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Consumers need an education in how to handle money

As we charge through the nation's annual season of holiday cheer, economists are poring over retail sales figures week by week, looking for signs that the rattled American consumer is finally ready for some high-octane spending. The numbers are hardly spectacular, but at least they're not down and out. Shoppers are spending slightly more than they did last year - and older consumers appear poised to do their part. A recent survey by AARP, the Washington-based advocacy group for the 50-and-over population, found that among consumers ages 50 to 64, almost half said they planned to spend $300 or more for holiday gifts this year. A third of those 65 and older planned to spend at least $300.

And that's what worries me.

Granted, we're no longer wincing when we look at our retirement accounts, thanks to a rebound in the stock market. But even as the economy recovers (we hope), it's not clear that we've learned much. Millions of workers remain unemployed; many families are still heavily in debt.

At a conference earlier this year, I heard Yale economist Robert Shiller, widely known for his warnings about the stock market and housing bubbles, offer an interesting prescription: Give some economic stimulus money directly to families so they can hire a financial adviser. The message was clear: In an economy that depends so much on consumer spending, we put ourselves at risk when we fail to teach people how to be smart consumers. Isn't it odd that the only time consumers are required to get financial counseling is when they apply for a reverse mortgage . . . when they're 62 or older?

Earlier this year, Congress passed a new credit card law designed to protect consumers who rely on their plastic. But when I asked Syosset financial planner Henry Montag about the new law, he noted that there are ways cardholders can ratchet down costs, but it requires them to navigate often dizzying terms of their agreements.

For instance, Montag says, in an effort to get ahead of the legislation, many banks and card companies raised their interest rates to 29.99 percent, but some also have created programs where they will give back credits of up to 80 percent of the new rates if customers pay at least their minimum monthly payments on time. Other companies have agreed to credit back between 50 percent and 80 percent of the increased interest rates if customers use their card more often to meet the banks' "increased monthly spending limits."

The result? Many people, says Montag, probably won't wade through all these options and end up paying the highest rates on their old and new balances.

Last week, the House approved a far-reaching plan to restructure financial regulations, including the creation of a federal agency to protect consumers. But even if Congress passes such legislation, I wonder whether more consumer protection will be effective without greater consumer literacy.

Most of us receive little personal finance education when we're young. A biennial survey last year of high school seniors by the JumpStart Coalition for Personal Financial Literacy, a Washington-based nonprofit group, found that these students scored just 48 percent right on a 31-question exam covering various personal finance areas. College seniors got an average score of almost 65 percent. (I took an earlier version of the test online and scored 87 percent, so it wasn't necessarily a slam-dunk test, even for experienced consumers.)

Meanwhile, Annamaria Lusardi, a Dartmouth College economics professor, has been testing the financial literacy of adults age 50 and older. Posing three basic questions about calculating savings, interest rates and investing risk, she found that just one-third of those surveyed got all three questions right - not very encouraging news for retirees.

Eileen Anderson of the nonprofit Community Development Corp. of Long Island, confirms that the financial literacy problem "isn't really age-specific." Among the advice-seekers who walk into the CDC's offices in Centereach and Freeport, some are younger families but others are middle-age and older consumers. "Some people have been using their house like a piggy bank," Anderson said, while others "had really good jobs and lost them. Now they're underemployed and need to re-budget, but they don't. They act based on what [income] they brought in before, and that's just not happening."

The good news, however scattered, is that there seems to be a growing number of resources and organizations that can help consumers. The Federal Deposit Insurance Corporation (FDIC), for example, offers Money Smart, a training program to help adults enhance their personal finance skills (you can order free CDs from the Web site, smart). The Community Development Corp. also offers various classes in financial management.

Capital One Bank, in partnership with the nonprofit advocacy group, Consumer Action, offers personal finance programs to families in low- to moderateincome communities. Last year, Capital One began training branch managers to teach financial literacy courses for consumers ranging from teens in college to seniors.

Nick Felix, manager of Capital One's Coram office, decided to take the one-day training after giving several introductory personal finance workshops to kids and seniors in several local communities.

The Capital One curriculum provides a broader range of financial literacy topics - including budgeting and saving, preventing common Internet scams and managing and rebuilding credit - that can be adapted to sessions ranging from 45 minutes to four hours, depending on a group's needs.

"It's never too early to start teaching your kids about basic money management - like the difference between wants and needs," Felix said. And for older people, he added, financial literacy is especially important because "when they reach out for help, it's often too late."

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