The Financial Literacy Crisis

Understanding Credit Cards

As a response to Lorri Saari of MI, I would submit to you that most adults and most attorneys do not even understand how credit cards work. This is why so many people go bankrupt falling into all the tricks and traps of credit card agreements. The contracts are "adhesion contracts" that attempt to strip away constitutional rights of the cardholder, and are overly complex, contradictory, and deceptive. This is done by design by the most expensive and crafty attorneys in the world. The agreement cannot be read by the consumer until the account is opened, so any responsible person that reads a contract before they sign it are denied taking that responsible action. If you wait until the real agreement comes in the mail with the card, after you have signed the "disclosure" as a open ended contract that refers to the coming real agreement that you are not allowed to read, and you decide to close your account, you are punished via your FICO score. This should be illegal. So I don't think the statement was demeaning in any way to teenagers. It is a commentary, if fully understood, on the credit card companies themselves.

Credit card users spend 12% to 18% more than those who use cash, according to the credit card companies themselves. This is because it is easier to spend, and you don't see your cash dwindling as you spend it. The best responsible way to use a credit card is to practice your artistic skills cutting plastic with sissors. Signing their agreements is like doing a deal with the devil. Don't do a deal with the devil or you will get burned.

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hoolio of MA @ Feb 09, 2009 16:26:14 PM

Financial Education: Teenage Influence

The comment above about "I cannot accept that someone would 'not know how a credit card works'; anyone with an 8th grade education can figure that one out rather quickly" to me is rather deploring, when in fact it is people like that who assume teenagers "young people" know and do nothing about their financial literacy learning. They are the parents, family and friends you do not want to encounter in life.

As a former principal, teacher, mother; I raised 4 teenagers, now 29, 26, 26 (twins) and 22. All of them have a consistant reporting and foothold of their finances. All have great credit. This is not because each of them woke up one day and said, "I know everything I need to know about financial literacy or everyday skills to manage my money so I can be a productive person in this world or I know all about math learning and how to pay bills". It is about: What you learn is what you experience. What you see is what you do. How you learn is what you experience, see and do.

The skills and strategies of financial education begins from childhood, incorporating many of the day to day money management tasks, usually begining most times from going to the grocery store. "That candy bar or a stick of gum each young child wants for themselves". I remember as a young teenager, my mother showing me her paycheck, which was soley used for groceries and household items and it was a game of how we could coupon clip, budget and spend that money for groceries and household items. We were taught how a checkbook worked. When she was off 1 penny, that penny was found by double checking her numbers to balance.

Everyday math life skills "financial education" is a steady rudder to ride, riding on the wave of forward hands on learning, making mistakes, correcting them and making better sound decisions.

The ill-prepared teenagers "young people" lack skills and understanding of the basic tenets of sound financial education and responsibility, not because they do have an 8th grade education; it is because education and family structure may have failed them. Let's not underscore young people's abilities to learn with the right tools and the positive influence parents, community, educators, self help sources, work, friends can have on their financial management, development and security.

Lorri A Saari of MI @ Jan 31, 2009 11:14:47 AM

President's Advisory Council on Financial Literacy

[EDITOR, in the 2 comments I made, I did not include the amount of the 14-day post dated check. If you can insert the words "for $115" after the "14-day post-dated check ...", I would appreciate it .. and the sentence would support the calculations that follow.

Your site is currently the 14th (out of thousands)in Google's search for "President's Advisory Council on Financial Literacy."

Thank You!!! A F "Bob" Blair Jr.]

A F "Bob" Blair Jr of LA @ Jan 15, 2009 02:01:38 AM

Financial literacy

Yes, this can be a complex subject, but you can keep yourself out of trouble with just some basic math skills, i.e. addition and subtraction. Total up what you make and then resolve to live within that sum. Credit is for absolute essentials, the big screen tv and other toys can wait until you can pay cash. I like having one major credit card for emergencies, to be paid off at the end of the month if at all possible. The best course is to keep out a percentage of each check for a rainy day fund, then you will not need the card. I know this all sounds un-american , but you will sleep much better... I cannot accept that someone would 'not know how a credit card works'; anyone with an 8th grade education can figure that one out rather quickly.

Glenn Phillips of FL @ Nov 07, 2008 08:32:47 AM

No Truth In Lending at the President's Advisory Council on Financial Literacy

What a beautiful name, the “President’s Advisory Council of Financial Literacy”, which should imbue confidence that the public will know the Truth in Lending. Unfortunately, the PACFL will not address the fact that the Truth in Lending Act uses an antiquated method of calculating the Annual Percentage Rate … the simple interest rate. That was fine when the act was passed in 1968 when payment periods were monthly and yearly rates were low. Now with short payment periods and high yearly rates the difference between the simple-interest (Nominal) APR and the mathematically true (Effective) APR can be astronomically different. The calculation of the simple interest (Nominal) APR is the rate for a payment period multiplied by the number of payment periods in a year. The calculation for the mathematically-true (Nominal) APR is the rate for a payment period compounded for the number of payment periods in a year. In 1968 calculators with compounding were main-frame behemoths in air-conditioned isolated back rooms. Now, compounding functions are on $5 hand-held calculators,

An extreme example would be a Pay-Day loan, where a 14-day post-dated check is given to receive $100. The Nominal APR is 391.071% ((115/100)-1)*365/14. The mathematically-true, Effective APR is 3723.661% (115/100)^(365/14)-1.

TILA allows for an inaccuracy of one 1/8th percent (0.125%). The difference in the Effective APR and the Nominal APR is 26,660 1/8ths difference.

The PACFL allows for written comments, but no oral testimony. All of the member of the PACFL seem obligated by donation from financial institutions to ignore any admission that would be a detriment to the donors.

A F Blair of LA @ Sep 14, 2008 02:27:50 AM

Credit card monthly payments

Knowing that what you borrow must be paid and with interest and that CREDIT CARD ISSUERS have their interest at heart and not yours! It should follow that a minimum payment leaves more for the CREDITOR to COMPUND its interest and not out of kindness! So, for every debt you may have , pay as much each month that you are able and BUY WHAT IS NECESSARY WITH CASH! "I FOLLOWED THIS RULE AS MUCH AS POSSIBLE AND SEVERAL CREDITORS SENT ME DUNNING LETTERS INDICATING IF I DIDN'T USE MY CREDIT CARD MORE FREQUENTLY THAT THEY WOULD CANCEL MY CARD----TOO BAD"

There are so many of these credit card pushers sending mail that they appear as snake oil salesmen!

JOSEPH i VARGA of NY @ Aug 19, 2008 11:02:48 AM