University Park, Pa. — When President George W. Bush cited the nation’s subprime mortgage debacle in the formation of the President’s Advisory Council on Financial Literacy, he was the latest to acknowledge that Americans need to be better educated about financial and savings matters, says a consumer educator in Penn State’s College of Agricultural Sciences.
"Pennsylvania Secretary of Banking Steve Kaplan recently cited a workplace financial education report claiming that nearly 30 million working adults – one in four – are suffering serious financial distress," says Cathy Bowen, associate professor of consumer issues programs. "This can have a negative effect on employee performance and the company’s bottom line."
Low financial literacy is also evident in the proliferation of bankruptcies and foreclosures around the state, notes Bowen. "Many failures are due not to extravagant spending, but to life incidents that consumers have not prepared for with strong personal-finance strategies.
"They don’t have any emergency funds, or they get too many financial hiccups," she says. "They can’t handle them so they declare bankruptcy. We also have high credit card debt, and we’re going through the mortgage crisis, which means that folks bit off more than they could chew or did not understand the implications or details of their credit or loan agreements. They didn’t think long-term about what could happen if they lose their job or if the interest rate on their adjustable rate mortgage rises."
With plenty of indications that consumers don’t know as much as they should about how to manage money, it’s tempting to blame the victim. Bowen points out that much of the problem results from changes in the economy and society, as well as an elder generation that hasn’t done a good job of passing on old lessons of thrift to today’s children.
"Credit used to be a bad word, and now it’s okay to pull out your charge card to pay for groceries," she says. "In the past, you didn’t use credit unless you really had to, because it had a negative connotation in society – if you can’t pay for it with cash, you don’t need it. Kids nowadays have credit and debit cards, and they don’t see cash in hand. When you can’t feel or touch it, sometimes it doesn’t have the same impact."
Bowen points out that, 20 years ago, college students couldn’t get credit cards in their own name, so they couldn’t make buying mistakes that would ruin their credit ratings as they can now. "They’re establishing habits that they can’t sustain long-term," she says.
Another new factor in today’s financial arena is speed. From direct deposit capabilities to electronic fund transfers and debit/credit cards, Bowen says, we’re living in a time when financial transactions occur much more quickly and with much less ‘give’ or leeway in the system.
"The ‘float’ in the banking system that we could sometimes count on is long gone," she says. "If you make a mistake or get overextended with credit, everyone knows almost instantly. The negative impacts spread faster and wider, and the ramifications are immediate – for everyone."
Bowen says if you’ve discovered gaps in your financial education, there are options for filling the blanks:
— Educate Yourself: "Watch TV, listen to radio shows, and read newspapers and magazines on finances," she says. "If you have an interest in a particular topic, you can get a book on it or do research on the Internet. Just make sure that the Web site is geared toward education and not selling you a service. I tend to like the governmental Web sites or cooperative extension sites."
— Pace Yourself: "You won’t learn to manage money in one sitting," Bowen explains. "It’s an ongoing process for as long as you live. There’s information all around you that can help you improve your financial knowledge; just take the little pieces and use them. Before long, you’ve learned enough to be a better manager for your family, and you’ll be able to teach your children or young adults."