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Teaching Finance Smarts

Teach a youth the merits of saving, and he or she will save more as an adult.

That sounds like common sense. But governments don't always practice that virtue. Not enough states require that students be taught the basics of personal finance and investment. Many learn their financial lessons as adults from the school of hard knocks.

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American politicians, bemoaning the low personal savings rate, have long debated the merits of tax breaks to encourage saving and investment. Last summer, Congress made the tax provisions for Individual Retirement Accounts (IRAs) more generous. It also lowered the tax on capital gains.

The Congressional Budget Office estimates that the top 5 percent of households will get 75 percent of the savings from the capital gains tax cut. IRAs have an impact further down the income brackets. But people with still lower pay have a problem setting aside money for saving and investment.

There may, however, be a more efficient way to encourage savings. A new study for the National Bureau of Economic Research (NBER) provides evidence that giving high school students an education in financial decisionmaking prompts them to save more as adults.

Using a survey of 2,000 people aged 30 to 49, three NBER authors find that those who take such courses save 1.5 percentage points more on average than those who don't.

That's a big improvement.

"Education may be a powerful tool for stimulating saving," the study concludes.

B. Douglas Bernheim, one of the authors, says the nation's savings rate could be raised even more quickly if adults as well as youths got financial educations. In another study, the Stanford University economist found that the financial instruction that companies give employees, often in relation to retirement plans, has "a substantial impact" in hiking savings.

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There's a bonus to such education. Graduates of the high school courses are decidedly wealthier on average as they mature. And those with a more sophisticated financial education are less likely to pile up credit card or other debt they can't repay. They invest more wisely, perhaps avoiding over-priced or fraudulent investments.

If people can balance their checkbooks, devise something of a budget, and know the difference between a bond and a stock when investing, their financial lives should be more safely ordered.

Dara Duguay argues that such learning should be "on a par" with reading, writing, and math.

Well, maybe.

Ms. Duguay is executive director of the Jump$tart Coalition for Personal Finance Literacy, based in Washington. Jump$tart has the goal of improving the financial education of young Americans. It is a coalition of some 20 organizations, including federal agencies, universities, and non-profit financial groups.

Separately, last month the National Association of Securities Dealers, state securities agencies, and the non-profit Investor Protection Trust announced a $1 million financial-literacy program to target 25,000 high school teachers in the US.

Between 1957 and 1985, 29 states mandated some form of "consumer" education in secondary schools. But that wave seems to have petered out, with some states backing off.

We'd like to see more educators and lawmakers joining Jump$tart and its affiliates in their efforts to see that Americans are better prepared for the financial side of life.

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