An America built to last needs to invest in education

In his State of the Union address President Obama spoke of an America “built to last.” I am glad that the focus of policy is turning to the long run. One essential component of such a built-to-last idea must deal with education. In an increasingly global and complex economy, citizens need to have the skills to successfully participate in labor markets, not to earn low and stagnating wages but wages that allow them to be part of a solid middle class, to send their children to college, and to save for retirement.

The President did talk of education and the important role of education. But it is going to take more than education reform that allows schools to be creative in their curriculum and to reward good teachers. America needs to invest in education if it wants an economy built to last. While it is good to invite state and local governments to devote more of their budgets to higher education rather than slushing education expenses, it is important to recognize that the federal government has an important role to play to foster education. More funds to research and technology can contribute not only to support higher education but also to fuel innovation and ideas that form the basis of growth (and the growth of well-paying jobs). Good education and solid training are also at the base of innovative entrepreneurship. Access to finance has been mentioned, by the President, too, as one of the major impediments to entrepreneurship, but in my view (and according to my research), education is far more important, in particular if the entrepreneurs we aim to cultivate are innovators rather than self-employed individuals who are trying to make a living. It is also important to recognize that a good education is not built on good colleges or community colleges alone but on a strong educational system, from kindergarten to college and beyond.

President Obama mentioned that college education cannot be a luxury. But with the cost of college rising faster than inflation and faster than the growth in wages, in particular in the lower part of the wage distribution, we are headed in that direction as the purchasing power of workers is not keeping up with the cost of a college education. If we are planning for the future, it is important to find ways to make college affordable and within reach of the many families that aspire to send their children to college. As I have mentioned in many of my previous posts, a college education is often the most important investment that a person can make.

I want to end this post with a statement that President Obama made during his address and that can be summarized as follows: teachers matter. This does not require much comment as it speaks for itself. All of us can name a teacher who has been influential in our life and who has made a difference. For me, it was my high school literature teacher. Her name is Ada Pucci. Even after more than 30 years, I think often of her and of the encouragement she gave me; we have talked on the phone over the years and when I am in Italy, and I go and visit her. Teachers matter, and they matter to what students can do in the long run. They too should be part of the policy for an America built to last.

Wishes for the new year

As the new year starts, I have many wishes for financial literacy. I list the top three below:

Wish #1. I hope a leader to champion the cause of financial literacy will emerge and help give this topic the national and international attention it deserves. Michelle Obama has been the celebrity behind obesity and has helped not just raise attention around this important topic but also push for relevant programs in schools. There is a striking similarity between obesity and financial illiteracy. According to statistics, one third of the population is obese. Well, the same (and even worse) figures can be cited for financial illiteracy; about half of the population does not know the abc’s of finance and economics. There are severe costs associated with obesity, and there are equally severe costs of financial illiteracy (if in doubt, check the figures resulting from the financial crisis). A lot of initiatives have been undertaken at the national level to address obesity, from a revised food pyramid to limiting the amount of junk food available in cafeterias and vending machines. I may be one of five people in the country to know about the official web site offering financial information (do you want to guess which one it is?). Other celebrities have helped raise awareness of a variety of national and global problems. For example, Al Gore increased the attention on the environment and global warming. While I do not think the Artic will melt in the next few years (if I am wrong, please let me know), we are discussing or taking a lot of measures to address this long-term problem. On the other hand, the problem of financial illiteracy is urgent and pressing.

I do not have a strong preference about who this leader will be, but it would be good if he/she had a face (institutions are great, but it is hard to compete with Happy Feet). He/she should also be substantially liked by the public—a difficult objective in these days of falling financial geniuses, but there are many celebrities that people love. A sports celebrity would be great (Who does not like sports? Raise your hand!), in light of the similarity between success in sports and success with financial matters: it takes dedication, practice, and discipline!

Wish #2. I hope some BIG initiatives will emerge for financial literacy. As I have lamented in previous posts, a lot of the discussion about financial literacy has focused on its cost (as if we should or could offer it for free), and many initiatives to promote financial literacy are limited in scope and objectives. But this is a global problem that is becoming more and more pressing by the day (most of the political leaders in Europe have been ousted as a result of the sweeping financial crisis). This situation needs some big initiatives. How about a national campaign, or even a global initiative on financial literacy? How about a museum for financial literacy? We have declared April financial literacy month, so how about doing something concrete and big during that month (March or October are good for me too; I am not fussy about which month it occurs) that has lasting effects?

Wish #3. I hope the new year will see financial literacy in the schools; if not in the United States, then at least in a sizeable number of countries. Financial literacy is an essential tool for anyone who wants to be able to succeed in today’s society, make sound financial decisions, and—ultimately—be a good citizen. The financial crisis has put economic news on the front pages of newspapers almost daily, requiring individuals not just to be abreast of concepts such as deficit, national debt, and interest rate spread but also to evaluate the economic reforms that political leaders are proposing. Moreover, the cost of college education has been increasing at a rate faster than inflation, requiring students and their families to start planning for college as soon as possible, to be savvy about financial aid, and to manage student loans effectively. And young people are required to make one of the most important decisions of their lifetime—whether to invest in higher education—during high school, and they should make it in conjunction with a good understanding of the costs and benefits of that decision.

Perhaps I am only dreaming, but dreams are good. And my fourth wish is that all of you have a happy new year. Be in good financial health!