An article in the February 7, 2008, issue of The New York Times included this sentence: “When faced with losses, individuals may seek to take more risk rather than less, contrary to what traditional economic thought might suggest.”

That sentence has been grating on me. I understand risk aversion; we’ve written about it occasionally in West Coast Asset Management’s Exclusive Outlook Newsletter. Risk aversion degrades people’s judgment in financial matters; that’s a fact. The part of the sentence that grates on me is the reference to “traditional economic thought.” How many people behave contrary to traditional economic thought simply because they are not conversant in traditional economic thought?

Talk to 100 teenagers and I doubt you will meet more than one person who has received any formal instruction on how to manage money. Talk to 100 middle-aged Americans and the number improves; you might find ten people who have taken a finance class or investing seminar. Every one else seems to learn by word of mouth and trial and error.

Even though our adult lives are dominated by financial decisions, we have neither required nor equipped our schools to properly instruct ALL children about debt, interest rates, taxes, investments, buying a house, etc.

America’s sub-prime mortgage fiasco grew as large as it did because millions of borrowers had no idea what they were doing. Many ill-informed homebuyers and re-financers will be paying a steep price for their ignorance, but so will our society, and that’s why it is essential that we bring comprehensive financial literacy instruction into our school systems.

Debate continues over bailouts for over-extended borrowers and banks, and while I am morally opposed to any such use of taxpayer dollars, I can see that economist and former Labor Secretary Robert Reich is familiar with “traditional economic thought.” He notes in his blog that if taxpayers must invest to prevent the collapse of companies like Bear Sterns, they should also get a piece of the upside like any other investor.

Experience is a harsh teacher, because the test comes before the lesson. A friend of mine says that Republicans accept that some people will fall through the cracks, Democrats believe we must help everyone who falls through the cracks, and entrepreneurs believe we should fix the cracks. So here’s my entrepreneurial suggestion for reducing the severity of our periodic economic crises: require financial literacy courses in elementary school, middle school, high school and college. Love of money may be the root of all evil, but ignorance of money is not much better.