schools need to teach financial literacy.
it is appalling how many people don't understand how to simply balance a checkbook and properly use credit. credit is to purchase a home or basic transportation (a car that is easily affordable based on your budget). using credit (unless you pay the balance off every month) to buy a new IPod is not smart; yet too many people do this.
redblack
Member Profile
what's appalling is how easy it is to get credit. that should problem should be legislated away.
want to teach average consumers something useful? teach them to not open a credit line every time they go to buy a big ticket item, and to use credit as a last resort - or as an emergency plan. you'll miss it if you need it to fix a flooded basement but have already used it to remodel a kitchen. make a plan, save for stuff, and stick to the plan.
want a car? pretend that you already have the car payment and save up a healthy down payment while working on improving your credit score. shop for low interest rate loans when you're ready. and make sure you can afford to make at least 13 car payments a year, plus taxes, title, and insurance.
agreed
Anyone who goes into debt for an iPod needs a lesson in self-control more than a lesson on credit. However, self-control is not something you can learn at school.
Ditto for common sense.
The Washington State Society of CPAs has a wonderful financial literacy education program.
http://www.wscpa.org/Content/FinLit.aspx
Sadly I have not found the time to volunteer, but many, many, other have.
It is really frustrating to see so many poor people taken advantage of because they lack the basic skills to make informed financial choices.
what amazes me is how many people who say they are financially literate don't get the basics when it comes to public finances..
JoB, when you make comments like #6 it seems like you are trying to pick a fight.
We know that you disagree with some people on topics such as taxes and government spending. But that is not the topic of this thread.
i am not trying to pick a fight here..
I am simply pointing out that teaching financial literacy wouldn't have changed the circumstances for the vast majority of those who have found themselves bankruput in the last recession.
jobs would have.
regulation of the financial markets would have.
cutting taxes and blaming those who found themselves financial victims .. not so much.
cutting taxes doesn't provide jobs ..
and that apparently requires a financial literacy that is beyond too many posters :(
JoB - too many people bought way more house than they could afford even with a job. And the damn bankers should be in jail for their lax underwriting standards. Financial literacy hopefully would have instilled the basics that after the teaser 4% rate it jacks up to whatever say 8% and the monthly payment goes from $1,500 to $3,000. Anyone with any bit of financial literacy would see how insane it was to sign on the dotted line. (The #'s are example for information). Many of the so called victims were also at fault for signing a loan paper they new was beyond their means to pay.
The one that is really annoying is buy now 0% interest, read the fine print you miss one payment and the interest rate jacks up to 29.9%. These offers ensnare lots of folks, even people who pay but simply mess up on one payment. Best advice read the fine print.
Gotta side with hooper on this one. Lots of people manage their money badly, and often it's because they just don't understand. Ohhh, math is hard!
JoB, the handling of personal finances is totally different from the tax/spend policies by which a government tries to manage an economy. You might have some good points there, but they belong in a new thread.
redblack
Member Profile
JKB: please don't fall into that ideological trap. the financial meltdown was not caused by freddie and fannie - let alone the community reinvestment act - and some nameless, faceless government socialist lackeys insisting that those who shouldn't have homes and can't afford them were to blame for the financial meltdown.
that disaster lies solely and squarely on the shoulders of people like jamie dimon. no amount of political diatribe will change that fact.
ever.
and never forget that the republicans in congress and the white house turned freddie/fannie into a private corporation whose charters and directives were dictated by wall street.
the larger problem that i was trying to point out in post 2 is that financial institutions have one thing and one thing only as their primary motive:
to keep americans in debt.
and informed americans' primary response should be to reject those "credit" lines that big money dangles in front of them.
Trap? What trap? I said nothing of the sort.
Did not mention Freddy/Fannie or anything about the mortgage mess. Did not mention republicans, democrats, or any other particular breed of lackey.
I claimed (without proof, but I assert the truths are self-evident) that many people mismanage their money, that it's because they don't understand finances at the personal level, and that government policy works differently from personal finances. Which of those did you disagree with?
redblack
Member Profile
JKB: this "personal responsibility" thing is a running theme with conservatives of late, and it's at the crux of most of the hoop's posts:
that people who run up debts - or weight - are to blame for being suckered by "too good to be true" deals from lending institutions, when, in fact, the blame actually rests on the barkers and their lobbying firms.
hoop..
i was once talked into signing a variable rate mortgage by my husband and a loan officer at our local credit union..
turns out she didn't bother disclosing that there was a kicker before the rate tied adjustment
and luckily we signed the paperwork for our Washington state house in Oregon.
We could have made our credit union eat that loan.
We didn't. We settled for a no fee set interest loan for the balance
the loan officer who didn't disclose was a recent transfer from one of the Washington state branches where the disclosure laws weren't so strict.
it turns out disclosure laws are highly dependent upon the laws in the state where you sign your paperwork..
will financial literacy laws teach the differences between all states or will you simply label anyone who doesn't know that they are different stupid?
JoB - financially literacy is simply reading the fine print and don't sign if you do not understand the document. and yes there is some personal responsibility involved.
an acquaintance of mine use to sell cars, people making $2k a month gross were signing loans with $500+ payments at high interest rates. now it doesn't take a rocket scientist to determine that this is not a bright thing to do.
Redblack, you mean bankers right?
"...when, in fact, the blame actually rests on the barkers and their lobbying firms."
Yes, but blame rests first, upon politicians. There's a little saying, goes like this:
"To kick a politician in the nuts, aim for the banker's chin."
Redblack. The CRA was part of the problem. So were the lending institutions who pushed Sub-Prime mortgages due to government interference. There were a lot of other factors contributing to the problem, but with 55 million loans out there and 27 million loans considered subprime or risky, inevitably, the market crashed. The government wanting too many people to be able to buy a house was a main cause of the housing market falling apart. I will say there were some other factors too, but you cannot say Freddie and Fannie were not culpable.
This recession has affected most people. Myself included. In some ways, when I took a Home Equity loan awhile back, I was also at the time scratching my head, thinking, OK, for tax purposes, some of this might make sense, but some of it doesn't. I wish I had listened to the little voice more. Then when I lost my former job, I asked the bank to lower my interest rate, but of course, it was too late. With our income cut by 60%, I must say, it has been an interesting journey with our mortgage.
I would have been perfectly happy renting if the banks would have turned us down, but they didn't. The banks were pushers, trying to sell anyone and everyone loans.
hoop..
did i mention that i was a loan officer myself at the time.. accustomed to explaining and disclosing contracts?
that fine print stuff can be a real killer...
especially when it isn't disclosed.
Unless you get a copy of the loan documents a few days before signing them and go over them carefully.. possibly with the aid of an attorney..
you really don't know what you have signed..
that little kicker was buried in a sub paragraph of a paragraph of small print...
and in the State of Washington, it was perfectly legal not to disclose what turned out to be an essential component of that loan.
HMCRich
"So were the lending institutions who pushed Sub-Prime mortgages due to government interference."
no.. government interference said they had to stop discriminating against borrowers because of their color and/or the neighborhood where they were attempting to purchase...
banks promoted sub-prime loans because they were more profitable for the bank
and because the bank didn't have to carry the resulting loan..
they could package and sell their risk to someone else.
this whole the government made them do it story is just one more fantasy sold to cover the fraud perpetrated by the financial industry.
JoB - BS the government had a big hand in this mess, as do the bankers AND the people who signed the loans.
hoop..
"BS the government had a big hand in this mess"
you can buy that if you want to...
but it isn't supported with the facts.
JoB BS BS BS. The government heavily encouraged lending and standards were relaxed and the greed of bankers took hold. Was the government fully at fault NO. There were a lot of people at fault; including the bankers and the people who signed on the dotted line that they would pay back the loan.
It was the US govt. that legislated the twin 'government sponsored entities' Fannie & Freddie into two titanic-sized hedge funds, allowing them to be based upon the thinnest sliver of capital, yet amazingly, unlike non-govt. sponsored hedge funds, F&F enjoyed the full backing of the US govt. This meant, from the very start, the taxpayer was going to eat the "F&F" hedge funds' losses, but not their gains.
Read "Reckless Endangerment", by Gretchen Morgenson. Great, great book. She was interviewed last year on Bill MOyers, too.
To post #1,
While I usually love the idea of education, I feel cynical about this. Why bother, really? US govt. has created trillions in debt so far, and more so every day. People now living paycheck2paycheck or paydayloan2paydayloan, but why not become more indebted? It's just "monkey see, monkey do". Because if your govt. is broke and deep in the hole, you might as well be too. And, logically, because if you are young and have 'future earnings' (or you're old and have 'savings' or retirement or whthaveyou), they will soon be coming after whatever you haven't already spent... confiscating, taxing & double-taxing, devaluing.
WorldCitizen
Member Profile
Meg:
Please read this:
http://www.nytimes.com/2011/12/20/opinion/nocera-an-inconvenient-truth.html?_r=0
I don't expect Jo to agree with me on this, but nowadays banks care more about your credit score than about your skin color. Under the Community Reinvestment Act (CRA) the Consumer Credit Score was pushed by the government as a way to level the playing field for borrowers of all races and locales.
It was a step forward at first.
In the 1980s, Under CRA, big banks were "incentivized" by government regulators to make loans to inner-city residents that they normally wouldn't have. This started a trend in the industry as a whole that combined with the creative accounting and equity schemes of the 1990s to cause a financial meltdown.
*****************
Here's a good starter piece on the government's role in the financial crisis. It's called "Did Washington Push Banks to Make Bad Loans?"
http://www.frumforum.com/did-washington-push-banks-to-make-bad-loans/
From the article:
For example, it was the pressure of the CRA that led to the invention of the concept of the “credit score” so as to diminish the discretion of lending institutions. Credit scores in turn became a driver of the expansion of credit to ever less creditworthy borrowers.
[...]
Lawrence Lindsey, a former Fed governor who was responsible for the Fed’s Division of Consumer and Community Affairs, which oversees CRA enforcement, told the FCIC that improved enforcement had given the banks an incentive to invest in technology that would make lending to lower-income borrowers profitable by such means as creating credit scoring models customized to the market. Shadow banks not covered by the CRA would use these same credit scoring models, which could draw on now more substantial historical lending data for their estimates, to underwrite loans.
Even if you don't agree with the thrust of this piece, it's pretty easy to see that a number of factors were at work in creating the meltdown. It's a lot more complicated-er than just "greedy banks" or "foolish borrowers."
DBP
Gosh i wonder why you would think i wouldn't agree with that?
if the all inclusive credit score had been the determination for granting loans, we wouldn't have such a preponderance of for sales signs in our McMansion with a view neighborhoods today..
take a little drive along the scenic areas of the sound .. there are a lot of for sale signs.
Are you unaware of the amount of outright fraud that occurred to write many of those loans...
the use of unsubstantiated income sources and inflation of assets to overcome those credit scores .. the use of 2nd mortgages to avoid the investment required by down payments?
Are you unaware that a great deal of that fraud was perpetrated by loan officers, not applicants?
when you can sell bad paper at a profit, you have every incentive to "fudge" the system.
as for your quote above..
I am guessing you don't really understand your credit score or how it actually works...
or you wouldn't put such store in phrases like "credit scoring models customized to the market"
At the time that legislation was written, your credit score wasn't dependent only upon your credit history, it was also dependent upon factors like your sex, your race, your address and your job title.
Eliminating scoring based on those criteria was the intent of the legislation that created those "alternate credit scoring models"...
that and easing the requirement of a history of credit purchases to obtain a mortgage.
your credit score is dependent upon your use of credit
and if you don't currently use credit you likely don't have a very good score...
that score not only determines your ability to obtain a mortgage but the rate at which that mortgage will be granted... regardless of your investment or ability to pay.
In other words, if you don't already have a mortgage and don't finance your car and don't use credit, you may not qualify for a mortgage regardless of the size of your down payment or your ability to pay.
A person with a sketchy credit history including a bankruptcy in their past could actually generate a better credit score than one who lives within their means and pays cash for all major purchases... simply because they use credit.
making it easier for people who save their money and choose to pay cash for purchases to obtain mortgages at a reasonable rate in affordable neighborhoods considered high risk by lending institutions was part of that altered credit scoring model david.
but i am guessing the article you quoted doesn't mention that...
instead they blame the ability to abuse those altered models for the abuse that followed.
it seems the "thrust" of an article has a great deal to do with what information is and isn't included...
making parsing their argument even more complicated.
DBP - you are correct. JoB and his ilk think it was all the big bad bankers fault. There were a myriad of factors that caused the meltdown.
hoop..
you are big on saying there are a myriad of factors in play..
yet you consistently blame the victims of those factors for circumstances that were largely out of their control.
i have no sympathy for people who inflate their income or game the system to purchase more house than they can afford..
but you have no sympathy for those who played by all the rules and bought houses they could afford until the market collapsed taking their jobs with it.
Some of what you're saying is true, Jo. My point is simply that many factors contributed to the crisis, including changing trends in credit scores. The article I linked attests to the complexity of the issue, as does other literature.
I have to say that hooper is being rather more balanced in his approach than you are this time. Yes, he emphasizes personal choices, but he also admits that there was some corporate responsibility as well. You, on the other hand, seem to think it was all the bankers' fault, and are willing to go to great lengths to make that shoe fit the facts.
All we're asking from you here is a little more objectivity and a little less ideology.
Balance, Jo. We're looking for balance.
miws
Member Profile
JoB and his ilk....
Jo, I thought we were friends.
Why didn't you tell me of this change in your life? ;-)
Mike
DBP..
and how am i supposed to display this balance you think i am lacking?
i clearly stated that i have little sympathy for people who intentionally defrauded the system to obtain loans they couldn't afford..
and for the record i have even less sympathy for those who did so with the sole intention of making big bucks in a rising housing market..
But i am not fool enough to blame them for the massive meltdown in our financial markets..
that was caused by people who should have known better doing what they could instead of what they should..
for no other reason that increasing profit and passing the risk onto someone else.
Our state's retirement funds took a direct hit from their manipulation.. as did the personal retirement funds of nearly every person who invested in an IRA or similar fund.
they not only crashed our economy with impunity, they jeapardized the financial future of those hoop would label as the only responsible citizens..
with impunity.
and they have you sticking up for them.. how can that be?
Can all crime be excused because the victim gave the criminal the opportunity to victimize them?
that seems to be the current mindset.
I believe that understanding both the basis of the legislation and the perversions it was put to is the balanced approach..
and btw.. the only approach that will lead to legislation that prevents it from happening again.
I believe the current tendency to duck our collective heads in the sand and ignore the culpability of the financial industry is the unbalanced approach.. and will only lead to more of the same.
miws
it seems that presenting a solid argument is gender bending ;->
I think I can you help you with the balance thing, Jo.
Here's an example of a welcome step toward the middle ground:
i clearly stated that i have little sympathy for people who intentionally defrauded the system to obtain loans they couldn't afford..
and for the record i have even less sympathy for those who did so with the sole intention of making big bucks in a rising housing market..
Please do more of that.
Here's an example of a step away from the middle ground:
[the bankers] not only crashed our economy with impunity, they jeapardized the financial future of those hoop would label as the only responsible citizens.. with impunity.
and they have you sticking up for them.. how can that be?
Try to do less of that. And try not to let yourself be baited by hooper. He isn't worth it.
***********************
The most effective way to argue economic policy is to argue narrowly and to argue from the data, citing carefully as you go along.
The next best thing is to argue from a range of expert opinions.
The least effective thing to do is to argue from anecdotes, broad generalizations, and ideology.
Not that it doesn't happen here once in a while . . .
;-)
"Complexity of the issues"...Amen! DBP. The more you learn about it, the more you see the tangled complexity. And if you were able to exhaust all there is to learn, there still remain so many black boxes where we don't know what happened, and we can never learn what happened, because Undisclosure policies are the rule. Even judges are frustrated by those undisclosures and are blinded in their decisions.
But, say you still want to pick one thing, one simple factor, a single turn in the road, that caused all this -- I'm gonna nominate it's the Government. Here's my reasoning. "The Republic" is interesting to consider, in this case. Wasn't Plato concerned about the relationship between power and morality?
In the Republic the class divisions are outlined as follows. The Guardian class lives austerely, having no money or material possessions, and without family ties so they can't be swayed from their loyalty to truth and the state. Importantly, the Republic selects its Philosopher-Rulers from the Guardian class.
In the Republic, the Producers class are represented by those people with an appetite for accumulation of material possessions and money.
And the Auxiliaries class are driven by their courage and desire for Honor.
Back to the Guardians class, whose members are driven by their desire for wisdom and truth.
In the Republic, specialists are drawn from each of the classes to be 1) rulers, 2) soldiers, and 3) farmers & merchants.
So, I suggest that we have abandoned the Guardian class, from which to select our 'rulers'. We vote, instead, for members of the "appetite" classes. THAT's why it gets complicated. We think members of our government are somehow more moral or wise than the business classes. They're not.
I think the founding fathers of the United States knew this would likely happen, that the 'rulers' would be more appetite-driven than philosopical and truth-seeking hermits. And the founders, therefore, tried to mitigate this tendency by specifying that our Republic's central govt. should be kept small, and kept in check by the general populace - a populace that could menance the central power, if you will.
We have moved WAY FAR away from a small central govt. We are, instead, menaced by our gigantic appetite-driven government members who can't see the truth for our state, and are too large now to fear the citizen-voter. Therefore, each generation of our populace is becoming impoverished and enslaved.
AAR
Member Profile
Hi hooper1961! In (sort of) getting back to the original post, I wish that some sort of financial management was taught in school as well. My parents were of the "our money is our business" mentality, so when I got my first debit card & checkbook, boy did I go a little crazy! This was many years ago, and I am happy to say that I learned many valuable lessons from that experience, but I wonder if better financial education would've at least curbed some of my fascination with spending waay more than I had :)
When I lived in in the South, I became part of an organization that helps teach basic money principles to elementary school children (my son was in Kindergarten, so I started there). It was pretty basic, but they had programs that went up through High School. Too bad they didn't have that when I was a kid!
DBP
I tried making nice talk for a while..
it didn't work.
now i just say what i really think
and that is what i really think
that's still far more balanced than sticking your head in the sand and claiming nothing needed to be changed because the system worked just fine for you...
AAR - my parents helped me open a savings account when I was 12. In HS a teacher spent time talking about family budget. This was pretty basic stuff, but it was important. The basic concept was save to buy a wanted item, not buy it on credit.
The fact is far to many people use credit to buy stuff that they simply do not need; they are wants not needs. And then when something bad happens to them the rest of us get screwed via higher costs and taxes.
hoop..
you are so woorried some poor person might take something from you that you completely ignore the largest transfer of wealth from the middle class to the top 1% in our nation that just happened.
where do you think that money came from?
it came from your pocket.
every time you advocate for a special interest tax break.. you pay for it in your taxes.
That should worry you.
it's beyond me why it doesn't
You must log in to post.
All contents copyright 2013, A Drink of Water and a Story Interactive. Here's how to contact us.
Header image by Nick Adams. ABSOLUTELY NO WSB PHOTO REUSE WITHOUT SITE OWNERS' PERMISSION.
Entries and comments feeds. ^Top^
westseattleblog
West Seattle Blog
West Seattle Blog