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Financial Literacy for Law Students?

posted by Adam Levitin

NYU has created a bit of stir in legal education by announcing that it will start mandating a financial literacy course for all of its students. I think this is a fantastic move from a pedagogical angle, a career angle, and a public interest angle.  Some thoughts on this below, as I think it relates in part to Credit Slips' larger discussion of finance and society.  

Pedagogically, having a required financial literacy course has huge efficiency benefits. Every 2L/3L business or tax law class spends some time covering basic topics (what’s a secured loan, what’s stock, how to calculate present value, what's a basis point, etc.). There’s a huge amount of unnecessary repetition. It’d be better to put it all into one basic concepts class so we could actually teach students more in the other courses.

Careerwise, fluency in basic financial concepts will make first year associates more useful for practices (transactional, regulatory, and litigation) that touch on anything financial.  How much, I can't say, but in a tough legal employment market, I think it gives students with the background a leg up, both in terms of the value the bring to the firm (ability to communicate with clients, time saved not having to explain basic stuff, etc.) and in terms of their ability to have sophisticated conversations with job interviewers.  As between two otherwise matched job candidates, I'd think the one with the financial literacy training has a leg up.  Obviously this might make such a course a better fit for schools with a large percentage of graduates going to firm or regulatory work, but it's worth underscoring that financial issues aren't just about doing corporate deals.  They arise in consumer law, family law, collection of judgments, etc.   

From a public interest angle, I think mandating financial literacy is absolutely critical.  The students we train in law schools today are the next generation of policymakers.  We would never dream of graduating students who couldn't discuss procedural rights or civil rights in sophisticated terms. Yet we routinely graduate students who can't have an equally sophisticated discussion about economic and financial rights.  

For faculties (like the Georgetown one) that believe they have a social justice mission (however defined), training students to be able to engage in economic justice conversations is critical. Any sort of economic justice agenda has to start with financial literacy. Our failure to do so has had real consequences.  My public law colleagues at Georgetown are terribly upset by the foreclosures and resultant destruction of wealth in communities of color, such as Price George's County, Maryland for example, but it's really not possible to understand the situation, much less do anything about it, without having a basic understanding of how mortgage finance works.  We're not going to ever train students in the weedy details of securitization, but I would hope that the basic transaction structure would be something a financial literacy course might teach given its importance to financing an enormous share of consumer receivables.  At the very least, ensuring that students understand the basics of a mortgage or secured loan would seems reasonable.

There is also another part to the public interest angle--financial literacy matters prophylactically in terms of shaping regulation.  The field of financial regulation has long been ceded to those who work for financial institutions.  2008 was the result.  There have been a handful of lonely academic voices in the wilderness, to be sure.  But if we want to avoid another 2008, we need more people to follow financial regulation than just those working for banks.  I want to emphasize that this isn't a right vs. left issue.  This is a public interest issue.   Given the special status of ABA-accredited law schools for bar admission in many states, I think there's a duty to ensure our graduates are able to be part of the economic regulatory debates, not just those on social or procedural rights. 

There are all kinds of practical questions about how and where to put a financial literacy class into the curriculum (a problem my business law colleagues at Georgetown and I haven't solved) and what should be taught in the class, but conceptually I think it is long, long overdue.  And unlike legal philosopher Brian Leiter (and here), I have no problem with mandating such a class. We mandate all kinds of other things in the 1L curriculum, and we also decide what to teach in the elective courses.  A basic finance course strikes me as equally important as a basic regulatory state class and a basic international law class, both of which are now often part of the mandatory 1L curriculum. Indeed, if the problem is with relevance of mandated classes, why include criminal law? Most lawyers are never going to be involved in a criminal case. There are good pedagogical and public interest reasons for mandating these classes and no one blinks an eye at it.  

Does it annoy students to have mandated classes?  Sure, just like they're annoyed at having 3 years of classes instead of 2.  I had no interest in contracts before law school, was pissed I had to take it. Luckily, I had an amazing teacher who got me to see what was interesting and valuable about the course, and now I teach the contracts. So, I'm sold on mandatory educational brocoli. (One could have a test-out option, but that's a detail.) In any case, I doubt students will select schools based on whether they are required to take a single class.  

A final aside:  I hate the term "financial literacy"--it smacks of the kind of consumer education classes that the financial services industry has pushed as a way of avoiding substantive regulation, and which Lauren Willis's work has shown is of questionable value.  I'd rather just think of this as "Finance for Lawyers" or "Financial Concepts".  A finance course for lawyers is a different thing altogether than teaching consumers not to overspend. But that's an aside.  It's a great idea.  Good for NYU for doing it.  

Comments

What we need is basic finance and economics courses starting in middle school. The problem isn't lawyers not understanding, it is the general populace being woefully ignorant of basic business and financial concepts. I'd wager there would be a lot less of a need for "social justice" as it relates to finance/business if the the public were better educated in general.

Although I've generally found that, if Leiter's against something, odds on it's a good idea, I'm skeptical of what all this noise will accomplish. First, I'm a bit surprised and thoroughly dismayed that you're having to teach those basic topics in your business and tax law classes. When I took those classes, it was assumed you knew all that when you walked in. Even I, a total hayseed who was there only by the grace of affirmative action (Michigan needed a token hick, and I was it.), knew that much. Second, sorry to be the dog in this academic manger, but what exactly are these courses going to cover? Real world finance topics (and if so, who will teach them)? Or academic finance topics, with half the term spent on the prof's current research topic (I swear my first year Civ Pro class spent two weeks on conflicts.)? Not to put too fine of a point on it, but the latter wouldn't be of much use.

You don't need to take a course in sociology and criminalogy to understand not to leave your car unlocked in a poor area with a brief case laying on the seat. Some things should be intuitive by the year 2012. One of those things is suspicion of the financial industry.
Let them learn the basics through assigning any number of Michael Hudson's or Matt Taibbi's books that deal with the financial crisis.
More than an academic approach, which I read as value neutral, they need to learn how fraud goes down in the real world. They need to know just how uncaring, greedy and ethically challenged the financial industry is. They need to have their neurons primed so that they view any position that the financial industry takes with suspicion.
If your mind is primed to see certain patterns, you probably won't miss them when they came along.

It's not a good argument for adding to the menu of mandatory courses that there are other mandatory courses of dubious value. Students do many different things with a JD; they should be counselled wisely, but the mandatory courses should be kept to a minimum.

We call it "Introduction to Business Transactions" at The University of Tennessee and would be willing to share our course materials and readings with law professors interested in teaching such a course. We have developed them over 15+ years to address the lack of financial and business literacy among some of our incoming students.

Back in the day when I was teaching at the University of Missouri, we had a course called "Business Principles for Lawyers." A finance prof came over and taught a little bit about balance sheets and financial statements, a little bit about basic financial theory, and a little bit about statistics. He called it an "MBA in a semester" -- well, at least as close as one could come in a one-semester course. It was pretty basic stuff. Students who had a degree from a business school -- bachelor's or master's -- had to petition to get into the course. The course was fairly popular when it was offered.

the imperialist creditor nations -- which placed themselves permanently in charge of the IMF and World Bank when they created them after WWII

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