The foreclosure crisis is one that has perplexed even the smartest minds in the world. In the years leading up to the crisis, there have been several people on both sides cheering the availability of homeownership as well as pundits who believe that low interest rates sparked hubris and excess that ruined the world economy.
The key point to remember is that although the foreclosure crisis has burdened the entire world economy, there are principles that we have learned and can use moving forward in determining public policy. The law of unintended consequences was apparent as policy makers made, in hindsight, what seem to be maligned policy but at the time wanted to help people live the American Dream.
The key to emerging from this crisis is education. As a recent economics graduate, even I was never taught about the foreclosure crisis. There seems to be a real divide between what happens in the real world and what happens in the educational system in America.
As a child, growing up in the public education system in the United States, I learned about many important things. I learned what I thought at the time were the essential principles of life: the human body, the solar system, history, mathematics, civics, and science. As I reflect upon my educational career, I realize that at no point was I ever challenged to use this information in a practical way. I have now come to realize that while I learned the basics of how to calculate compound interest, the importance of its wonders was never explained to me.
As a typical American student, I have learned extremely beneficial information but I have learned nothing about personal financial management. I never learned about the wonders of investing a little bit of money every month and watching it grow exponentially over time into a nest egg for myself and future. I did not realize that if I save a small amount of money starting when I was 13 years old then by the time I was 50 I would be a millionaire simply because of compound interest.
Personal financial management is a basic discipline that could and should be emphasized and primary and intermediate education. In most cases, when an above average high school student decides to go to college, he or she essentially signs a piece of paper saying that they agree to pay back $100,000 of loans. The price of a college degree has increased exponentially over the course of the past decade and it will inevitably cause the future generation of Americans to see the reverse wonder of compound interest, when it is not working for them.
The lack of personal financial management is responsible, at least in part, for the foreclosure crisis. Many of my fellow citizens, who were unfortunately ignorant when it came to the details of signing a mortgage, took on mortgages whose terms made it impossible to repay.
Any economics major can explain its most elementary principle, supply and demand. In America, we were fortunate to see real estate prices...