November 01, 2008

state president of the NH affiliate for the Jump$tart Coalition for Personal Financial Literacy; Topic: Financial Education for Students

Financial Education for Students - Now More Important Than Ever

Isn't it interesting that because of these turbulent economic times and all of the attention being paid to the reasons for the housing collapse, financial education seems to be experiencing a rebirth?  In fact, there have been many advocates for financial education that have been ringing this alarm bell for years.  I am one of them.

In order to really understand why we are in the place we are right now, one has to go back to the mid-90's to see the whole picture.  Consider this broad timeline:

• Fannie Mae & Freddie Mac introduce a "Low-doc" program which allowed borrowers with credit scores of 625 or higher to apply for mortgages with reduced documentation requirements relative to income and debt.
• Simultaneously, credit scoring is introduced as the means for lenders of all loans to approve loans or deny loans solely on an empirically-derived credit score.
• The use of credit cards soar following the national spike in bankruptcy in 1997.
• The Internet becomes part of our daily life and online commerce begins to take hold - changing everything in the retail industry.
• Loan broker arrangements begin where independent loan officers develop options and packages with lenders and investors all over the country - thereby creating a lending environment where virtually every loan request can be approved.

Over time, this change in culture resulted in an enormous increase in consumer debt and a complete deterioration of personal savings.  Add to this a very tepid increase in household income, and we are left with a deeply leveraged nation.  At the same time, the emphasis on personal financial responsibility shifted elsewhere.

As fuel costs continue on a roller-coaster and with housing values on the decline, the pressure on a family's ability to provide for their kids grows and grows.  Why did we allow ourselves to think that the pools of money to borrow from would always be there?  Why did we think that home values would always increase so it's okay to take the equity out to buy more stuff?

The realities of today have created the perfect teaching moment to have with our kids.  Show them that old-school thinking of not spending more than you make, saving for a rainy day, and pay yourself first are the best ways to get through good and bad times.

Did you know that New Hampshire is the only state in New England that requires students to take an Economics class for graduation?  And, imbedded in the Economics requirement are standards requirements for personal finance.  In a state that believes so strongly in local control, this means that local districts decide what will be taught to their kids.

Since Economics resides within the Social Studies discipline, many times Economics is taught by History teacher with very little training in Economics.  Consequently, the teaching depends on the textbooks which place a greater emphasis on macro-economics and not personal finance.  To make things even more complex, since there is no assessment testing for Social Studies in New Hampshire, we really have no way of measuring exactly what is being taught in these Economic classes.

Here's where some parents probably don't realize the power they possess - by speaking with their local school boards and insisting that their district require a course in personal finance.  There is an abundance of personal finance curriculum available to teachers of all grade levels and I can say from experience, teachers would be very excited and supportive to teach personal finance.  They see first-hand, how students are getting into financial trouble because they are not being taught basic money-management skills.

Kids are facing a more financially-complex world than we ever could have imagined.  Having a strong understanding of personal finance is critical to their future.  I have been advocating the importance of financial education for children for almost a decade.  Maybe now, during these challenging times, more people will listen.

A strong advocate for personal finance education, Dan Hebert is the state president of the NH affiliate for the Jump$tart Coalition for Personal Financial Literacy, an umbrella group of more than one hundred governmental agencies, national organizations, and corporations devoted in part to personal finance education for young people.

Previously, Hebert was Vice President of Consumer Lending for St. Mary's Bank with responsibility for all consumer loan administration, including loan origination, credit card portfolio management, and collections. His consumer loan background began with AVCO Financial Services and has grown through his work experience with other New Hampshire banks.

He has served as President of the NH Consumer Credit Association and is Vice-Chair of the board of directors of the New Hampshire Higher Education Assistance Foundation. In addition, he is a current trustee of the National Consumers League in Washington, D.C. He is currently the Executive Director of NH Partners in Education, which develops and coordinates school volunteer programs in New Hampshire.

In his volunteer capacity for NH Jump$tart, Hebert conducts class presentations to high school students introducing them to the necessity and dangers of credit cards and the strong relationship to personal budgeting practices. He has been a featured speaker at various teacher conferences, civic organization meetings, school board sessions as well as various meetings of parent groups throughout NH.

QUESTION:  What do you think of the High School Money Book?

ANSWER:  I haven't actually read the High School Money Book from cover to cover, but after scanning it, I remember thinking that it was a great primer for not only teenagers, but also any young adult who needs an introduction to the topic of personal finance.

The book itself is quite basic but comprehensive in its coverage of personal finance topics. It discusses things on how to watch your spending, handling debt and credit, preparing for college, understanding banking products, paying bills, etc.

Having said this, I doubt teenagers will run right out and buy the book or download it on their iPod (if that is an option).  However, I think it would be a great tool for teachers to have in the classroom and since the book is only 175 pages or so, it shouldn't wreak havoc with established lesson plans.  Teenagers sometimes need a gentle nudge when it comes to learning how to handle money properly.

The book is included in our national Jump$tart Clearinghouse and in my view, is a good primer on personal finance.

 

QUESTION:  I was wondering if you consider doing class presentations for local colleges to inform the students of the pros and cons of having a credit card? Also, what would you say are some of the pros and cons to having a credit card?

ANSWER:  I am more than happy to speak to college students about the contradictions of credit cards and have been doing similar presentations on NH college campuses for years.  Follow this link to the 2008 Destination College webpage within the NHHEAF Network website to see the presentation I gave in March.  http://www.destinationcollege.org/pdfs/CreditCardsDebitCardsPizza.pdf

My message regarding credit cards is this:  In today's environment, a credit card is a necessity to build credit, to provide appropriate protection for online commerce, and to have access to emergency cash.  The risk, and therefore the contradiction, is that credit cards can get you into trouble very quickly if you don't know how to use them effectively.  Simply put, if you treat the credit card as cash - as a means to buy stuff and pay the balance in full each month - you will build a respectable credit history and develop a sound spending habit which will reward you with huge dividends down the road.

 

QUESTION: If the economy continues to crash and people remain in debt, do you believe this could be another great depression?

ANSWER:  No one really knows the answer to this question, though everyone has an opinion.  There is a declining number of Americans who actually lived through the Depression - for the rest of us, we only have the stories from our parents and grandparents to rely on as well as history itself.

There are some similarities but there are also some large differences.  Here is an interesting blog you might find interesting that carries on the debate:

 http://blogs.law.harvard.edu/philg/2008/07/15/parallels-between-our-current-economic-times-and-the-great-depression/

For me, I believe this recession (can we finally call it a recession?) is markedly different than the last notable recession in the early '90's - primarily due to the amount of consumer debt and low personal savings.  In addition, over two-thirds of our economy is comprised of consumer spending. Does that mean the only solution is to spend our way out of these economic troubles - how are we going to do that?  I would love to see a manufacturing economy return so the burden of our economic success doesn't rest primarily on the backs of the U.S. consumers.

I don't want to be an alarmist, but we have tough days ahead of us.  Much of this, in my view, relates to our culture of immediate gratification - buy now & pay later.  Saving for things we want has not been the norm for some time.  If we return to that mindset as a culture, then our present economy which is so dependent on consumer spending is going to need time to adjust and adapt.  And so will we.