specifically fund projects dedicated to financial and economic education. The teachers are already on board; they simply need the tools.

Get involved today
Several major corporations have taken up the financial literacy fight, from finance-related companies such as JPMorgan Chase (NYSE: JPM  ) , Schwab (Nasdaq: SCHW  ) , McGraw Hill (NYSE: MHP  ) , and Allstate (NYSE: ALL  ) , to Yahoo! (Nasdaq: YHOO  ) and Ford (NYSE: F  ) .

Come join the fight.

For the next 10 weeks -- today through close of business on Jan. 20, 2009 -- The Motley Fool community at large will rally to make a difference in public schools and eradicate financial illiteracy. In addition to money raised from our community, the Fool will be donating $10,000 toward the cause, and we'll also continue our annual "My $0.02 Cents" campaign, adding $0.02 for every single message posted on any of our discussion boards, as well as for every single CAPS pitch, during the month of December.

Educate, and educate early.

Foolanthropy 2008 is one small step toward making sure every young person in our country enters adulthood armed with a basic financial education. Help us raise money by posting on our discussion boards or making a CAPS pitch during the month of December, or by donating money -- whatever the sum. Join us in taking the steps toward a successful financial future.

DONATE NOW!

JPMorgan Chase is an Income Investor recommendation. Charles Schwab is a Stock Advisor recommendation. McGraw Hill is and Inside Value recommendation. The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 13, 2008, at 6:12 AM, PaulEngr wrote:

    Education is not enough. I have long been saying that I refuse to invest in banks and other financial institutions due to the severe lack of disclosure.

    While the Enron scandal was going on, the press was asleep at the wheel when a scandal 10 times the size of Enron was revealed within Fannie Mae/Freddie Mac. Where was the outrage then?

    Yes, consumers shouldn't get into debt up to and above their eye balls. However, we have financial freedom in this country . With freedom comes responsibility and the freedom to screw it up. I wouldn't have it any other way because the consequences will hurt you on both ends of the scale.

    That being said, banks also have a responsibility to manage their finances wisely for their shareholders. And as shareholders we have a RIGHT to examine the decisions the banks are making and to criticize them (by selling their stock) if they want to ignore that responsibility.

    This is a different aspect of the same disclosure issues that the Fool was involved in changing back about 10 years ago when companies would have secret meetings with the mutual fund managers before giving bad news out to the rest of us, except that in this case, they simply don't have to disclose anything.

  • Report this Comment On November 16, 2008, at 3:14 AM, joycets wrote:

    Please let me know how to refer this project to instructors at our school [the one at which I work] .

    We are already teaching financial literacy to blind kids here, including the specialty needs that include folding bills to identify their amounts, and strategies for other special needs students (many with less ability than the usual students).

    I imagine that help with some talking calculators or braillenotes (or other associated materials) for audible shopping lists would be of interest to some of our Fools!

    thanks for educating,

    Joycets

  • Report this Comment On November 30, 2008, at 4:55 PM, 782gear wrote:

    Donors Choose appears to be a simple and direct way to contribute to public education. We picked a project as a test during the summer and was promised a report on the results in February 09. If the project follows through, I'll post a note to the Fool in February.

    782gear

  • Report this Comment On December 09, 2008, at 10:34 AM, mkubik7 wrote:

    I think it's great that you have joined forces to raise money for this purpose! We have posted a link to your discussion board on ourUSAschools under Parents - Finance (http://www.ourusaschools.com/index.php?p=parents+finances). We applaud your effort, and hope that others will follow your lead and donate money to help fill in the gaps in our educational system!

  • Report this Comment On December 29, 2008, at 8:08 PM, 782gear wrote:

    We received a project report on our 2008 donation from Donors Choose. The teacher wrote a very nice letter, each of the students in the class wrote a very nice thank you note for the donation, and they sent along pictures of the students using the materials we funded in the classroom. Donors Choose sent a full accounting of the funds. 85% went for purchase of the materials and 15% was applied to overhead and labor. All in all a very pleasant experience for our modest donation. The funds were spent in accordance with the request and the class seems to have gained from the project. We are well pleased and plan to donate again in 2009. Gear

  • Report this Comment On January 13, 2009, at 3:59 PM, cash4us2 wrote:

    Great!!! I have been saying for years I have no clue why the school system does not want to teach and have students master financial skills!! So now we are addressing kids but what is being done to educate adults...even those with degrees? Are we going to always neglect the middle? thanks

  • Report this Comment On January 14, 2009, at 8:20 PM, gardengertie wrote:

    A great idea! And not just finances in grade school and high school, but also economics should be taught in high school.

    The economists who predicted this crash were not much covered by our media. Instead, instead the empirically unsupported idea that deregulation will bring a hyper-inflationary economy back into equilibrium was heard everywhere.

    gardengertie

  • Report this Comment On March 04, 2009, at 1:14 AM, IrvinCC wrote:

    Today payday loans are subject to a lot of heat from consumer protection advocacy groups. Oddly enough, these groups do not question why wage levels have slipped over the last few decades, resulting in more people needing payday loans. Solutions having something to do with the problem have never been their forte. That said, using them is fine if you practice financial responsibility. If you pay it back on time, and find a lender with favorable terms, and it is only once in a blue moon that you’re doing it, then everything is fine. It’s like credit cards or anything else, if you use <a href="http://personalmoneystore.com/moneyblog/2009/02/24/apply-pay... loans</a> responsibly and in moderation, there’s nothing wrong with them at all.

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