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Tomorrow Starts Today

California CPA magazine: June 2008

The 2008 California Summit on Financial Literacy

by Damien B.M. English

The Average 21-year-old will spend more than $2.2 million in their lifetime. The personal savings rate in the United States is 0 percent. In 2007, credit card delinquencies nationwide jumped 26 percent from 2006.

To combat those staggering statistics and to connect people and resources that can help Californians learn to better manage their finances was the goal of the California Summit on Financial Literacy, held April 23 in Sacramento.

More than 500 people attended the event, hosted by CalCPA, CalCPA Institute and the California Jump$tart Coalition. Educators, students, nonprofits, CPAs, government agency representatives, business people and legislators were among those who took part sessions that focused on coalition building, financial education in California schools, the housing crisis and nonprofit programs that provide services for low-income Californians.

“If you understand money, you will have a better life,” said Jim Greenwood, chair of the California Jump$tart Coalition. And, daily, the media dishes up headlines that indicate life isn’t so good for some Californians.

For example, total non-mortgage consumer debt is more than $2.5 trillion and on the rise and almost 5 million Californians live below the poverty line.
The day’s education empowered participants with the tools and knowledge to affect change. And, according to co-host Jack Gallagher, who shared his emcee duties with his PBS “Money Track” co-host Pam Krueger, “Knowledge gives us the confidence and power to get through these tough economic cycles.”
Following are select event highlights. You also can view webcasts of Summit sessions at www.calcpa.org/summit .

Coalition Building: Creating Success Together
Don Blandin, CEO and president of the Investor Protection Trust, a nonprofit organization devoted to investor education, says, that education is what “prevents a bond that matures in 35 years from being sold to an 85-year-old.”

Blandin, who has worked in government in Sacramento and Washington, D.C., spoke about what it takes to build a coalition, and boiled the formula down to five components:

1. Personal relationships are the mortar that holds the structure of the coalition together.
2. Coalitions must be a two-way street
of respect. Everyone has equal responsibility, power and status. No one partner should dominate the coalition.
3. Have patience. Quality alliances take a long time to mature. But with patience comes the need to be realistic about what may
or may not come to fruition.
4. Be flexible. Be able to respond to opportunities as they present themselves. In promoting improved interaction there is no place for rigid structures or fixed ideas.
5. Think big. Accomplish something that no one entity could achieve on its own. Shared objectives must be given plenty of room to expand and grow.
Want more from Blandin? You can reach him at blandin@investorprotection.org .

More Alarming Figures

“A 2007 study by Charles Schwab found that one in three teens knows how to read a bank statement, balance a checkbook or pay bills; one in five didn’t know how to invest,” said Jack O’Connell, California State Superintendent of Public Instruction. “Today’s average 21-year old will spend more than 2.2 million in their lifetime.”

The California Department of Education and the State Superintendent of Public Instruction are responsible for enforcing education law and regulations, as well as for continuing to reform and improve public elementary school programs, secondary school programs, adult education, some pre-school programs and child care programs. Financial literacy education is being worked into some of those areas.

Battling Debt, One Child at a Time

“More than half of high school seniors graduate without having any formal financial education,” said award-winning journalist and best-selling author Jean Chatzky, who is working on another book on the financial woes of America. “Fifty percent of people surveyed are more comfortable talking about their weight than money or debt.”

Chatzky is financial editor for NBC’s Today, a contributing editor for Money magazine and a featured money coach on Oprah’s “Debt Diet” series. Her talk focused on the responsibility that needs to be taken in educating kids about finance.

“If a child is old enough to ask the question, they’re old enough to hear the answer,” she said. “We need to teach our kids they need to learn to play within the boundaries and the rules—or to not play the game at all.”

Chatzky pointed to an online survey conducted by Wells Fargo and Visa, which compared students who read the introductory instructions made available to them when they signed up for a new credit card and those who didn’t. “Those that did read the information saw a 40 percent reduction in late payments and a 25 percent reduction in balances carried over from month to month,” she said. “All due to some simple introductory instructions.

“We need more transparency and information from the financial institutions. We have to limit the type of information our children are taking in to what we want them to take in as opposed to what the media is advertising.”

California’s Housing Sinkhole: Get Us Outta Here!

“This quarter, foreclosures in California increased by more than 327 percent,” said California State Assembly Member Ted Lieu in a session about the housing crisis and how it could possibly be addressed. “AB 1830 addresses the practices and products that led to the subprime crisis.”

Lieu said his proposed bill bans the practice of brokers getting a bonus for placing people into higher interest rate loans, and bans products that are simply “too risky and include pre-payment penalties.” The bill is expected to reach Gov. Schwarzenegger’s desk in late-August.

“The subprime problems come from a complex system of mortgage origination processes that involves independent mortgage companies making loans, then selling them off to Wall Street, which bundled, sliced and diced, and sold them into the global market,” explained Paul Leonard from the Center for Responsible Lending.

“There was a huge boom in the housing market between 2000–06 and money was made through the processing of mortgages—and it was made under the presumption that housing costs would go up forever.”

Leonard said the solution lies in reforms affecting brokers, loan services and finding a way to somehow make Wall Street investors accountable for the loans. He also mentioned the Chapter 13 bankruptcy law needs to be reformed.

“To get out of the hole we’re in now, we’re going to need more federal power,” said Lieu. “The states can’t do it alone.”

Erica Sandberg, a personal finance expert who has served for many years at the Consumer Credit Counseling Services of San Francisco, focused on the personal responsibility side of the issue.

“People were sold a dream they couldn’t afford,” said Sandberg. “We, as individuals, have a tremendous responsibility to do what’s good for ourselves, and people haven’t done it. People need to take strong action on a personal level to climb out of this problem.”

Community Empowerment

The California Summit on Financial Literacy featured panelists involved in creating successful community programs. These programs are wide-reaching and provide a variety of services, but the mission they share overlaps with the goal of the financial literacy movement. Here are a couple of those featured at the event:
OneCalifornia Foundation, http://onecal bank.com/onecalfoundation.aspx , a nonprofit organization that supports programs and grants to increase financial literacy, stimulate community development, help eliminate discrimination, encourage affordable housing and alleviate economic distress. OneCalifornia provides financial education classes in addition to a free bank account for all program participants.
EARN, www.sfearn.org, a Bay Area nonprofit that provides asset-building products and services to low-wage workers in the Bay Area has helped more than 2,000 low-wage workers open Individual Development Accounts and complete financial management training.
EARN participants save 5 percent of their gross income and have put aside more than $1.9 million of their own money since 2002. $1.7 million invested by EARN participants has leveraged more than $18 million in first-time home mortgages, small business capital and educational loans and grants.

Financial Literacy Power

Join CalCPA Institute’s Financial Literacy Efforts CalCPA member volunteers reach out to thousands of Californians annually. Be a part of the solution to increase Californians’ financial literacy.
• Talk to high school or college students about budgeting, credit, or savings and investing.
• Be a Financial Empowerment podcast expert. These podcasts offer practical tips to make sense of financial issues from tax planning to renting an apartment.
• Get the word out in your community or workplace with a Dollars & Sense workshop.
• Be a disaster recovery volunteer and help individuals and businesses rebuild their financial lives following a disaster.
• Support CalCPA Institute through your tax-deductible contributions.
Learn more at www.calcpa.org/outreach or contact Crystil Turner, community outreach manager, at crystil.turner@calcpa.org or (650) 802-2494.

Damien English is CalCPA’s managing editor. You can reach him at damien.english@calcpa.org .