Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is a former chair of the US Federal Deposit Insurance Corporation and author of the ‘Money Tales’ books
I am a former financial regulator. I also write children’s books. Since I started doing this on the side in 2006, these two endeavours have been surprisingly complimentary. I’ve always advocated for strong legal protections, and accountability for financial bad guys. But I’m also convinced we must do more to teach consumers at an early age how to protect themselves.
My books are written for young children, with families encouraged to read and learn from them together. The stories are not dissimilar from those in classical fairy tales. Think about the witch offering a starving Hansel and Gretel something to eat, or the wolf pretending to be the loving grandmother of a lonely Red Riding Hood. Financial abuses similarly involve a villain exploiting the vulnerable. So many real life episodes could be avoided if victims reflected on common childhood advice.
It was the 2008 subprime mortgage crisis that inspired my book Princess Persephone Loses the Castle. The chilly heroine is visited by a slick salesman offering to finance new cladding for her castle, just like sleazy mortgage brokers knocked on the doors of so many low-income families offering quick cash with equity-stripping loans. Children are told to be wary of strangers, advice that could save so many adults from abusive financial products push-marketed by fly-by-night scammers.
Payday lenders inspired the sly Seal in Billy the Borrowing Blue-Footed Booby. He encourages Billy to keep splurging on impulse buys instead of paying off his usurious loan. We tell children to control impulses — advice that could prevent many borrowers from falling into debt traps.
Sometimes notorious individuals provide inspiration. Sam Bankman-Fried inspired Daisy Bubble while Bernie Madoff prompted me to write Shark Scam, in which animals on the Galápagos Islands are promised high returns on bogus investments. Neither children nor adults should do something just because everyone else is — advice that could save many a speculator piling into investment fads. Look before you leap, slow down and ask questions: this advice could have saved many a Ponzi scheme victim.
The goal of my stories is not to shame or chastise the millions of households who fall prey to abuses. We are all inclined to desire immediate gratification or the seduction of quick “too good to be true” schemes. But I do want children and their families to understand that these basic human weaknesses make us targets for real life sharks.
Many fine individuals and organisations are committed to financial education, producing excellent resources. But those looking to learn more should also beware financial promotion in the guise of financial education. When I was a professor, I reviewed a curriculum that a financial trade group wanted to offer our students. The whole thing centred on applying for a credit card to build a credit score. An industry trade group offers high school classes the opportunity to compete in a stock market trading game which rewards active, leveraged trading strategies, even though research conclusively demonstrates that long-term, well-diversified investments produce better returns.
Encouraging young people to contort their financial lives to build a credit score or actively trade stocks may serve industry interests, but it has little to do with the skills kids really need: be wary, be sceptical. We all need to understand who we are dealing with, in any financial transaction, and how people intend to profit.
Most people in finance are legitimate and well-intended. Done right, financial services and products can help people buy homes, start businesses and build wealth. But done wrong, they can keep families in a constant state of financial stress. Carrying credit card balances, going into overdraft on bank accounts, buying on impulse with buy now, pay later can strip wealth just as efficiently and brutally as any scam.
Some question whether financial education does any good. Certainly I find young students actively engage with it. They “get” greed, and understand there are people who try to take advantage of others. Most say they’ve experienced buyers’ remorse, and regret doing something just because their friends did. They understand stranger danger, and the importance of not acting on impulse. As we discuss the stories, they understand how these basic truths apply to money.
Oscar Wilde famously said life imitates art. With my books, art imitates life. But I’m hoping readers will follow the lessons they learn throughout their own lives.
Bid for a seasonal meal like no other with your favourite FT journalist and raise money for our financial literacy charity FT FLIC