In Business Lexington
editorial by Jan Mester, KCEE President
If you don’t
mind your money, somebody else will
October 16, 2008
The headline news of financial instability in our country
is the most visible evidence of the underlying issue –– financial
illiteracy. Finger pointing and trying to pin the problems on someone gets
us no where. Credit abuse isn’t the only culprit of our economic downturn,
though it has taken center stage. When credit is used impulsively or
compulsively with little regard to the responsibility of the borrower to
repay, a situation occurs that will take years to overcome.
The Brookings Institute conducted a study focusing on the high price of
being poor in Kentucky. The study found that low-income consumers are often
preyed upon because their financial situations are most dire and financial
alternatives are few. One of the solutions identified by this study was
financial education. Financial education is not a “quick fix” to the plight
of families living from paycheck to paycheck, but consumers who understand
basic budgeting techniques, can prioritize spending and savings goal-setting
for the long-term and accept the responsibility for using credit will
inevitably build a threshold of solid family finances. The Consumer Credit
Service (CCCS) is just one of many agencies assisting families with debt
advice and personal budgeting plans.
Credit abuse is rampant with teens. Teens are bombarded with credit card
offers equipped with enticement of all kinds. The offers may look good up
front but the consequences of misuse are not so glamorous. When an
individual doesn’t pay credit card bills on time, or has multiple cards used
with reckless disregard, the consequences are bad credit ratings,
collections and possibly bankruptcy. Bankruptcy follows you when you apply
for college loans, car loans, and home loans and apply for insurance. This
advice is shared with high school students in Kentucky through a program
offered by the Kentucky Bar Foundation. The C.A.R.E (Credit Abuse Resistance
Education) program talks straight to teens about how to budget, how to be
debt free and how to understand the forms, fees and language of borrowed
money. In 2007, there were 200,000 bankruptcies filed by people ages 18-24.
According to the March 5, 2008 issue of The New York Times, bankruptcies in
Kentucky rose significantly in the first months of February, placing
Kentucky among the top ten states for bankruptcy filings.
Credit does have a good side. It is a money management tool. Credit enables
consumers to pay for emergencies, or unexpected expenses when cash is not
available, so it can be a convenience. Credit allows the cost of large
purchases to be spread over a period of time. But credit also requires a
good deal of responsibility and discipline. It’s not free money. There is
that promise to repay with fees attached to that borrowed money. Consumers
must realize that using credit and accumulating debt they can’t afford to
repay, will come back to haunt them. As we are seeing, it already has.
The Kentucky Council on Economic Education (KCEE) delivers financial
education primarily through educating teachers how to teach about choice
making, using resources efficiently, and managing our everyday business of
life. KCEE is focused on Smart Kentucky Teens –– an initiative to provide
high school students with experiences and materials to prepare them to
finance their futures. The financial education provided by KCEE occurs on
seven university centers for economic education. We focus on schools as the
best multiplier of contacts with young people who will be our future
employees, business owners, heads of families and community leaders. To
instill in each of these students the importance of making knowledgeable
choices, contributing to Kentucky in a productive way and understanding how
our financial system works is the most pressing obligation to our statewide
organization.
The everyday financial decisions we all face can be as simple as a trip to
the mall or a meal at a restaurant. But many financial decisions can be more
complicated such as purchasing a car or home, applying for a college or home
loan, or investing in your 401K. Being smart about money is most definitely
a life skill. Children learn about money at home. Kids will mirror moms’ and
dads’ money habits and attitudes; thus it is essential that family spending,
saving and giving back are positively modeled between parent and child. KCEE
encourages families to talk about responsible money skills. We advocate
using children’s literature and playtime to let children learn about money.
Are we as skilled as we should be? Financial education is a foundation for
productive living. In the workplace, financial illiteracy is evident when
employees are unproductive due to financial stress, miss work to handle
financial problems and don’t participate in employer investment programs.
According to the Personal Finance Employee Education Foundation, “60% of
employees live paycheck to paycheck; 50% do not budget; and 30-80% of
employees bring their stress over money issues to work.”
The Kentucky Council on Economic Education is the champion of economics and
personal financial literacy. We support teaching personal finance skills,
including credit education in Kentucky schools. While the spotlight is on
our sagging economy, let’s shine some of that light on the need to educate
our present (and future) consumers, producers, heads of households and
community leaders. Education is the way out of the financial maze we are in.
Jan Mester is President of the Kentucky Council on Economic Education
(KCEE) based in Louisville. Watch for her interview with Tom Martin in the
November edition of Business Lexington TV on KET.