Saturday, June 9, 2007

Extreme Economics in the Classroom

Extreme Economics in the Classroom

“You’ve got to stand for something, or you will fall for anything.”

-John Mellencamp

Many of my columns are about people who make bad financial decisions. People who take out payday loans and run up debts on high-interest credit cards. People who play the lottery and gamble too much at casinos. People who just don’t know how to handle their money.

I’m often asked where people can go to avoid these mistakes. Dr. Keen Babbage has some answers in his new book, Extreme Economics (Rowman & Littlefield Education, Lanham, Md.).

Dr. Babbage says that personal finance should be a part of the school curriculum.

I’ve known Dr. Babbage for nearly 30 years, and he knows something about finance. He is frugal and has a good eye for investments. His brother Bob, my former college instructor and longtime friend, was instrumental in my getting into the financial planning business. Keen and I both served as treasurer for Bob’s campaigns during his successful terms as a state auditor and secretary of state.

I know the Babbage boys are good at saving a buck. I suspect they learned it at home. Keen mentions that he learned from his Keen Johnson, his grandfather, former Kentucky Governor (and Richmond Register publisher). Governor Johnson was a “saving, thrifty, frugal” governor who instead of buying new office stationery, used the stationery of the previous governor, Happy Chandler.

Johnson drew a line through Governor Chandler’s name and wrote in his own.

In an era when the current Kentucky governor spent over $5,000 on a secret door to his office, I am afraid that Governor Johnson’s example has been lost.

If you look at the saving rate of Americans, it becomes obvious that the frugal ethic of Governor Johnson’s era has not been handed down to the current generation.

We have a society where the haves are getting more and the have-nots are getting less.

There are whole segments of the business world set up so that the more intelligent and cunning can prey on the less savvy. If you go back to Darwin, there is an argument that the world has always been that way.

Education, however, is the way for the have-nots to protect themselves.

Education is the equalizer in any society. It allows the poor to be on equal footing with the rich. If people are able to make informed decisions, they are less likely to make mistakes.

That is where the concept of “Extreme Economics” kicks in.

Babbage’s book is aimed at teachers and educators, but any parent or student would also benefit from reading it. As Babbage notes in his introduction, the United States is facing a financial disaster “that could become absolute melt down.”

Smart money management sounds simple: spend less than you make, and save the rest. I don’t think Americans, especially young Americans, get it. Babbage has some ways to help them understand.

My grandmother was a savings fanatic as she grew up during the depression. She never had a credit card, or any kind of credit, and was able to save money from her meager paycheck from a potato chip factory.

Today’s young people haven’t had to learn hard lessons from a depression, and neither have their parents. Both have the societal pressure to spend on consumer goods.

It wasn’t life and death for grandma to have the coolest cell phone or IPOD. She didn’t have either and seemed to do fine.

A family member has been teaching their 6-year-old about money by paying him to do household chores. No work, no Scooby Doo. My parents taught me in a similar fashion, but schools, along with parents, need to join the battle.

When sound fundamentals are taught at a young age, they become habits. I’ve read many studies that show that people’s financial profiles are decided by the time they are 27. If they run through money at age 27, they will at age 50.

If you don’t know the basics, you will blow your money. It doesn’t make a difference how much money you have. Just ask lottery winners like Jack Whitaker. Like roughly 90% of lottery winners, he went through all of his money in less than five years.

The spend-for-today mentality has to stop. Schools and society have to address the problem, and Dr. Babbage has concrete ideas, exercises and plans.

All of America needs to stand up and take notice. Too many Americans are falling for anything.

Don McNay is Chairman of the Board for McNay Settlement Group in Richmond,Ky. You can write to him at or read other things he has written at His award-winning column is syndicated throughout over 200 newspapers.

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