Editorial: It’s the economy, students

Sunday, April 29, 2007 | 7:27 a.m.

A y oung person thinking about buying a house faces a dizzying array of financial terms that is likely to be unfamiliar - interest-only loan, 100 percent mortgage, 30-year variable rate, 40-year fixed rate, second mortgage, FICO score, amortization, APR ...

The terms vary but often are no less confusing when buying a car or applying for a credit card.

The vagaries of financing are enough to make even more experienced people wince. But young people, not used to thinking long term, are the most vulnerable to making mistakes. They can easily become dazzled by how all the math seems to work out on paper, without realizing how much of real life has been left out of the calculations.

With this in mind, Federal Reserve Chairman Ben Bernanke this past week paid a visit to a high school in Washington, D.C. His purpose was to encourage young people to understand that learning about finance can save them a lot of hardship in the coming years.

A nationwide survey of high school seniors released last year by the Federal Reserve shows why Bernanke's advice is so important. Only 52.4 percent of questions about personal finance and economics were answered correctly, the AP reported.

The consequences of being naive when facing savvy lenders can be seen today throughout the country. Home foreclosures - another term that is essential for students to understand - increased 47 percent in March compared with a year ago, according to another AP story.

This is because lenders over the past few years dangled "creative" home-loan offers before potential home buyers - many of them young - who did not know finance well enough to accurately weigh their current and potential earnings against what their initial and eventual mortgage payments would be.

We hope Bernanke's message spreads to every high school in the country. As early as possible in life, people should learn that it is better to live within their means rather than risk a bad credit rating that can plague them for years.