September 25, 2008
A Financial Literacy Test for Lawyer-Citizens?
Posted by Karl Okamoto

Lisa Fairfax’s post on teaching about the current crisis has led me to ponder our obligation as law professors to make our students financially literate. Take the concept of “present value”. Get me in the right mood, and I’d say one should understand present value in order to be eligible to vote (and certainly to be voted for), let alone practice law. Without it, how do negotiate a damages claim or structure any form of deferred payment? Without it, how do you begin to discuss what is going on in the halls of our government today? We often say we must teach our students subjects like constitutional law – a subject few will encounter in their practices - because of the special role lawyers play as citizens. These past few days tell me that citizens – and perhaps especially lawyer citizens - need to understand a bit of finance, as well.

So let me share an exercise I do in class in the first week of my basic business organizations course. I start by asking students to each give me four numbers. The first is the annual compensation they expected to have earned had they not spent three years in law school. The second is the annual compensation they would have expected to earn in 15 years had they not gone to law school. The third is the compensation they expect to earn 15 years after completing law school. The fourth is what has been called the “number.” That is the amount of investible assets they would want to have in order to feel free to stop working for a living. Once I collect this data, I ask them to tell me how they would determine, strictly from a financial point of view, if their decision to go to law school was a good one.

I leave them to think about it overnight.

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