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MarksJarvis: Financial literacy programs well worth the time

Too many people don't know enough about interest, saving for retirement and other critical aspects dealing with money

Gail MarksJarvis

12:53 PM EDT, April 21, 2013

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It's Money Smart Week, a collection of free financial literacy programs offered throughout the week, aimed at helping people deal with virtually every money issue imaginable: from how to get out of debt, to buying homes, paying for college, building a career and investing and saving for retirement.

Check out events at moneysmartweek.org, and see me and Kathy Graham at TribU's "How to Get the Career You Want & Make the Money You Need" at noon Friday at the Federal Reserve Bank of Chicago, 230 S. LaSalle St. You can make a reservation by calling 630-466-7095.

The cynics will claim that trying to educate people about money is a waste of time because more individuals worry about money than use the help they are offered, even when it's free.

And the critics also complain that too much of the financial education that's offered nationwide is flimsy and funded by guilt money or public relations money. Some comes from companies that were involved in the financial crisis or have pushed lousy mortgages, high-commission insurance or misleading loans and credit cards.

Until Congress passed legislation a couple of years ago, some lenders tricked credit card users into late charges. Financial institutions continue a major lobbying effort to kill off the Consumer Financial Protection Bureau and prevent government from stopping tactics that intentionally confuse Americans into losing money.

So there is some validity to criticism of the funders' motives.  And there is plenty of reason to question whether enough people are seeking the financial help they need.

A recent survey by Allianz Life Insurance Co. of America found that about half of women earning more than $100,000 worry about being bag ladies. But worries didn't seem to be motivating enough to coax women into learning what to do about money.

The Allianz survey found that 77 percent of married women depend on husbands to handle investing instead of figuring out 401(k)s or IRAs themselves. And while that might feel fine while husbands are taking charge, most men aren't particularly savvy about building up retirement money either, so women may be naively relying on a person who isn't helping her enough. According to research by Financial Engines, only about a third of people with retirement savings plans at work are investing appropriately.

Studies of investing behavior show young people blowing it by being too conservative, and older people taking too many risks with money they can't afford to lose on the verge of retirement.

Does it matter?

You bet. If a 30-year-old puts $30,000 into a savings account and leaves it there until retirement, she will be lucky to end up with about $46,000 when she retires. If instead she uses a 401(k) or IRA, and puts $30,000 into a "balanced mutual fund" of stocks and bonds, history suggests she could end up with about $300,000.

"The young and old people in the United States and other countries appear woefully underinformed about the basic financial concepts with serious implications for saving, retirement planning, mortgages and other decisions," professors AnnaMaria Lusardi of George Washington University and Olivia Mitchell of the University of Pennsylvania wrote in a paper presented to the National Association for Business Economics.

The professors have tested Americans and found "actual financial knowledge sorely deficient for high school and working-age adults." In addition, they found that people far overestimate their ability to make proper personal finance decisions.

All ages, genders and income levels had trouble understanding basics, such as what an interest rate on a loan would cost a person over time, how bonds can turn into money losers, or how inflation could mean a sizable nest egg would fail to provide enough living expenses over 25 or 30 years of retirement. Lusardi found that inherited wealth or job success was no guarantee people would be smart about money, and that blacks, Hispanics and women are the least likely to build wealth because of deficient knowledge.

Women are particularly at risk because they live longer than men and often spend down household savings caring for sick husbands. About half of married women live to 90, and many widows struggle to make leftover savings last when they have no idea how to invest.

Critics of financial literacy say it's not right to blame the victim when people lose money on complex products like loans with teaser rates and a lot of fine print. They are correct that financial literacy programs are no match for complicated financial products and roadblocks.

Many financial literacy programs about credit, for example, ignore the hard issues like how a person can avert foreclosure when mortgage record-keepers are expert at erecting runarounds.

Financial literacy topics often center on noncontroversial issues like preventing identity theft or no-brainer lessons like paying bills on time. Such lessons aren't going to give people the tools to watch out for scoundrels pushing dangerous loans.

For example, while subprime mortgages were tarnished by the financial crisis, subprime eight-year car loans are popular now. Perhaps people know they are making a mistake with them, or maybe they aren't aware that car loans shouldn't exceed four years.

Prior to the financial crisis, a lot of people didn't know what they were doing with subprime mortgages. According to research by Fannie Mae, half of people given expensive, dangerous subprime mortgages prior to the crisis would have qualified for traditional, lower-cost, lower-risk loans. But lenders didn't tell people that. Likewise, many students today turn to high-interest private loans for college when federal student loans are typically cheaper and safer.

Too few financial literacy events provide people with the essential information they need. But that does not mean people should throw out the baby with the bathwater.

gmarksjarvis@tribune.com

Twitter @gailmarksjarvis

Money Smart Week events

Programs can be found at moneysmartweek.org.

Gail Marksjarvis and Kathy Graham will be speaking at TribU's "How to Get the Career You Want, & Make the Money You Need" at noon Friday at the Federal Reserve Bank of Chicago, 230 S. LaSalle St.

RSVP 630-466-7095