Importance of Financial Education for the Public

I was hoping to make my second post more fun and universal and also not so soon after the first, but I read an article that was too relevant. In this article, Paul Krugman basically explains why profits from high-speed trading is socially bad/economically inefficient.

I agree mostly with him in this article but I disagree some on the approach to fix it. Attempting to control pay of private institutions is definitely a no-no in my book. Giving shareholders more power in determining pay is a better approach. Higher tax rates on super-size incomes is OK -- however I feel he's missing a crucial piece of a comprehensive and sustainable solution. We need to better educate the people about financial instruments such as stocks. The reason this will help is because the only way the Wall St. firms will in aggregate make money from high speed trading is if they have a partner to tango with, i.e. the general public. Short term trading is pretty much a zero-sum game, where the main winners are the brokers who make money off each trade and the Wall St. firms who take advantage of stupid saps which don't truly know what they are doing. However if you see the stock market as a vehicle for investment rather than a casino -- we can all win. If you invest prudently and truly understand the value of a stock -- you can invest in the long term and not partake in such foolishness of day trading. Without people to rip off, the Wall St. firms will also focus more attention on their more socially beneficial economic function and profiting from that instead.

It is a bit idealistic to think we can prevent all people from being drawn to the appeal of gambling, however we barely make ANY effort to educate our children financially -- hell I didn't understand all of this until junior year of College, and I consider myself a pretty intelligent person. Because of this I believe additional efforts to educate people financially will have really high marginal utility (we'll get a lot out of not that much additional effort).

I should've mentioned this in my previous post so I'll just mention it now. I regularly use Mint.com to help me manage my money/keep track of all my assets/loans etc. It's pretty damn useful. I'm also trying out CreditKarma.com, but it hasn't proven too useful yet, I do like knowing my credit score tho.

Disclosure: I own shares of Goldman Sachs.