Thursday, June 25, 1998

Foolish Public Education
By John Henderson ([email protected])

I read with interest the discussions on the Motley Fool about the failure of the educational system to teach young men and women about financial issues. I also recently read Peter Lynch's book, Learn to Earn, and many pages of this book are dedicated to his thoughts on the topic. When I hear about this, I think back to fifth grade, and am thankful for Mr. Voucolo, my fifth-grade teacher at Newmyer Elementary School.

He explained to us in one hour how the stock market works, using the students in the class as examples. I can still remember much of it over 20 years later.

Sandy wants to open a lemonade stand. She needs to buy a pitcher, some cups, some lemonade mix or lemons, and build a stand. These items cost money, and she doesn't have enough of her own.

So she approaches Paul, Craig and John, and tells them that if they give her the money to open her business, they will each own part of it.

They give Sandy their money, and she opens the lemonade stand. The stand proves prosperous. She takes the money that she receives from her sales, buys more lemons, and maybe opens a second stand. Any money that is left over is split among Sandy, Paul, John and Craig.

What is so difficult to understand (or teach) about that?

Also in elementary school, we were taught the basics of banking and investing. You put your money in a bank. The banks pays you for borrowing your money. This is called interest. The bank, in turn, lends your money to other people, who pay them interest.

It was ingrained in me at an early age that putting your money in the bank gets you more money in interest (or more generally, investing your money creates more money through returns), which is good, and borrowing money costs you more money in interest, which is bad.

I find now many years later as I begin earning and investing myself that there is very little more to it than what Mr. Voucolo explained in fifth grade.

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