Personal Finance Education is Essential

Attending a recent Board meeting for an agency that helps working homeless families obtain sustainable permanent housing, a thought struck me. We partner a licensed clinical social worker with families to help them on their journey while we offer temporary rent subsidies based on the client’s ability to afford 30% of the housing and utility costs relative to their monthly income,

Much of what these social workers do is help with budgeting for “needs” and prioritizing less “wants.” Yet, another key element is to require the parent(s) to attend classes on personal finance training. We partner with another agency to do just that.

The thought I had is we should require high school students to take a semester course on personal finance. One of my sons took this course as an elective, so I know the curriculum exists at least in our public schools. And, he benefited from it.

This course could run the gambit from monthly budgets to checking/ savings accounts to investments to credit/ loans to ID theft prevention. We are largely a financially illiterate nation. This would help educate people to make more informed decisions.

To illustrate my point, there was an economic study in New York several years ago called “Class Matters.” The study demonstrates that people in a lower socio-economic class ask fewer questions of advisors, bankers, lenders, etc, when they should be asking more. I call it the “suit and tie” effect. This is how people can sign up for mortgages they cannot afford, how they can succumb to predatory lending on car loans or make the mistake of using a pay-day lender. These folks are preyed upon because of their financial illiteracy. This also is one of the reasons for the 2007 housing crisis as lenders provided mortgages to riskier lendees.

I am not saying mandatory personal finance training will end homelessness or poverty, but it will arm our graduates to budget better and ask more questions. Avoiding 23% car loans can impact a budget in a major way.

If you agree, please reach out to your local papers and politicians. To me, this a sustainable and impactful change.

Payday Lending continues to prey on the vulnerable


I have written several times about the payday lending industry. The industry is the worst form of legitimized usury and preys on the people who need help.

With flipped loans (where a new loan pays off an old loan), the effective annual percentage rate (APR) of interest can build very quickly. The average borrower will flip a loan several times, so the APR can grow to over 1000%.

Many states have clamped down on the industry, placing a ceiling on the APR that can be charged. But, the industry continues unfettered in more than a few states.

One of those states is South Dakota. As of this writing, there is a bipartisan proposal that has been placed on the ballot which would limit the maximum APR to 36% per annum. In a perfect world, this ballot initiative would pass.

But, to combat this common sense proposal, the payday lending industry has put forth its own ballot initiative which would limit the maximum to 18% per annum. Wait, you may ask, isn’t that better? Well, there is a significant catch. The payday 18% ballot initiative says, the maximum will be 18%, unless the borrower agrees to a higher rate. Why would the borrower agree? To get the loan ┬áthe lender is willing to lend. So, the lower maximum is moot.

I do not begrudge a company trying to make money, but taking advantage of vulnerable people is poor form. This is such poor form that Dante created a special layer of hell for usurers in his Inferno. And, the Christian bible is not too kind to these predators noting usury as a sin, especially when it involves poor people.

If you know anyone in South Dakota, please encourage them to vote for the 36% maximum APR ballot initiative. The industry 18% ballot initiative ruse is just a continual license to perpetuate fraud. It is the ultimate bait and switch. And, please do everything in your power to avoid payday loans and tell anyone who asks to do the same. Payday lending is a self-fulfilling death spiral of debt.

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Note: PBS Newshour covered this issue on January 6, 2016. A link follows:

http://www.pbs.org/newshour/bb/fighting-the-debt-trap-of-triple-digit-interest-rate-payday-loans/