June 10 2014
They Spend More Than They Make:
And it’s Our Fault Swiping. Can it be any easier than that? Walking through the best retail shops and carrying all the latest and greatest to the register. They watch in eager anticipation as the salesperson rings up the latest video game, newest smart-phone, trendiest fashions and all the other must haves for today’s students. They barely notice the total on the register as they have to sort through week old McDonald’s receipts, 4 month old packs of chewing gum, discount cards and other unmentionables as they search for the Holy Grail. Buried deep inside of pursues and wallets of our young people, the Credit Card. Is there any better feeling for a twenty-something than having just cashed a paycheck, leaving a little in the bank for next week’s lunch and pocketing the rest? And with that pocket of hard earned wages, walking out of the best stores with bags full of merchandise having never had to use the cash they worked so hard for. Swipe. Why use the cash in your pocket and pay today when you can swipe a seemingly innocuous 85.60 x 53.98 mm piece of plastic and pay, well, later? “Financial literacy is low; fewer than one-third of young adults possess basic knowledge of interest rates, inflation and risk diversification” (Lusardi 358). I am not sure of another skill that is more necessary, more important to lives of adults than the fundamental understanding of basic finance as it relates to an individual’s personal balance sheet. Understanding that if the number in the expense column is larger than the number in the income column is a recipe for financial ruin. It is my assertion that financial literacy should be as common as Math, Science, English and Reading in our public schools across the United States. The approach should be 2-prong, addressing the basic financial educational needs and also identifying both the positive and negative attitudes and behaviors that can be responsible for either one’s financial success, or ruin. Combining the essentials of the math and science of money management and personal finance with teaching and presenting the psychology necessary to overcome poor behavior and attitudes toward money will uplift and empower our students today which will build stronger financial families tomorrow. It is my belief that this seemingly common-sense initiative will meet strong opposition from the banking and finance industries that pad their coffers with exorbitant interest rates, fees and penalties levied against the less financially sophisticated. What would the banks do if only 25% of the population that had a late payment and/or at least one overdraft charge per month suddenly got smarter and avoided these fees? Research by the FDIC provided on Bankrate.com states that in 2007, U.S. consumers paid fees of 17.5 billion dollars in overdrafts and overdraft protection. This is big business. If 25% of this population was able to correct course, learn basic money management skills and modify the behavior that enables this activity: that would put over 4 billion dollars back into the pockets of the consumer. The banking system is designed to make it simpler to incur fees than it is to be financially responsible making it all the more necessary to be financially literate. Before the Federal Reserve instituted the regulation prohibiting the automatic enrollment into such programs in 2010, banks required consumers to “opt-out” of the financially irresponsible programs such as Courtesy Overdraft Protection. These programs were put in place as the default action for most of the largest banking institutions in the U.S.
The Federal Reserve Board defined Courtesy Overdraft Protection on its website in 2005 as, “Many banks (as well as savings and loans and credit unions) offer "courtesy overdraft-protection," or "bounce coverage," plans so that your checks do not bounce and your ATM and debit