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Education

Dollars and Sense

By Mark Morris

From left: Square One’s Dawn DiStefano, Melissa Blissett, and Kristine Allard; and FP Investment Group’s Flavia McCaughey, Flavia Cote, and Peter Cote.

Given the scope of Square One’s work for children and families, it’s not unusual for the organization to receive contributions to support its efforts.

But recently, FR Investment Group offered a donation that goes far beyond writing a check.

“Instead of making a monetary donation, we’ve chosen to do something harder,” said Peter Cote, president of FP Investment Group. “We’re giving our time and services to help Square One clients and staff improve their financial literacy.”

Dawn DiStefano, Square One’s executive director, had seen similar attempts at financial education fizzle out, despite good intentions. This latest proposal was different.

“The FR group wanted to understand who we are and what we want for our clients and staff,” she said. “They were curious, inquisitive, and showed us they valued our expertise as well.”

The Empower Financial Literacy program is now a monthly offering at Square One. Flavia Cote, executive vice president of FR Investment and Peter’s wife, runs the session each month with FR staff, including her daughter, Flavia McCaughey, a vice president with FR.

McCaughey presented the idea to her parents that working with families at the lowest income levels to help them understand the basics of finance could have a huge impact on those families — and also on the community at large. The Cotes supported the idea but also offered some sage advice.

“My parents told me to be prepared that maybe only one person would show up to the meeting,” McCaughey said. “I discussed that possibility with the team, and we decided if the program makes a difference in even one person’s life, it’s worth it.”

Instead, 14 people have signed up for the program, with eight or nine regularly attending the monthly sessions.

“Given that we’re still dealing with COVID and that everyone has busy lives, I’m excited about 14 sign-ups,” DiStefano said. “The program will be here when they’re ready. It’s not a one-and-done.”

“Instead of making a monetary donation, we’ve chosen to do something harder.”

Far from it. Peter has committed his firm to running the financial-literacy program for the next 30 to 50 years.

“That’s how long it’s going to take to make real change in the financial well-being of our community,” he said. “You have to be on the ground and commit to the long term.”

 

Changing the Narrative

This kind of commitment is necessary to break what DiStefano called a self-fulfilling prophecy of bad outcomes.

“Those who grew up in a family where they worried about how they were going to eat and get to school often end up creating that same unstable environment for themselves when they are adults,” she said. “They’re not surprised when they lose an apartment or don’t care about their credit score because they feel they couldn’t buy a car anyway.”

Just like savings, tough situations also have a way of compounding and growing. DiStefano gave an example of someone who lost a job, and in order to receive housing assistance, they had to be in arrears on their rent, which would then negatively affect their credit score. “This is what people are dealing with,” she said.

Melissa Blissett, vice president of Family Support Services at Square One, asks people what’s going on that prohibits them from living a better life and uses a tool called the family-goal plan to help them.

Flavia McCaughey leads a financial-literacy session at Square One.

Flavia McCaughey leads a financial-literacy session at Square One.

“The FR folks speak the same language we use with our families, and we both use the SMART goal approach,” Blissett said. SMART, a popular goal-setting technique, is an acronym for specific, measurable, achievable, relevant, and timely.

Flavia Cote said her team encourages people to set a goal such as buying a reliable car, and the FR staff breaks it down to the actions needed to eventually reach the goal.

“We encourage people to try to save at least $10 a month,” she said. “Even if they can’t save $10 next month, they have started to think about saving.”

To prevent being overwhelmed by a large goal, Peter suggests taking it one step at a time. “I don’t want people to think about years from now — just think about the next 24 hours. When you bring it down to 24 hours, you help people see an attainable goal.”

In their monthly sessions, the FR staff help people with figuring the numbers and, more importantly, understanding the emotions that come with handling finances.

“If someone can’t save for one month, we encourage them to set the goal for next month,” Flavia said. “We want to bring hope and make finance simple enough for people to achieve some sort of financial independence.”

Like dedicated saving, positive actions can also have a compounding effect. Recently, a class-action case involving overdraft fees at a regional bank reached a settlement for several million dollars. Once all the claimants received their share, $23,000 remained. This final amount is usually provided to a nonprofit program in alignment with the core theme of the case and is known as a ‘cy pres,’ from a French phrase meaning ‘as near as possible.’

The plaintiff’s counsel, Angela Edwards, learned about the Square One program from Flavia Cote and thought it sounded perfect. “I recommended the cy pres for Square One, the defense counsel agreed, and the judge approved it.”

 

Making Progress

Peter Cote sees his main job not as a financial person, but as a champion for others. “We’re dealing with people who have a variety of financial challenges, and we are their champions to let them know it will be OK.”

When people attend the sessions at Square One, Flavia said, they show they are ready to make progress with their lives. “We try to help people understand their situation is not permanent and there is a way to change it.”

While a term like financial literacy might sound academic, Peter offered a few different terms that might better describe the course.

“You could call it financial well-being, or Life 101,” he said. “Maybe Figuring It Out 101.”

Banking and Financial Services

Adding It Up

It’s no secret that too many Americans make poor borrowing decisions, fail to save for retirement, even lack basic budgeting skills. That financial-literacy deficit begins early, say local bank and credit-union officials, which is why area institutions offer programs and classes to help people — both teenagers and adults — forge better strategies for making their money work for them, not drag them down.

So much, Lena Buteau says, comes down to tiny decisions that add up.

Take that morning coffee. If someone spends $2.69 at Dunkin’ Donuts every morning, that comes out to well over $900 a year. Spend $7 or $8 on lunch five times a week instead of packing a lunch at home, and you’re looking at around $2,000 a year.

“When you think you can’t afford something, look at your daily expenses,” said Buteau, vice president of Retail Administration at Monson Savings Bank, while explaining the importance of MSB’s financial-literacy programs, many of which target students, but which are needed by many adults, too.

For instance, people of all ages often struggle to understand the long-term impact of buying on credit, she noted, using the example of someone who buys a $650 laptop at Best Buy but takes a $150-off deal to put it on a store credit card at 25% interest, then pays only the minimum every month. At that rate, that laptop would be paid off in seven years — eventually costing more than double its original price tag.

“When you explain this, the kids are shocked at the numbers,” she said. “It really touches home.”

Because so many habits and philosophies are forged early, Buteau said, “we go in and teach students about saving, lending, credit scams, how to keep your money safe, and much more.”

And it’s not just schools, she added. “We want to go to church groups, Boy and Girl Scout troops, anybody that will give us an hour of time for a financial-literacy class.”

“No disrespect to the schools, but they’re not preparing kids for real life — how your credit score affects your insurance and buying a car, how to handle a checkbook.”

Michael Ostrowski, president and CEO of Arrha Credit Union, said his institution has an internal focus on financial literacy.

“No disrespect to the schools, but they’re not preparing kids for real life — how your credit score affects your insurance and buying a car, how to handle a checkbook. People don’t go into banks anymore; they do stuff online, and you can get ripped off if you don’t know what you’re doing.”

For that reason, Arrha has worked with high schools in the past on financial-literacy programs and is currently planning another program for local students.

“When we were kids, we had home-ec class, and they used to explain how to do a checkbook. They don’t do that anymore, and I don’t know why,” Ostrowski said, before offering one possible reason. “With all the regulations schools are under, for MCAS and other things, they’ve bailed on programs like this, but they’re absolutely critical for kids’ development and future life.”

Jon Reske, vice president of Marketing at UMassFive College Federal Credit Union, pointed out that financial literacy, and education in general, has long been part of the credit-union culture.

“Why? Because, unfortunately, your parents and my parents probably never taught us anything about personal finance, especially if things weren’t going well in the household,” he told BusinessWest. We take the opposite approach — we say your kid should be involved in understanding how the budget works in your house.

Jon Reske says even good budgeters can be tripped up by a bad loan — with long-term consequences.

Jon Reske says even good budgeters can be tripped up by a bad loan — with long-term consequences.

“We also do workshops on a regular basis — everything from homebuying 101 to how to create a budget to understanding credit,” he added, noting that the latter is especially critical, as the average American, between the ages of 21 and 65, will borrow about $1.5 million, and bad decisions can compound quickly and have a long-term impact. “You can be the greatest budgeter in the world and be smart about your pennies, but if you make bad borrowing decisions, you can be overwhelmed by debt.”

Monson Savings also conducts workshops for adults, such as first-time homebuyers, and offers a Credit Builders loan program, which is an effective way to, as the name suggests, build credit without going into unmanageable debt. The customer borrows a certain amount from the bank, which is deposited into a savings account and cannot be accessed until the loan is repaid. Not only does the borrower build positive credit through on-time payments, but at the end, the balance, plus interest, is available for a down payment on a car or home, a cushion for emergencies — anything, really.

In short, area institutions understand the deficits that exist when it comes to financial literacy and how that impacts the decision-making process — and how bad decisions can turn into years of heartache. And they’re doing something about it.

A Matter of Confidence

A new national survey by Junior Achievement USA and Citizens Bank shows that more than 30% of teens do not believe they will be financially independent of their parents by the age of 30. Sixty percent believe they will own a home by that age, 44% believe they will begin saving for retirement, and 43% think they will have paid off their student loans.

“With a strong economy, you would think teens would be more optimistic. It just demonstrates the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial futures.”

“These survey findings show a disconcerting lack of confidence among teens when it comes to achieving financial goals,” said Jack Kosakowski, president and CEO of Junior Achievement USA. “With a strong economy, you would think teens would be more optimistic. It just demonstrates the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial futures.”

Financial literacy has long been a cornerstone of Junior Achievement, but there’s no shortage of educational programs available at credit unions and banks.

“Money is very emotional. It’s one of the hardest things to talk about, even with your spouse,” Reske said. “And it’s hard to be objective. That’s why it’s nice when people come to our workshops and say, ‘I’m not emotional now; I’m looking at the objective side of it. I wish I’d taken this before getting that loan.’”

While money issues can seem overwhelming at times, he added, financial-literacy tools are much more accessible than they were 10 years ago if people know where to look. He also outlined a number of concepts people attending UMassFive’s workshops might learn. For example:

• If you’re able to pay bills weekly, as they arrive, do it. It reduces the risk of missing a deadline and winding up with a late fee, which is easy to do when you pay the whole pile of bills once a month.

• Start building an emergency fund. According to a U.S. News & World Report study, two-thirds of Americans would struggle — and often do — to come up with $1,000 for an emergency, like an urgent car repair or medical procedure.

“So what happens? You put it on a credit card, and now you’re paying 21% interest, and soon $1,000 turns into $1,200,” Reske noted. “And an emergency fund can keep you from missing a rent payment or not getting something fixed on your car, which could lead to a bigger repair in three to six months.”

• Check out your credit report on an annual basis, if only to make sure everything is correct. “If the activity on your credit report is inaccurate, you’re getting an inaccurate score, and most rates you get are based on your score.”

• Put every credit card on a minimum automatic payment so you don’t miss any payments — and then pay more principal when the bill arrives in the mail. Also, it’s not a bad idea to dedicate one credit card to online purchases only, to more easily identify instances of identity theft.

• Finally, it’s never too early to start saving for retirement. According to Forbes, 33% of adults have zero saved for retirement.

“Social Security will pay a portion of your expenses, but not all,” Reske said. “Time is more valuable than money because of compounding interest. If you start planning at 50 or 55, you just don’t have enough time; you’ve wasted 20 years. And if you have a 401(k) at work with an employer match and you’re not on it, you’re being foolish.”

Budget Battles

UMassFive also conducts a workshop for high-school seniors in which they choose a career, get a salary, and then go from station to station filling out a budget in different categories, from housing, transportation, and food to luxury items and student loans — and trying to stay within that budget.

“Kids say, ‘I never knew how expensive things are,’” Reske said. “People wonder why a 40-year-old can’t come up with $1,000 for an emergency; it’s because they weren’t taught that the key is to get in front of problems as early as possible” with smart budgeting followed by spending discipline.

Monson Savings runs a similar program in local schools. “One thing I build in there is student debt. If you want to spend $30,000 a year on college and go for a $30,000-per-year job, you’re not going to be able to pay that back,” Buteau said, stressing the importance of making smart decisions about college — if college is even the best option.

In fact, she said, many kids today are so focused on college — because it’s what their schools push — that they may not be aware of careers in the trades that offer robust salaries and no long-term debt.

One thing is for sure: whether in high school, college, early adulthood, or beyond, there’s no bad time to learn more effective strategies for handling money, budgets, and credit — in other words, to become more literate.

“If you’re sick, you go to the doctor,” Buteau said. “If your car is broken down, you go to a mechanic. If your pipes are broken, you call a plumber. But if you have trouble budgeting or financing, no one thinks to go to the bank for advice or a class. And it’s free.”

And when it comes to finances, there’s nothing wrong with free.

Joseph Bednar can be reached at [email protected]

Opinion

Opinion

By Jennifer Connelly

There’s no doubt that talking, in some form, is one of our favorite pastimes. But within our close circles of family, some things that are important to talk about between generations are not being discussed at all — critical things like money and how to manage it.

More than 75% of kids report that their parents don’t discuss money and personal finance with them, probably for several reasons. For parents struggling with their own personal finances, they may not feel educated or financially empowered enough to be a mentor, or they may not have time. It may take a small crisis such as misusing a credit card or phone plan for a parent to recognize certain financial basics are a must in the short term. But still, they may not fully realize how important ongoing and broad financial education is to preventing increasing financial struggles, protecting against cycles of financial instability and poverty, and maximizing a child’s chance for financial success.

So it’s not surprising that last year, a much-touted global study by the Organization for Economic Development Corp. showed that one in five teenage students in the U.S. lack basic financial literacy skills, lagging behind 14 other nations. But most young people will face significant financial decisions before their 20th birthday. And the number and complexity of financial decisions they’re faced with is growing all the time: student loans, credit-card options, insurance, mortgages, investing, and entrepreneurship, to name a few.

Student loans may be the first major financial decision many young people face. In 2018, the U, S. Department of Education reported that student loan debt in the U.S. was over $1.4 trillion. In Massachusetts, 60% of college students graduate with debt averaging over $31,000, and default rates are significant.

Also, the increased use of costly, ‘quick-fix’ financial options by young people — such as payday loans, pawn shops, and rent-to-own stores — is concerning.

The consequences of overwhelming debt and poor financial decision making can be grave, including lack of ability to pursue educational, job, and residential opportunities; bad credit resulting in a lifetime of higher interest rates; job loss; bankruptcy; extreme psychological stress; and physical and emotional strain. However, most states do not require schools to teach young people much about the financial world they will face and the skills they need to engage and succeed economically. 

Personal financial-literacy education (PFLE) includes the basics of financial products, the influencers and consequences of financial decision making, and the necessity of personal financial planning. The call for all students to be taught this crucial preparatory subject is growing louder, often coming from young people themselves who often say they wish this had been taught in their school.

The logic and effectiveness of teaching high-school students PFLE is solid: financial literacy leads to better personal-finance behavior. Many studies demonstrate people with higher levels of financial literacy make better personal-finance decisions. A 2014 study commissioned by the Federal Reserve showed that mandated personal-finance education in high school improved the credit scores and reduced the default rates of young adults. And it is well-established that those who are financially illiterate are less likely to have a checking account, rainy-day emergency fund, or retirement plan, or to own stocks; they are more likely to use payday loans, pay only credit-card minimums, have high-cost mortgages, and have higher debt and credit-delinquency levels.

Government and business leaders perennially focused on the state’s fiscal and economic health should care that financial illiteracy is currently the norm. Also, for all the talk in Massachusetts about addressing economic inequality, practical, viable solutions are in short supply. Requiring PFLE is a win for everyone.

Jennifer Connelly is president of Junior Achievement of Western Mass. This commentary is supported by the agency board’s officers, Albert Kasper, Phil Goncalves, and Nicole Denette.

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