Sunday, January 17, 2010

Financial Illiteracy is a Disease

A recent viewpoint article by Laura Fisher in the December 2009 issue of Community Banker Magazine stated that many experts compare increasing financial literacy to decreasing obesity rates.  According to the article, both decreasing obesity and increasing financial literacy have behavioral and educational components and a similar goal: using education to help individuals form good habits and/or change the ones that are destructive and often deep-seated.

I have been teaching youth financial literacy classes for over 15 years.  I have done it on behalf of banks, religious organizations and nonprofits such as Operation Hope.  In all the time I have donated my time to teaching financial literacy it never occurred to me to compare financial illiteracy to a disease.  But after thinking about it, I agree.

Ms. Fisher states that "financial education has become our nation's No. 1 defense against another financial crisis."  While it took two to tango - the misinformed and financially illiterate consumer and the overly aggressive financial institutions - removing one of the two from the equation would have eliminated a lot of the pain and suffering. 

While I do not believe that all the damage would have been avoided, I do believe that a more informed consumer would have prevented many of the side effects from this period of easy credit.  Let me make it very clear that the substantial majority of financial institutions - particularly community banks - were not at fault.  It was a small network of large players - most of which are no longer with us - that created the program.  The rest of us - especially the community banks - are now unfairly guilty by association.  But that is a story and rant for a different day.

So how do we as a nation use financial literacy to defend against another similar crisis?  Whose plate should this sit on?  Elected officials?  Educators?  Nonprofits?  Financial institutions?  All of the above!  Creating a financially literate America will be a very difficult task that will require complete and total collaboration.  It will require a long-term strategy that holds all participants accountable for success.  It must also include all segments of society - from low-income participants to those with silver spoons.  Financial literacy is a learned trait that everyone needs.

Ms. Fisher makes another strong point when she says that "a one-size-fits-all approach is not appropriate for a diverse population with different learning styles."  Some people learn through listening, some through watching, some through doing, and most through a combination.  As such, we need to use different ways to deliver the needed information.

If you follow Pan American Bank you've heard that we recently partnered with a nonprofit called  Through this partnership Pan American Bank is providing with rent-free space to establish a "new media" studio.  Part of LatinoGraduate's mission is to establish an advisory board that will guide the creation of financial literacy curriculum that will be distributed to schools and homes across the Country via the Internet.  As of the date of this blog posting the advisory committee included Pan American Bank as well as financial literacy thought leaders from Texas State University, California State University and the University of Notre Dame as well as others from financial institutions and media companies.

While my team and I will continue to conduct face-to-face training within our community, the delivery of financial literacy training via the Internet provides a second approach which reinforces the lessons of financial literacy. 

Which brings me to the next topic: financial literacy is not a one-and-done activity.  While I applaud educators that allow bankers to visit their schools to provide lessons in financial literacy, they have to do more.  Just as history, math, science and the other subjects span extended periods of time, so too should lessons in financial literacy.  To often I visit schools that do not ask for follow up.

My advice to community-minded individuals is to create a collaborative committee comprised of elected officials, financial institutions, nonprofits, educators and other stakeholders.  The collaborative should work together to create a community-based effort to provide ongoing financial literacy education to the local community.  Begin with the 2006 National Strategy for Financial Literacy.  Leverage the tools provided by the FDIC's Money Smart program.   Work with organizations such as Operation Hope.  Through these efforts we can eliminate the disease that is financial illiteracy.

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