Friday, October 28, 2011

Financial Literacy in a Recession

Education Week has a must read on approaches to financial literacy at schools across the country. It makes an interesting point of schools struggling to meet demand for financial instruction at a time when resources are most scarce.

Key point:

In the past five years, some states have begun to make it mandatory, said Laura Levine, the executive director of the Jump$tart Coalition for Personal Financial Literacy, in Washington. Virginia and three other states have a financial-literacy requirement for graduation. Another 19 states have some financial education woven into their required curricula. While the recession has underscored the need for financial education, tight school budgets have kept programs from expanding, said Ms. Levine.

Tuesday, October 25, 2011

Being One of the Unbanked

CFS has done a lot of work to examine why some who have resources take advantage of banking products and others do not. The Pittsburgh Tribune-Review has a real life look at what it is like to be among the "unbanked." These are folks who do not have bank accounts - some by choice and others as a result of credit or other problems.

The reality is that the status affects all parts of ones financial life:

In addition to being all but shut off from loans, the unbanked turn to alternative channels to cash checks, purchase money orders and pay their phone, cable, gas and electric bills. Allegheny County, for instance, is home to 95 check-cashing outlets, including 50 in the city of Pittsburgh, according to the state Department of Banking, which regulates such operations.

DOL Fiduciary Round II

The Department of Labor continues to publicly insist that it is coming forward with a revised fiduciary proposal next year. Their comments give some lip service to the idea that they will address concerns about protecting small savers' access to IRAs, but as the saying goes, the "devil is in the details."

Read the latest remarks from DOL Assistant Secretary Phyllis Borzi;

Wednesday, October 12, 2011

More Fiduciary Discussion

The director of investor protection for the Consumer Federation of America was a strong and unlikely voice of opposition to the Department of Labor's proposed alteration of the fiduciary standard. Her opposition mirrored that of many in Congress and the financial industry. Specifically, she and others feared that the proposal would wipe out the broker-dealer business model for IRAs and leave small savers with few places to turn for retirement products.

She's back this week with a guest blog on Wealthfront.com where she discusses her support for a fiduciary standard that protects both consumers investments and their choices. The entire piece is worth reading. As the excerpt below illustrates, the piece drills down to a key difference between the DOL proposal and one being talked about at SEC.

Many investors prefer to pay for investment recommendations through commissions on a transaction-by-transaction basis. Others simply can’t afford or don’t have sufficient assets to justify the higher and/or ongoing fees that often accompany comprehensive financial planning or on-going portfolio management. For these investors, the SEC proposal offers the best of both worlds. It preserves the ability of brokers to charge commissions and offer transaction-based recommendations, but it requires them to disclose and – even more important – appropriately manage those conflicts of interest. And it requires them to make recommendations that put the customer’s interests first.

Monday, October 10, 2011

Auto-Enrollment and the Racial Retirement Savings Gap

Auto-enrollment is one idea policy makers have kicked around for how to encourage more Americans to save. The idea is that if workers are automatically put into their 401ks, instead of having to "opt-in," more will do it.

It is a simple idea, but not without controversy. One issue some take with the policy is the fact that employers usually enroll their workers at a low contribution rate - - lower, in fact, than the worker would like if they were signing themselves up.

That debate aside, there is an interesting study from Vanguard covered in SmartMoney.com today. The study notes that auto-enrollment helps cut down on the much publized savings gap between races.

Here's a tidbit, but read the entire thing:

A new study by Vanguard suggests that companies automatically enrolling their employees in 401(k) plans might help. The report found that automatic enrollment not only increases participation levels across all ethnic groups, but it increases participation most dramatically for blacks and Hispanics. Whereas before automatic enrollment, just 57% of blacks and 67% of Hispanics (compared to 73% of whites) were putting money into their 401(k) plans, after automatic enrollment was instituted a full 94% and 95%, respectively, were. Furthermore, this jump in participation ends up eliminating almost all ethnic disparities in 401(k) participation, the study concludes.