Banking & Finance

No Social Segment Exempt from Financial Illiteracy

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YOUNGSTOWN,, Ohio — True story: When Danielle Cantrell was in college, she returned to her dorm room to hear her roommate, who came from a wealthy family, on the telephone. The roommate was explaining to her bank why she couldn’t have overdrawn her checking account.

“I still have checks left in my checkbook!”

Cantrell today is the vice president at Cortland Banks responsible for serving its retail and small-business customers.

Financial illiteracy is widespread, she and other bankers say. It cuts across all demographics – all ages, both sexes, all races and ethnic groups, all income groups, all levels of education, in cities, suburbia and rural areas.

When this reporter worked for a bank in Pittsburgh, it occasionally held seminars for the wives of wealthy businessmen who were customers of its private banking department. As recently as three decades ago, women who didn’t work outside their homes acceded to their husbands’ control of household finances. Some had never written a check.

At these luncheons, middle-aged women learned the basics of financial literacy so they could take over the family finances if their husbands died before they did.

(And there were working-class men who on payday handed their checks to their stay-at-home wives to manage the family finances.)

Ignorance of managing one’s personal finances is so widespread that the Ohio Legislature has enacted requirements that it be taught in public schools and state universities.

Youngstown State University is still working on the program that is part of its FYE, first-year experience or freshman-year experience, say Joe Palardy, professor of economics, and Betty Jo Licata, dean of the Williamson College of Business Administration.

Even before this recent mandate, banks such as Cortland Banks, Farmers National Bank and PNC Bank had their own programs in place to help students learn the rudiments in addition to their support of Junior Achievement.

Besides supporting public schools programs, Seven Seventeen Credit Union has held semi-annual seminars for its members (and open to the general public) on how to finance a college education. It also offers free one-on-one counseling to its members in financial difficulty, says Eric Lanham, senior vice president and its marketing chief.

“We put a lot of resources into financial literacy,” says Amber Wallace, senior vice president and chief marketing officer at Farmers Bank. Besides the $120,000 over three years for the financial literacy materials it provided 20 schools in Mahoning and Trumbull counties, Farmers sent branch managers and personal bankers to meet with students.

Farmers began its support a year before the Ohio Legislature mandated instruction in financial literacy, Wallace says. “There was a void in the schools,” she says. “Ninety-eight percent of the kids didn’t know how to write a check.”

While teachers welcomed the initiative, many admitted their own ignorance of personal finance, which made them uncomfortable, she says.

Teachers are not alone. “Seventy-five percent of parents are reluctant to discuss [family] finances with their kids,” says Seven Seventeen’s Lanham. And if parents won’t discuss finances, children are left to learn, often mislearn, on their own.

Among the topics Farmers covered was what’s involved in financing a vehicle, a popular subject.

At the end of the third year, Farmers took a year off to assess how well its 12-week instruction module, EverFi-Financial Literacy, worked before establishing closer ties with Junior Achievement. “We’re looking forward to this school year,” Wallace says, “working with Michele [Merkel, JA president] and having our staff in the schools.”

The assessment of EverFi, Farmers learned, showed that the 1,120 students affected increased their knowledge of personal finance by 79% on average, the greatest gains coming in the topics of renting versus owning and investing in markets.

One aspect of its initiative was the bank setting up the Farmers School Rewards program, now used in 34 schools. With School Rewards, a debit card Farmers issues with the logo of the participating school, Farmers returns a portion of transaction fees to the school district.

PNC Bank has one of the most widespread financial literacy programs among colleges because is has contracts to serve so many colleges and universities within its footprint, including Kent State and Youngstown State universities. As part of its agreements, PNC provides financial literacy to students, says Ryan Pastore, vice president for community affairs in its Youngstown regional headquarters.

PNC participates in YSU’s freshman orientation, a two-day program called Ignite, and an aspect of FYE. “We saw close to 1,000 kids this summer,” Pastore relates, where incoming students were exposed to the “nuts and bolts of credit [so] they can eliminate bad choices.”

PNC tried to impress on them the need to set up a budget, and even more important, the need to stick to it. The bank’s Virtual Wallet product for students “provides online tools to manage your money,” Pastore says. “There are some cool online tools that help them.”

PNC also “teaches a program to 20 men at the Rescue Mission every six months,” Pastore says, about managing personal finances, especially the importance of saving. “We layer understanding credit on top of that and how to repair [your] credit [score].

At YSU’s Ignite sessions, “We were pleasantly surprised to learn how much students know,” the PNC vice president says. “We didn’t see blank stares.”

All interviewed in depth for this article — PNC, Farmers, Cortland Banks, Seven Seventeen, and YSU’s Palardy – stress the importance of budgeting. The snag is sticking to a budget once it’s set, all agree, whether the student is in high school or college, or it’s a newly formed household.

Seven Seventeen has worked with schools in the Mahoning Valley 19 years, Lanham says, providing materials to teachers free of charge. Over those two decades, more than 25,000 high school students have used materials from the National Endowment for Financial Education, which meet the Ohio Department of Education curriculum standards.

Lanham’s son took the semester course at Niles McKinley High School and the Seven Seventeen marketing chief was pleased with the results. The course covers understanding credit, budgeting and managing bank accounts but not how to apply for post-high school financial aid.

In addition to supporting Valley high schools, Seven Seventeen works with the Trumbull County Partnership for Financial Empowerment that helps low- to moderate income people in debt over their heads get back on their financial feet.

At present, credit union staff is “working with a dozen to 18 members on debt management so they get approved for a loan,” Lanham says. “Instead of saying no, we say, “Here’s a program to help you so today’s No is tomorrow’s Yes.’ ”

Members of Seven Seventeen need not be in over their heads to get help. The credit union’s Simplify and Save program, introduced in 2011, has saved them $40 million in interest and fees in five years, Lanham says.

The credit union “invites members to come in and sit down with credit union professionals and assess their situation,” Lanham says.

Whether debt consolidation, learning how to shop for the best rate on a loan – “A lot of people don’t shop around,” he says – or saving for retirement or their children’s education, Seven Seventeen sees its mission as one of educating its members and helping them make better choices, not just providing financial services.

With so many consumers lacking awareness of basic finance, “We see the results of not understanding,” Cortland Banks’ Cantrell says. Among them are bounced checks, not having a budget, not having any sort of savings, whether for an emergency, retirement or their children’s post-high school education.

“According to the American Bankers Association,” Cantrell points out, “a child with a savings account is seven times more likely to attend college than one without, regardless of income, race or academic achievement.”

For this reason, Cortland introduced a new passbook savings program for minors. “It’s structured to promote financial literacy as well as a strong savings habit,” she says. “We talk to the kids with the parents present.”

In its partnership with the Trumbull County YWCA, Cortland staff held a six-week program there for residents called Wings. At the conclusion, Cortland opened savings accounts for the 10 participants and seeded each with $100 and an ATM card.

For other adults experiencing difficulties and who want to get back on track, Cortland offers a “Second Chance” checking account. While it doesn’t offer protection against bouncing a check, it does offer an ATM card (not a debit card) that doesn’t allow the customers to overdraw his checking account.

If the customer shows improvement after a year, Cortland allows him back to regular checking.

The financial literacy program at YSU is a work in progress. Its highly praised personal finance course taught by Peter Chen and Ron Volpe in the Williamson College is required only of finance majors.

Ohio House Bill 474, which requires that financial literacy be part of every student’s coursework, doesn’t take effect until next fall semester, Palardy says. In the interim, each incoming student must take the financial literacy course online.

The component takes 2½ hours to complete and it’s up to the instructor, whether an engineering professor or a music professor, to determine whether the student has mastered the material and issue a grade.

The 26 segments range from budgeting to establishing credit and understanding credit scores to the difference between needs and wants. Other segments are borrowing wisely, obtaining financial aid and repaying students loans, choosing a financial institution, and ihow to deal with I.D. theft.

In the course that will be offered next fall, Palardy at a minimum would like to see students gain an understanding of risk, compound interest, how to balance a check book and scams.

“I worry about students not understanding the fees that can be charged their accounts,” the economic professor says, not just the overdraft charges if they bounce a check but how foreign transaction fees can add up if they use an ATM that isn’t part of their bank’s network.

“You hope they have plans to save,” he continues. Because while they will have Social Security, it won’t be enough and they should understand 401(k)s, especially the benefits of employer matches, and Individual Retirement Accounts.

“You want them to go from short-term thinking to long-term thinking,” Palardy says.

Published by The Business Journal, Youngstown, Ohio.