A Legislative Proposal We Can All Agree On

With the kids back in school and the fall season of credit union D.C. fly-ins underway, I figure now is a good time to talk about what should be a top state legislative priority of all credit unions in the year ahead.

According to a 2022 survey by the Council for Economic Education, there are only 17 states that require high school students to take a specific financial education course to graduate and another eight states that give educators flexibility to integrate it with other subjects. This is too low a number. This means that too many students across the nation are not learning basic skills and concepts with which they will have to deal their entire adult lives. This ignorance has serious and negative consequences for the nation in general and financial institutions in particular.

First, whether your goal is to be a farmer in Nebraska, a doctor in Detroit or a hairdresser in Albany, you will have to deal with finances in the form of a student loan, credit card, savings plan or starting your own business. Everyone benefits by understanding the basics of the financial system.

In contrast, the mortgage meltdown of 2008 and the recent run on Silicon Valley Bank (SVP) both represented severe threats to our financial system that were exacerbated by a lack of financial competency on the part of consumers. While some financial institutions recklessly gave consumers mortgages they could not afford, we can also assume that these tactics would not have been as successful had mortgage applicants had a firm grasp of basic concepts such as understanding precisely what a mortgage is and the negative consequences of not paying back loans. Otherwise, all the disclosures in the world won’t prevent members from taking out loans of questionable value. After all, just as no one enters into a marriage thinking they are going to get divorced, no one buys a house assuming they can’t afford it.

Fast forward to 2023 and SVB. The bank specialized in making loans to the wunderkind of Silicon Valley. Anxious to make millions after getting their master’s degrees from Stanford, no one apparently explained to them that banks and credit unions only insure a fraction of the money they deposited and, as such, they were putting their companies at risk by placing all their funds in one institution.

Don’t get me wrong, the government did the right thing by protecting these deposits, but it was forced to do so in no small part because of financial ignorance.

As cooperatives, credit unions have a particular interest in making sure people know what they’re doing with their money. As smaller institutions, credit unions are much more directly affected when a member doesn’t pay back a loan. Many credit unions already do a phenomenal job in providing learning opportunities for members and their communities by, for example, setting up school branches and holding informational sessions for their communities. These efforts by themselves, however, can complement but not replace the discipline that comes with homework and a test.

Politically, this is also an opportune time to advance the issue. The 17 states that require financial education for graduation cut across the red-state-blue-state divide, ranging from Mississippi to Rhode Island. At a time when we can’t agree on anything, and education is particularly divisive, doesn’t it make sense to champion those issues on which there is actually a consensus?

In fact, over the years, as I have grown more passionate about this issue, I have rarely met a politician, or neighbor for that matter, who thinks financial education is a bad idea. One concern I have heard is that education curriculums are already packed with mandates and that there is only so much time in the day.

But we should never allow our curriculum to be so set in stone that we don’t change what we teach our kids as society changes around them. In 1970, for example, an estimated 45% of private-sector employees had defined benefits plans. In contrast, the 2020 census reported that only 13.5% of individuals now have one. And there are a lot more products available to would-be homeowners than there were in the 1980s.

Financial products have become more sophisticated and widely available. It’s time for our kids to get the training they need to use these products responsibly and start down a path that leads to a stable financial future.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.