Education beats regulation for smart finances

By LARRY WILSON - Guest Columnist

Polls indicate the economy has replaced war and terrorism as Americans’ primary concern, and voters appropriately are demanding answers from government, since they have little control over oil prices or inflation.

But individuals are not powerless; they have the ability to learn basic economic principles that can improve their lives.

It is estimated that the average full-time worker who does not have a bank account will spend more than $40,000 in his working years just to cash his paychecks. A Brookings Institute report says as much as $360,000 in pre-tax wealth could be created if that same worker invested those fees in the stock market.

There are 22 million unbanked households in America. That adds up to billions of dollars of untapped potential for low- to moderate-income families, about half of whom are African-American. As many as a third of low-income families in our state may be unbanked.

The key protector of consumers is economic literacy, not aggressive government intervention in business.

For example, there’s been a call for the Legislature to shut down or severely restrict consumer access to payday loans. The problem is that no one has offered a legitimate free-market substitute for those consumers whose needs would not fit unrealistic limitations, and the alternative is unregulated, untaxed underground lenders.

Overregulation of any consumer-oriented business will not lessen demand; it will just activate the law of unintended consequences.

A staff report of the Federal Reserve Bank of New York concluded that consumers in Georgia and North Carolina have more debt and bankruptcies since those states banned payday loans.

The much wiser course is for government and the private sector to help consumers help themselves become economically literate. We need to educate, not overregulate.

South Carolina is doing that for the next generation of citizens. We have one of the most aggressive frameworks for economic education in the country.

A bill passed by the Legislature requires personal finance to be taught at every grade level.

Economics is in the social studies academic standards starting in kindergarten and is a tested subject in the PACT for grades 3-8, although some have called for its elimination. High school students must pass an economics course to graduate.

Last year, more than 1,600 K-12 teachers participated in training programs offered by the S.C. Council on Economic Education, whose vision is to work with government and the private sector to prepare a generation of economically literate young adults.

While we’re working to help the next generation, concern about today’s unbanked workers in South Carolina has led to the formation of the Unbanked Coalition, a collaborative effort to bring people without bank accounts into the financial mainstream.

Our partners include the Federal Reserve Bank of Charlotte, the S.C. Bankers Association, Credit Union League, Greater Columbia Chamber of Commerce, the S.C. Association of Certified Public Accountants, the FDIC and others.

Starting with Richland and Lexington counties but ultimately reaching across the state, we want to identify unbanked consumers, assess what financial institutions are doing to serve that market and determine their level of interest in partnering with us.

Our goal: to help the unbanked population open bank accounts and establish relationships with bankers. In short, we want to give them the basic tools to manage money and make basic financial decisions.

Adam Smith, the father of modern economic theory, passionately made the case for unencumbered capitalism. He believed if people were set free to better themselves economically, it would benefit not only them, but society as a whole. History has proven him correct.

Freedom involves making personal choices and living with the consequences, good or bad. But it also involves doing so armed with the power of knowledge.

Mr. Wilson, a venture capitalist living in Columbia, is chairman of the S.C. Council on Economic Education.