Greenspan says young people should be taught about finances, now

WASHINGTON (AP) – Drilling basic financial concepts into young people should not only help them now but also help them avoid financial pitfalls later in life that could plague them for years, Federal Reserve Chairman Alan Greenspan said Thursday.

“Improving basic financial education at the elementary and secondary school level will provide a foundation of financial literacy that can help prevent younger people from making poor decisions that can take years to overcome,” Greenspan said in prepared remarks to the JumpStart Coalition’s annual meeting in Washington. The nonprofit group is involved in trying to help young people become more financially fluent.

Personal bankruptcies hit a record high in 2002, suggesting that many consumers are experiencing significant financial crises, Greenspan said.

Greenspan is a longtime champion of improving financial literacy not only among young people, but adults as well.

The financial world has become increasingly complex, as the explosion of choices requires people to look more critically at their options before making decisions.

“An understanding of how to maintain a checking and savings account at a local financial institution may have been sufficient 25 years ago,” Greenspan said.

“Today’s consumers, however, must be able to differentiate between a wide range of products, services and providers of financial products to successfully manage their personal finances,” he added. “Certainly, young adults have access to credit at a much earlier age than their parents did,” Greenspan noted.

Technology also is playing an increasing larger role in the financial world, where, for instance, people can bank and pay bills on the Internet.

Greenspan said consumers more generally must be familiar with the role that computers play in virtually every traditional financial transaction, from withdrawing funds to gaining access to credit.

In his prepared remarks, Greenspan did not discuss the state of the U.S. economy or the future course of interest rates.

Greenspan and his colleagues decided to hold interest rates at a 41-year low of 1.25 percent at their meeting in March, saying they would keep a close eye on economic developments surrounding the war.

Recent economic reports suggest that the economy is getting weaker, economists say. Activity in both manufacturing and in the service sector contracted in March, raising fears among some economists that the economy may be headed back into a new recession.

The job market also is losing ground, something that could make consumers – the main force keeping the economy going – more cautious, economists say.

A sound financial education is especially important for poor people, immigrants and others who often pay super-high rates for loans and have been hurt by abusive, sometimes, illegal lending practices.

“An informed borrower is simply less vulnerable to fraud and abuse,” Greenspan said.