Dear Mr. Berko: I am 66 and have a doctorate, so supposedly I’m a smart guy, even though a financial planner took my wife and me to the cleaners two years ago. One of my colleagues invested a large amount of U.S. dollars in Iraqi currency, insisting he will collect millions. The teenage grandchildren of our friends get a fair allowance, but they’re always broke. A colleague who opened a new office got poor financial advice and can’t afford his rent. Last month, I was mortified at the unsuitable investment choices in the rollover IRAs of a couple we know. How do people become financially literate?
— JS, Kankakee, Ill.
Dear JS: Back in the 1960s and ’70s, when the children of our contemporaries were celebrating life events — such as birthdays, communions, bar and bat mitzvahs, and school graduations — my wife and I would send them a book called “The Richest Man in Babylon.” We also purchased five shares of Hershey stock, between $8 and $10 a share, in their names. Then I’d write neat letters on my firm’s classy stationery, telling the lads and lasses about the public company they own. I also told them that Hershey invites shareholders to attend the annual meeting in Hershey, Pa. And some of them actually attended with their parents. They said it was a hoot! I also recommended they buy a few more shares, reinvest their dividends each quarter and watch Hershey grow. The parents were thrilled, and some of the kids asked to call my office and talk about investing. Over a dozen years, we bought Hershey for 70 kids, and once in a while, I’ll get a letter or phone call from a now appreciative adult. Most of them are moderately to very successful, and each remembers owning Hershey stock, which increased enormously in value.
A few years ago, I asked the son of an acquaintance how much he had paid for his Toyota. He responded, “$209 a month.” I said, “No, no, how much did this car cost you?” Again, the kid responded with “$209 a month.” And I’m not sure the father understood my question, either. So I asked, “What was the sticker price on the car?” This time, the kid snarled the answer at me: “$209 a month, man. You wanna see the payment stub?” The best I could get is that he traded a used car, gave the dealer $4,260 in cash and had payments of $209 a month for 36 months.
Among the biggest failures of most public and private schools is that few understand that among the most important courses they must teach is basic economics. I don’t mean the worthless fluff spouted by Friedman, Keynes, Samuelson, Reich or Galbraith; that’s pure garbage. The economics class I’m referring to is Checkbook Economics 101 for preteens and teenagers. Our failure to do this is causing most of today’s kids to become tomorrow’s adult suckers. Their financial IQs are below freezing. They don’t know the difference between annual and compounded interest. And because most think a blue chip is worth $5 at a poker game, they’re certain to get bushwhacked when they seek financial advice. “There’s a sucker born every minute,” P.T. Barnum declared. And a financial con man is born every hour to make sure no sucker is spared.
