Our recent financial crisis has been called an "economic Pearl Harbor" (Warren Buffett), a "once-in-a-century credit tsunami" (Alan Greenspan), and "a true atomic bomb" (George Soros). Its effects have resulted in lost jobs, foreclosed homes, and a stock market that is trying the nerves of anxious investors who've seen their portfolios decimated.
There are plenty of cautionary lessons to draw from this crisis -- recklessness, greed, ridiculous lending standards, the disappearance of risk management ... the list could go on and on.
But there's another, deeper lesson behind it all -- a lesson that hasn't received as much attention, but still bears a heavy burden. Very simply: The majority of Americans are ill-equipped and ill-prepared to participate in this global economy because they lack basic financial skills.
Panic 2008 and the lack of basic financial education
There is a direct correlation between this unfolding crisis and financial illiteracy. As economist and Yale professor Robert J. Shiller recently wrote in The Wall Street Journal, "This nation needs to consider how it can help the great mass of investors better handle financial affairs -- not only their homes, but credit, loans, medical, and retirement planning."
Another important takeaway from these past few weeks is just how interdependent and connected we are when it comes to our financial lives (and financial futures). When one group takes uneducated risks, it can directly affect the rest of us. This financial crisis has been building quietly for years, as homeowners began accumulating ever-growing quantities of mortgage debt to finance consumption. Not only were financial institutions too eager to lend, but we were also eager to borrow. The victims in today's wreckage are almost unbelievable: Fannie Mae
The best approach to combat this is to educate, and to educate early.
We, as individuals, may not be able to do much to heal Wall Street of its assorted ailments, but we can do something to help better prepare and educate tomorrow's investors and consumers. Financial literacy certainly can't fix our current economic woes, but it can help prevent bad financial decisions from happening in the first place.
Announcing Foolanthropy 2008
Foolanthropy is The Motley Fool's take on philanthropy. Last year, we narrowed Foolanthropy's focus and announced our commitment to eradicating financial illiteracy. In light of all that has happened in the financial markets in recent months, this mission is now more crucial than ever -- so crucial that for the first time in the 12-year history of Foolanthropy, all our efforts and resources will go toward helping one organization that is dedicated to arming young people with necessary financial skills.
In other words, impact is the goal of Foolanthropy 2008. While narrower in scope, we hope to make a much more profound difference, rather than spreading our collective resources among several groups.
The Motley Fool has hand-picked four uniquely qualified organizations to help us with our mission. All four of these groups meet Foolanthropy's tenets and are innovative in their various approaches to financial literacy. It's now up to you, the Fool community, to decide which one of these organizations the Fool should partner with for Foolanthropy 2008.
Without further ado, the nominees are (in alphabetical order):
- Junior Achievement of the National Capital Area
- National Council on Economic Education
Get more information on our latest crop of Foolish candidates.
Here are the details of this year's campaign:
- Fool community members vote on the organization they believe the Fool should support. Voting begins today (Oct. 29, 2008) and ends Nov. 6, 2008.
- The winner will be announced on Nov. 12, 2008. The fundraising campaign will launch that day and will end Jan. 21, 2009.
- At the conclusion of Foolanthropy 2008, in addition to money raised from our community, the Fool will donate $10,000 to the selected charity. We'll also sweeten the pot with our annual "My $0.02 Cents" campaign, adding $0.02 to our $10,000 donation for every single message posted on any of our boards, as well as for every single CAPS pitch, during the month of December.
Put on your philanthropic hat and vote for the program you believe will make the most impact. Further descriptions of each particular organization and how our money will be put to work can be found here .
Thanks to all of you who voted! Voting is now closed, and the winner will be announced very soon. Be sure to visit the Foolanthropy discussion board. Thanks in advance for your support!
Tom Gardner and Marthe LaRosiliere