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A Financial Literacy Program for Kids, With Corporate Sponsorship

This article was written by in Education. 10 comments.


The best place to learn solid financial behavior is at home. Although a kid’s environment at school and among peers is important in his or her development, the biggest influence on a growing child’s set of values is the behavior of the parents. Parents are role models, so in a perfect world, they are best suited to solve young adults’ lack of preparedness for handing the world from a financial perspective.

Parents, on the other hand, are often ill-equipped for this responsibility, so public school teachers are left to pick up the slack for parents who can’t or won’t be the role models necessary. The lessons aren’t difficult, but financial behavior is so embedded in life at home, poor models there can easily undo any lessons taught in a school environment. Although New Jersey updates its public school curriculum standards a few years ago to require 2.5 credits in financial, economic, business, and entrepreneurial literacy, the typical class is not going to be effective for establishing solid financial behavior.

Eighth gradePrograms that teach financial literacy need to get creative. If there’s ever a chance for the banking industry to get involved with its future customers at an early age, this is it. Capital One sees the benefit in teaching young children how to use its products and is sponsoring the “Finance Park” program, coordinated by the non-profit organization Junior Achievement.

Finance Park is a mobile program for middle school students. After a few preparatory lessons in the classroom, the students visit one of these mobile stations and a Capital One bank branch. Students are assigned a family situation (single, married, with or without children, etc.) and a job, and are faced with simulations requiring financial decisions that have consequences. Due to a lack of preparedness in real life, most people learn how to manage their money “on the job.” But even in real life, the consequences of poor financial decision-making can be somewhat removed from the decisions themselves. The distance between cause (overspending, for example) and effect (not being able to afford a house due to high debt levels, for example) are so separated that learning on the job isn’t always effective as quickly as it would need to be.

Simulations can bring the cause and effect relationship into focus.

Capital One’s presence is significant in this program. The official name of the initiative is the “Capital One Junior Achievement Finance Park” with the necessary trademark symbols. Corporate involvement doesn’t stop with Capital One. There are more co-branded programs which one might expect to see corporations training young consumers to be life-long customers, in New Jersey alone:

Elementary school grades

  • Our Nation® Sponsored by United Technologies
  • JA More than Money™ (After-school Program) Sponsored by HSBC

Middle school grades

  • JA Global Marketplace™ Sponsored by MasterCard Worldwide
  • JA Economics for Success™ Sponsored by the Allstate Foundation
  • JA America Works Sponsored by Pitney Bowes & The Literacy and Education Fund

High school grades

  • JA TITAN (Internet based) Sponsored by Oracle
  • JA Economics™ Sponsored by the MetLife Foundation
  • JA Exploring Economics™ Sponsored by the MetLife Foundation
  • JA Banks in Action™ Sponsored by the Citi Foundation
  • JA Business Ethics™ Sponsored by Deloitte
  • JA Careers with a Purpose™ Sponsored by HCA & John Templeton Foundation

Junior Achievement programs in other states have different partnerships.

Shareholders are often impressed with corporate involvement in positive social initiatives and happy when companies are beneficiaries of tax incentives for charitable spending. I am concerned about the effect of branding in education lessons for eighth-graders. Corporations should not be involved with the education of children, but these corporations have money to devote to programs like Finance Park. If it weren’t for corporate sponsorship, programs like these would likely not exist.

Corporations have been involved with public education since the 1920s, but the trend has increased in recent years. As the United States falls behind other countries in education, citizens look to blame this country’s public school system. We look to corporations that create charter schools as an alternative, with the idea that schools with a better funding source, corporate profits rather than taxpayer money, will help solve the educational crisis. Results show that charter schools have mixed results when compared with public schools.

The lessons in personal finance are important, so it’s a good thing that kids are getting the exposure to real-life simulations. Can it be done without corporate involvement and indelible branding at an impressionable age?

Photo: daveparker
Junior Achievement Finance Park, Stanford CREDO study

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Repair Cafe: Bring Your Broken Doodads and Gadgets

This article was written by in Consumer. 10 comments.

We live in an era of cheap, disposable goods. My closet full of clothing, much of it rarely worn, even though I sort through my wardrobe about once a year to eliminate items I no longer need, is a good indicator of this situation. For a good period when I was a kid, I wore hand-me-down clothes — as the eldest child, I received clothing from a family friend — and when an item became damaged, my mother fixed it with her sewing machine.

Prices for clothes have certainly increased over the last few decades, but clothing is not expected to last. When a piece of clothing becomes damaged, it’s easier and cheap enough to replace.

Broken ToasterBroken kitchen appliances, lamps, and other household devices past their warranty periods can’t be fixed with a sewing machine. Many would need specialized care by a professional, and with today’s disposable consumer culture, many people just opt for replacement rather than finding a repair shop and paying nearly as much money as they would to buy a new item.

Additionally, retailers and manufacturers have embraced the concept of planned obsolescence. To keep manufacturing costs low and to maximize profits, there is little concern for making products that last as long as their owners. This is a primary feature of high technology — a house phone sold fifty years ago may still function properly today, but a cell phone purchased five years ago not only doesn’t keep up with the latest technology, but it likely doesn’t work at all. Furniture built in the eighteenth century was made to last in a family for generations; IKEA furniture might last a few years under regular stress of use.

In Amsterdam, there is a small movement in opposition to this disposable consumer culture. The community has come together to repair its members’ broken items. Volunteers bring their tools and sewing machines to an open building several times a month and offer to fix any broken item brought to the gathering. This Repair Café helps reduce waste by encouraging reuse of broken items, and makes fixing an affordable alternative to replacement.

The government in the Netherlands, private groups, and individual donors have helped the Repair Café Foundation raise $525,000 over the past few years, and these funds have helped the organization create these gatherings at various locations across the country. These Repair Cafés provide a chance for consumers to make better use of their goods and for volunteers, particularly those with repair skills that might no longer be in demand, use those skills for a good cause.

Would Repair Cafés; be welcome in the United States? It’s not exactly a profitable business venture, and as such, is unlikely to draw much attention. The model, however, could easily be recreated, perhaps in low socioeconomic neighborhoods, to provide a money-saving alternative for spending money to replace slightly damaged items. Strong marketing encouraging consumers to exist in a cycle of buying and replacing comes at a price to retailers and manufacturers. If these expenses were redirected towards making better, durable products without planned obsolescence, consumers might lose the desire to constantly have new items, and would be able to hold onto the same products for a longer period of time. There would be less waste. Companies and their shareholders would find they have more loyal, life-long customers. Customers would shop with a focus on the differentiation in quality rather than with their tunnel-vision focused solely on price. Companies that build their products to last would succeed while those focused on the short-term would fail.

Could Repair Cafés be an answer to the consumer culture of disposable products? Would the availability of free repairs in the United States change the way consumers buy goods, and thus force companies to build products that are made to last rather than go obsolete? Is the trend towards disposability reversible at all?

Photo: phozographer
New York Times

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Money Basics: Investing

This article was written by in Financial Literacy, Investing. 6 comments.

April is National Financial Literacy Month in the United States. This brings attention to the lack of a financial education young people receive in this country, both from their parents and from the education system. I disagree with most people about how to solve this issue. Many call for mandatory high school courses in personal finances, but there are many reasons why this has not been and will not be generally successful.

In the spirit of National Financial Literacy Month, I occasionally take some time to focus on some of the financial basics. This is information I would have liked to have had or to have thought about earlier in my life. It’s not necessarily the information that’s important, but having a role model — someone to emulate — who is proficient with money, to guide a young individual on a path towards financial independence. I’ve covered the basics of savings accounts, checking accounts, budgets, and interest previously, and today’s I’ll attempt to tackle the topic of investing.

Money investingInvesting is a massive topic. It can get quite complicated when you look at the types of investments available, each having their own quirks, rules, and purpose. Investing means different things to different people: you can invest in stocks, invest in an industry, invest in a business, and invest in your future. You can invest your money, your effort, or your time. All of these concepts can be radically different.

There is a general theme to all investing, however. While the purpose of saving is to have a foundation or short-term financial safety, investing is the choice people make when they want to build long-term financial stability or independence. When you create a plan for investing — and it’s better to start with a plan in mind even if you don’t really know what you want to do in the future — you think about the future. The expectation when you invest is that your wealth will grow. Compare this to savings, where your expectation is that your wealth is safe.

What do people invest in?

The most common investments are stocks. Stocks are shares of a business. When business owners want to raise money to help their businesses grow, they sell to investors pieces of ownership in that business. Most of the time the pieces are very small. For example, if you invest in one share of a company like Google, you’ll become an owner of the business — but you’ll own only about 0.0000003 percent of the company. And almost always, when you buy stocks, you don’t buy them from the company. Once a company decides to sell shares, the stocks are traded on exchanges like the New York Stock Exchange. When you buy stocks, you’re buying them from another investor who happens to be selling.

Overall, stocks perform well over long periods of time. If you buy a varied collection of stocks and hold them for several decades, your investments have a great chance of increasing in value. The best way to buy stocks, especially for someone new to investing, is to invest in a pre-determined package of stocks designed to match your investing goals and needs. That’s where mutual funds come in. Mutual funds are packages of stocks (or other investments) managed by a professional investor, and these packages often have a goal or style that the manager follows.

With any investment, stocks, mutual funds, or otherwise, there is a chance that you will lose money. This is the risk that’s associated with investing. While there’s a chance of your investment increasing in value over time, increasing your wealth, the opposite might happen. You could buy shares of a company that fails one month later, losing all your money. Investing in shares, therefore, requires lots of research to protect yourself from bad investments, but even lots of research can’t help you accurately predict whether your investment will be successful. That’s why mutual funds are more attractive investments. With mutual funds, you can use the same money to spread out among many investments, so if one company fails, it doesn’t affect your investment as much.

Bonds

Besides stocks and mutual funds consisting of stocks, the next most popular investments are bonds. Companies and governments issue bonds to raise money. Sometimes a government is looking to raise money for a specific project, like building a bridge, and will seek investors, promising to pay the investors back their contribution plus interest. Like stocks, bonds are designed to raise money, but for the investor bonds are safer, meaning they’re less likely to lose value than stocks.

In exchange for that safety, the possibility of growing your wealth with bonds is less than the possibility for doing the same with stocks or mutual funds consisting of stocks. Bonds have a maturity, though. You can buy and sell most stocks whenever you’d like, but when you buy bonds, you are committing to a relationship. When you buy a five-year bond, you will receive some income from the investment over the course of five years, but you won’t get all of your money back until the five year term is complete.

Mutual funds come in handy once again; if you like the relative safety of bonds, you can buy a mutual fund consisting of bonds. These can, with some exceptions, be purchased and sold at any time. Investing is a long-term activity, though, and investors shouldn’t be too concerned about frequent buying and selling.

The best type of mutual funds

I mentioned above that mutual funds are managed by a professional investor. This is an individual who makes decisions for you about which stocks or bonds to buy and sell. All of these professional investors cannot consistently pick the best investments, however. Index mutual funds are designed to take some of the human errors out of investing.

When the financial media talk about the Dow being up or the S&P being down, they’re talking about an index. Indexes (or indices if you prefer) track the overall progress of a representative sample of investments. Most investors can’t pick investments that outperform the indexes, so you’re better off just copying the indexes. You can do that easily by investing in an index mutual fund.

An additional benefit of index mutual funds is the low fee. Whenever you invest — whether you buy or sell — you pay fees. People invest with the intent of growing their wealth, and the best investors do that by reducing these fees. The worst investors buy and sell frequently and, for the most part, make the professionals who collect the fees rich rather than building wealth for themselves over the long-term. If you choose wisely, index mutual funds are often the best investments for reaching your long-term goals while saving money. It’s a great value.

Other investments

ETFs have increased in popularity in recent years. ETFs are exchange-traded funds. The financial industry loves these investments because they have the appeal of mutual funds with the added benefit of being able to be bought and sold during the day, unlike mutual funds which trade only at the end of the day. Of course the industry loves ETFs; they encourage investors to trade investments frequently, thus increasing fees from trading. There’s no need for long-term investors to invest in ETFs. You can avoid these rather than playing into they hype.

The menu of investments is lengthy, particularly once you start looking at derivatives, stock options, and other complicated investments not particularly relevant to a beginning investor. Stick with stocks (broadly invested), bonds, and mutual funds unless you have a large sum of money you don’t mind losing. Most people don’t.

Retirement-specific investing

The government offers tax benefits for people who invest for the future. Many people working in a career look forward to the day they can leave their jobs behind and relax with the remaining decades of their lives. The government help subsidize people who no longer work, so you can be sure those in political power are interested in encouraging people to fed for themselves.

The 401(k) investment, named for the section of the tax code that contains its definition, is one of the most popular ways to invest for your retirement and receive a tax benefit for doing so. You may be automatically enrolled in a 401(k) when you start a new job, or you may need to sign up for yourself. You can reserve a portion of each paycheck for your retirement. All that you reserve must be left invested in order to receive the tax benefit (and avoid a penalty) except in certain circumstances. As a result, you’re putting some money away, untouchable, for many years.

An IRA (Individual Retirement Account or Agreement) is similar to the 401(k) in that respect, but you can also sign up for an IRA as an individual rather than as an employee of a business by contacting a broker directly.

Neither an IRA nor a 401(k) are investment types. They are not like stocks, bonds, or mutual funds. Instead, they are packages that can contain a varied array of investments. Most 401(k) plans contains mutual funds, but you can invest in almost anything within your IRA.

Points to keep in mind

  • When you invest, keep in mind that the idea is not to guess which investments will make you rich in a short period of time. Investing is a long-term endeavor, and you need diversity and patience in order to succeed.
  • Risk and reward are correlated. The riskier investment types like stocks can grow your wealth more, but they can also devastate your finances. Finding the right balance is a personal decision.
  • Studies have shown that the best predictions of long-term performance are the fees. Always research the fees involved with any investment type or activity so you understand completely where your money is going and how much you get to keep.

Photo: Images_of_Money

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Customers Say Retailers Are Not Living Up to Durbin Amendment Promise

This article was written by in Consumer. 14 comments.

Retailers, represented by the National Retail Foundation, promised that consumers would benefit when retailers, particularly small businesses, were to benefit from regulated interchange (swipe) fees charged by Visa and MasterCard. The regulation, commonly called the “Durbin Amendment to the Dodd-Frank Act,” would lower the cost for businesses who were subject to an effective duopoly between Visa and MasterCard, paying a percentage of every debit card transaction to the processor.

These fees are higher for transactions with any card that is more than just vanilla, and retailers have dealt with this high cost of doing business in an age where an increasing number of transactions are handled electronically mainly by increasing the costs of products overall.

Cashier checkout at WalmartThe National Retail Federation claimed last year that consumers would see the benefit of reduced interchange fees. Regulated cards — and not every issuer is subject to this regulation — carry interchange fees with a maximum of 0.05% of the transaction plus $0.21. The standard fee for a non-regulated card (reviewing Visa’s schedule of interchange reimbursement fees as of October 2011 [pdf]) is 1.90% of the transaction plus $0.25 for every swipe of the card.

If retailers intended for the consumer to benefit, the only way for that to happen would be in the form of lower prices. Here are a few comments from representatives of the retail industry, as compiled by the Electronic Payments Coalition:

  • “The reform will save each franchisee in the country almost 50% of the cost of a debit transaction, which ultimately will be passed on to the customer… It is simply a fact that lower merchant costs will lead to lower consumer prices.” (Bruce Maples, Chairman, National Coalition of Associations of 7-Eleven Franchisees)
  • “Merchants are ready to pass lower swipe fees along to consumers in the form of discounts and other benefits as soon as reform goes into effect…” (Mallory Duncan of the National Retail Federation)
  • “Merchants are making a wide variety of plans to pass the savings along to customers who use debit cards, ranging from discounted prices to benefits and increased services such as free delivery at an appliance store…” (National Retail Federation press release)
  • “Secondly, to the extent that a merchant receives a benefit, I do believe that from a competitive standpoint, they will bring that through to the consumer.” (Robert Donovan, Corporate VP & U.S. Assistant Treasurer, McDonald’s

If you’ve been shopping throughout the past year, particularly since October 1, 2011 when the regulation went into effect, you probably haven’t noticed prices decreasing. In fact, I would say prices overall, from my anecdotal experience, have continued to rise. Recent research confirms this suspicion, to the tune of a 1.7% increase across a list of common items.

According to a consumer survey conducted by Ipsos Research, only 7% of consumers believe that retailers are passing these savings onto customers. 76% of retailers have increased their prices or kept them constant since October 1, 2011.

At the same time of these increases for customers, retailers have saved $2.28 billion as a result of the regulation. When we discussed this on Consumerism Commentary, most readers didn’t expect retailers to lower prices. Why should they? Small retailers have the opportunity to reduce their costs while not affecting revenue by keeping prices steady. That’s how businesses can survive in difficult times. Large retailers may have healthier profits due to volume, but the ability for large retailers to offer low prices is their strength, and don’t have the margins to reduce prices much.

Could it be possible that these promises of savings for the consumer were promoted by the industry to garner more public support for regulations?

Photo: Walmart Stores
Electronic Payments Coalition

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How to Solve the Financial Literacy Problem

by Flexo
Kid with money

Many Americans experience financial jeopardy at some point in their lives, and experts share an opinion about a strong cause: there’s no formalized way to learn how to use money properly, so most people must learn by experience, making mistakes as they learn what is necessary for building a solid financial foundation. It would save ... Continue reading this article…

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Frugality Plays Role in Bringing Tech to New York City

by Flexo
Roosevelt Island

Michael Bloomberg, the king-slash-mayor of New York City (will he increase term limits again to stay in his position?), has announced that Cornell University and Technion-Israel Institute of Technology will be transforming 11 acres on the southern tip of Roosevelt Island into a graduate school for technology. Classes will begin as early as next year ... Continue reading this article…

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Meeting With a Financial Planner From Vanguard Flagship Services

by Flexo

On Tuesday, I had a phone consultation with a Certified Financial Planner from Vanguard. It was an initial meeting, wherein we talked about each other, focusing on my goals. I tried to take into account many of my own suggestions for working with a financial adviser, but in preparing for the meeting, I realized — ... Continue reading this article…

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Record-Setting Cyber Monday

by Flexo
Cyberman - Cyber Monday

Consumers in the United States spent more money online in one day, this past Monday, than they spent in any other one day in history. Online browsing and shopping resulted in $1.25 billion in sales on Cyber Monday, up 22 percent from the previous one-day record, last year’s Cyber Monday. The $1.25 billion in sales ... Continue reading this article…

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