I see the good-fairy syndrome lurking in many of the questions I get from readers, and in the advertising spam that provokes these questions. How else, except from a gut belief in a good fairy, can one explain why a borrower would pay $3,500 to someone they don't know and never heard of, who claims that they can arrange to have their mortgage paid off? I could fill the remainder of this column with other illustrations.

The good fairy does not limit her beneficence to the mortgage market. A day doesn't pass that I'm not offered three more inches…At least weekly, a letter comes in from Nigeria offering to transfer large sums to my bank account, with me getting to keep multiple millions. The good fairy is an accomplice to every con game that works.

One of the reasons I dislike lotteries is that they strengthen the good-fairy syndrome. Lotteries are a bad gamble because the prize is almost always less than the amount wagered, but since someone always wins, lotteries legitimize the good fairy. This has to strengthen the impulse to rely on her in other areas where no one wins but con artists.

There are no data on trends in the incidence of fraud, so it is not possible to verify that the growth of lotteries in the United States has encouraged fraud by stimulating reliance on the good fairy. However, a survey of consumer fraud by the Federal Trade Commission this year indicated how pervasive the problem is. The survey indicated that "...nearly 25 million adults in the US – 11.2 percent of the adult population – were victims of one or more of the consumer frauds covered by the survey during the previous year. More than 35 million incidents of these various frauds occurred during the year."

The FTC survey, furthermore, only covered types of fraud that are relatively easy to define, such as "Purchased credit card insurance" or "Billed for Internet services you did not agree to purchase." Losses on these types of frauds often don't amount to much. Mortgage frauds and medical frauds were not covered, probably because they are more difficult to define. Yet both are widespread and the losses associated with them are often very large indeed.

Another indicator of how widespread belief is in the good fairy is the pervasive unwillingness of consumers to pay for information. Most people prefer to have their financial advisors (mortgage brokers, financial planners, security brokers, etc.) get paid by the providers of financial services that the advisors select for them, rather than paying the advisors themselves. This prejudices the validity of the information, of course, and this costs consumers dearly. But it allows them to pretend to themselves that the advisors are good fairies.

"As a high school teacher, what brief lessons about finance should I give my students?"

I was tempted to give you a list of substantive lessons, such as how interest rates and credit scores are determined. This kind of information, however, if not used, is soon forgotten. Besides, it isn't ignorance that leads to bad financial decisions; its "knowing" what isn't true.

Here is my list of the three most important principles you can teach your students:

1. There is no such thing as a good fairy. It is this belief, rather than ignorance of financial matters, that makes people gullible and vulnerable to fraud.

2. Don't respond to solicitations. This is a direct corollary of principle 1, since those who solicit are never good fairies. While not all those who solicit are rogues, all rogues solicit, which means the odds are against you when you respond.

3. Don't be afraid to pay for information. This is another corollary of principle 1; since those who have the information you need are not good fairies, you should expect to pay a fair price for it.