Friday, July 29, 2011

Senator Akaka Introduces Federal Financial Literacy Bill

While reading this column on CBS Marketwatch about a financial literacy program at Champlian College in Vermont, we came across a nuggest about a new bill Senator Akaka of Hawaii introduced last month that would offer financial literacy counseling to those who take out student loans.

Information on the Akaka plan can be found here.

It is certainly an interesting idea. In many cases, those who are taking out student loans are making their first major financial decision. It can't hurt to make sure they have information that will empower them to make wise choices.

As Senator Akaka put it:

The increase in federal educational lending and student debt can be interpreted positively. I am happy to see young people continuing on to college in numbers that I would never have imagined when I graduated from the University of Hawaii in 1952. For our best and brightest, college continues to be a stepping stone on their paths to becoming future leaders. For millions of others today, however, college simply and rightfully represents an opportunity for better lives for themselves and their families. But, the ever-rising cost of education is a reality that we must address. We are allowing - and even encouraging - students to become borrowers and consumers. It is our responsibility, therefore, to ensure that these young adults have the knowledge, skills, and capability to manage the consequences that come with their financial decisions. Unfortunately, we are not doing enough.

Tuesday, July 26, 2011

Millions of Small IRA Savers to Lose Access to Advice?

According to Bloomberg, that is the message being pushed in a hearing on the Hill today about the Department of Labor's proposal to expand the definition of fiduciary.

What pops off the page are comments from the Consumer Federation of America:
“I think the industry is not exaggerating when they say they will abandon this business,” Barbara Roper, director of investor protection for the Consumer Federation of America in Washington, said in a telephone interview.
What is the problem?
If firms are considered fiduciaries by the Labor Department, selling investors bonds from a brokerage’s inventory or recommending a trade that would generate a commission may be considered a conflict of interest and a “prohibited transaction,” said [Jim McCarthy of Morgan Stanley[.
What is the consequence?
The change may cause financial firms to offer fewer investment options in retirement accounts and shift to a fee- based model used by investment advisers, which may increase costs, Kenneth Bentsen, executive vice president for public policy and advocacy at the Securities Industry and Financial Markets Association, said at a Washington hearing before the House Subcommittee on Health, Employment, Labor and Pensions. “Most firms require a minimum account balance for advisory accounts that could result in millions of IRA account holders being dropped,” Bentsen said in written testimony. There are more than 7 million IRA accounts with balances under $25,000 that are commission-based, according to Sifma, a lobbying group for banks and brokerages.
What is the response?
“The broker concern is perhaps due to misunderstanding,” Assistant Secretary of Labor Phyllis Borzi said at the hearing. “We’re not intending to overturn a commission-based system."
If that is true - - and this all a big misunderstanding - - shouldn't the Department of Labor slow down and publish the parts of the rule that it believes will satisfy those speaking out on behalf of small investors?

The Department says they are coming after the rule is published. For millions, that could be too little, too late.

Wealth Gap

Part of CFS's mission is to advocate for solutions that will help ALL Americans achieve financial security. Today's Washington Post has an article that details just why this important.

According to the Post's coverage of a new PEW poll, "the wealth gap between whites and minorities has risen to a historic high."

So what is the wealth gap?
Household wealth is the sum of assets, including houses, cars and banking accounts, minus debts, including mortgages, auto loans and credit cards. Researchers who study the economics of households by ethnic groups said that although the gap in incomes between whites and blacks has narrowed over decades, the wealth gap has been more persistent.
This research supports conclusion in Prudential's survey earlier this summer about African American ownership of wealth building products.

In response, public policy makers should be asking "what can we do to ensure all communities have access to the knowledge and resources they need?"

Tuesday, July 12, 2011

What would you give up to save?

That is the question a new survey from the National Foundation for Credit Counseling asks. Americans seem to be willing to part with coffee, eating out and shopping, but fewer want to go without cellphones and Internet.

What would you give up?

Tuesday, July 5, 2011

Follow-Up to Prudential Survey

The excellent Michelle Singletary has a follow-up column pegged to the Prudential survey of African American consumers. Her thesis is that the financial industry must build trust with consumers if it wants consumers to meet their financial goals. The entire column is worth a read. It is a reminder of how all stakeholders have a role to play in helping Americans achieve financial security.

Friday, July 1, 2011

CNN Money: Savings at an All Time High

We've documented in the past the problem of too few Americans saving for retirement. CNN Money has good news today for those who are saving, namely that "retirement funds are looking the healthiest they have in years."

Read it