This weekly (or perhaps more frequent) compilation of tips, trends and news is intended to help readers improve their level of financial literacy. Have any ideas for stories or topics feel free to send them along to me at [email protected]. I hope you enjoy it!
SmartMoney provides a top ten list of what student loan companies won't tell you including "you may be in over your head" as default rates on loans increase:
"Nearly 10% of federal student-loan borrowers defaulted during the two years ended Sept. 30, 2010, according to the Department of Education, up from 7% in 2008. Private student loan defaults are rising also: Around 5.4% of private student loans defaulted during the second quarter of this year, up from 4.5% a year ago, according to Moody's Investors Service Private Student Loan Indices, which tracks loans."
On the subject of increasing student loan defaults, Penn State is considering bolstering their financial literacy offerings:
"The Penn State rate [default rate] jumped to 4.5 percent and the national average went up to 8.8 percent...In 2009-10, 67 percent of graduating seniors had loan debt. That year, the median debt for undergraduates at Penn State was $31,133, up from $22,690 in 1999-2000...Griswold said there is probably a case to be made for offering financial literacy programs to students. “Many students do not know how to make informed financial decisions,” Griswold said. “They may borrow more than they need and engage in risky financial behaviors such as using one credit card to pay off another.”
One reason (of which there are many) that levels of student debt continue to rise is the lackluster returns of the stock market over the past decade. For those keeping score at home, the S&P500's ten year return as of close of trade today has been 3.08%. Yes, that is not a typo, a measly 3.08% return. Taking into account the impact of inflation, your real return for investing in the stock market has been negative. So, those 529 college savings plans which now have almost $150 billion in assets, according to SmartMoney, have fallen woefully short of the rising costs of college.
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As more and more states mandate financial literacy education, they better include teacher professional development in their plans as this survey indicated (for the record, Wisconsin held their first financial literacy summit recently at Lambeau Field):
"...a University of Wisconsin-Madison survey found that 64 percent of teachers felt unqualified to address the state's financial literacy standards, and none of the state's schools of education require economics or personal finance training for elementary education majors."
On the subject of financial literacy education, real-life simulations seem to have captured this Virginia high school student's attention (all freshmen in Virginia will be required to complete a financial literacy course in order to graduate):
“I think it’s kind of cool because it simulates real life,” Madelynne said of the class. “It teaches you how to buy a car and rent an apartment . . . things we’ll be doing after high school.”
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How important is your credit score to your employment prospects? According to the Society for Human Resource Management, muy importante:
"In 2010, 60 percent of members of The Society for Human Resource Management ran credit checks on at least some potential hires, up from 25 percent in 1998."
Australian financial services regulator seeks to reform advertising of financial products and slow down those speedy disclaimers at the end of many of these ads:
"Among proposed reforms, the regulator wants advertisements that balance risks and warnings with the benefits and returns offered by a product or service. For example, warnings, disclaimers or qualifications in radio or television advertisements "should be read at a speed that is comprehensible to an average listener", ASIC said. As for film and television advertisements, it said risks and warnings should be "easy to understand by an average viewer on the first viewing of an advertisement and not undermined by distracting sounds or images".
Should this type of reform ever make it to our shores and some major bank commercials in the future might need to add the warning "Use of your debit card may result in a monthly fee of $3 - $5."
Will the Girl Scouts Promise now include "....and I promise to balance my checkbook every month?" Probably not, but Girl Scouts will be able to start earning financial literacy badges. Here are the details from The Telegraph (note that student loans are included):
"From this month, in response to popular demand, the 2.3 million girl scouts will be able to earn a series of badges for financial literacy alongside the classic awards for things like first aid, camping and cooking.
From five-year-old brownies to 18-year-old ambassadors, girls will be rewarded for budgeting, drawing up business plans, maintaining good credit and cultivating customer loyalty, among others.
While the youngest will begin learning about small change, 12-year-olds will be taught about mortgages and teenagers will find out how to save for university and take out student loans."
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Research Center
- Seventy-five percent (75%) of students want to be their own boss but most don't receive training in business or entrepreneurship according to Gallup/Hope Index:
"More than three-quarters of American students in fifth through 12th grades would like to be their own bosses, yet only half report that their schools offer any classes on how to start or run a business or about money and banking, a new survey of financial literacy and entrepreneurship has found."
- Why do most people file for bankruptcy? In an Institute for Financial Literacy study that showed an increase in bankruptcies for the middle class and the college educated, the top reasons for filing bankruptcy were(first letter c, second letter r....):
"In 2010, the three most popular reasons for bankruptcy included being "overextended on credit," with 70.5 percent of responders reporting, "reduction of income," with almost 65 percent reporting and "unexpected expenses," with 56.62 percent reporting."
- VISA survey finds misinformation about credit scores runs rampant (see article for the five factors that DO matter in determining your credit score):
"But just 13% knew that bankruptcy would be considered as part of payment history. And an alarming number of those polled also had wrong ideas about other types of information being included in the equation. For instance, 64% believe that income is a factor, and 60% think employment history counts. Nearly 59% said they thought the interest rates on current debt matters for scores, and 53% think assets or savings is weighed."
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