Wednesday, August 8, 2012

More on Fed Head and Financial Literacy ... Student Loans and Freedom to Choose Which School to Attend

Let's now take some time to further consider the topic of financial literacy among Americans and the role of government and teachers with respect to teaching the lessons thereof.

Bernanke Promotes Financial Literacy, Says Next Generation Will Be Better Off has this to say about student loans and related subjects:

"Promoting financial literacy can help support both individual and national economic health, Federal Reserve Chairman Ben Bernanke said Tuesday.
Federal Reserve
Federal Reserve Chairman Ben Bernanke speaks to a gathering of teachers in Washington.
People who make better pocketbook decisions can help stabilize the economy, Mr. Bernanke said, pointing to the recent financial crisis.

“Consumers who can make informed decisions about financial products and services not only serve their own best interests, but, collectively, they also help promote broader economic stability,” the Fed chief said in remarks before teachers gathered in the Fed’s Washington board room, as well as educators watching his town hall-style meeting live online.

One way for teachers to help is to instill an “economic way of thinking” in students learning to make decisions, Mr. Bernanke said. This could mean applying a cost-benefit analysis and rigorous thinking to decisions, including whether to take on student debt, he said.

Student-loan debt can be a double-edged sword, Mr. Bernanke said in response to a teacher’s question. Students should view additional education as “an investment in human capital and a very important way of increasing your earning power,” the Fed chief said. But acknowledging that student debt can linger for years, he said that students should make smart decisions and should be able to speak with financial experts to figure out what kind of debt they can handle.

Student-loan debt can be a burden to consumers in the future, he said. But Mr. Bernanke said he didn’t think student-loan debt could threaten broader financial stability, because the government, rather than financial institutions, makes most student loans. . . .

The Fed chief also voiced optimism that living standards will continue to improve, despite some worries that the next generation will be worse off than its parents.

“My best guess is that our kids will be better off than we are,” thanks to gains in productivity, technological innovation and the U.S. entrepreneurial spirit, he said.

Mr. Bernanke stressed that financial education should be accessible to people at all stages of life. Some types of homework assignments, for instance, could expose parents to the same lessons their children are learning, he said."

My Take

Here are a few questions for Mr. Bernanke.

1- Why does government make any student loans and not defer completely to the private sector? When students later default, why do taxpayers get stuck with the bill? In a competitive market based economy, wouldn't it make more sense to keep the government out of the student lending business?

2- For that matter, why do government agencies (Fannie Mae, Freddie Mac, FHA and others) guarantee mortgage loans? When home owners default, why do taxpayers frequently get stuck with the bill? In a competitive market based economy, wouldn't it make more sense to keep the government out of the home mortgage business?

3- If government spends ~$12,000 per student annually on K-12 education, why can't the student and parent take that $12,000 and spend it wherever they choose? Why also can't they elect, if they so choose, to spend that money in either a private or public school setting?  By introducing the concept of individual choice and competition into a government knows best monopoly situation, wouldn't the resulting competition mean a better education for individual students at a lower cost to taxpayers?

Isn't that the way markets work?

For some mysterious reason, I have trouble imagining teachers being taught to teach those lessons about costs and benefits, and markets and monopolies, and the private sector and the public sector, to their students.

I'll wager that you do, too.

Thanks. Bob.

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