Sunday, April 16, 2006
Dallas Morning News
By: Pamela Yip

With April being Financial Literacy Month, I've received lots of material about the many programs aimed at improving the financial knowledge of adults and young people.

I applaud these efforts. Progress has been made, but we still have a long way to go. I still get too many calls from readers who are in financial trouble because they overspent or because they got an exotic mortgage to fulfill their dream of home ownership and are now seeing the "creative financing" coming back to bite them in the wallet.

"People are waking up and understanding that this is important," said Cynthia Nevels, executive director of the Jr. Finance Literacy Academy Inc. in Dallas, a financial literacy program aimed at young people. "People say, 'I wish people had told me this before I got into financial trouble.' "

More employers are also getting into the act.

"Many corporations are starting to embed financial education for their employees," said Dara Duguay, director of Citigroup's Office of Financial Education.

That's encouraging, considering how one's personal finances can affect your focus and therefore your performance at work.

"It's an ugly situation for employers when more and more of their workers are distressed about their personal finances and running hard just to keep their heads above water financially," said E. Thomas Garman, professor emeritus at Virginia Tech University, where he directed the National Institute for Personal Finance Employee Education.

"Depending upon their place of employment, 30 percent to 80 percent of financially distressed workers spend time at work worrying about personal finances and dealing with financial issues instead of working," he said.

The key, of course, is to get to young people before they grow up to be consumption-obsessed adults.

More states, including Texas, are requiring personal finance education in schools.

"Legislation has really affected a lot of change and has actually forced education policy to insert this into the school," Ms. Duguay said. "If you look at that, I'm very, very hopeful."

Getting results

She said that three months after high school students completed a financial literacy program presented by the National Endowment for Financial Education, almost 60 percent had changed their spending habits and bought only things they needed.

And 80 percent of those who participated said they now save for what they want or need.

Young people are a key target for financial literacy programs for many reasons, Ms. Duguay said:

•One out of three high school seniors uses credit cards, and half have cards in their own names.

•Seventy-eight percent of college students have credit cards, with the typical student carrying a balance of $3,200, and 10 percent carrying more than $7,800.

•The number of 18- to 24-year-olds filing for bankruptcy has soared 96 percent in the last decade.

In its national biennial survey of financial literacy, the JumpStart Coalition for Personal Financial Literacy found there's been an increase in the number of survey questions high school students answered correctly, but the rate of increase is growing slowly.

The average score for the 2005-2006 survey was 52.4 percent, essentially flat from 52.3 percent in the 2003-2004 survey.

"This indicates that despite the attention now paid to the lack of financial literacy, the problem is not about to resolve itself any time soon," said Lewis Mandell, professor of finance and managerial economics at the State University of New York's Buffalo School of Management, which conducted the survey.

Adults in need

At the adult level, we're also a long way from declaring that consumers are armed with the personal finance knowledge needed to keep them out of trouble.

"I am personally discouraged," said Gail Cunningham, vice president of business relations at Consumer Credit Counseling Service of Greater Dallas. "Consumers do not fully understand the concept of credit, that by using credit, they are committing tomorrow's income today."

Her organization offers about 40 free workshops on financial education, "and they're not all well-attended," she said.

"We have a tremendous amount of work to do," Ms. Cunningham said. "People bury their head in the sand, probably because they're afraid of finding out about their own financial well-being."

Workshops alone won't cut it, Ms. Nevels said.

"Learning and education are good, but learning [without] activity is mute," she said. "They've been to workshops and they've gotten a book, but they don't have an activity to follow up. There's no assurance that people are actually changing their lives."

She's right about that.

It's impossible to monitor whether workshop participants are actually applying what they've learned after the program has ended.

But it really is up to consumers to take the initiative and act on their new knowledge.