The new financial literacy seminar series

As December comes to an end, I am thinking of some initiatives undertaken this year. One stands out, as it is rather recent and it is in the process of being evaluated to make it even better: our Financial Literacy Seminar Series. Started last October, this is a joint project between the George Washington University School of Business and the Federal Reserve Board (FRB) with the goal of hosting cutting edge research on financial literacy. We invited all individuals and institutions interested in financial literacy in the Washington, DC, area, and because presentations have been taped and posted on the web, everybody who is interested in financial literacy can watch the presentations or read the papers. They are posted on the seminar’s web page:

We had a distinguished group of speakers in the fall term. Our inaugural seminar was given by Olivia Mitchell from the Wharton School, whose talk examined the link between financial literacy and wealth accumulation. Her talk was followed by a panel of policy experts, including Gail Hillebrand from the Consumer Financial Protection Bureau, Karen Dynan from Brookings, and Jason Fichtner from George Mason University (formerly the Deputy Commissioner of SSA). In subsequent seminars, Robert Clark from North Carolina State University presented his work on workplace financial education, a very important topic when looking at financial education for the adult population; Stephan Meier from Columbia Business School examined the link between financial literacy and subprime mortgages, showing that numerical ability is strongly associated with mortgage delinquency and default; Bilal Zia from the World Bank presented an evaluation of financial literacy programs in India; and Jonathan Zinman from Dartmouth College examined household debt and, in particular, credit card debt and the way it could be managed better. Our last speaker was Brigitte Madrian from Harvard University. She reported on some important features of default options, i.e., the fact that when employees are automatically enrolled into pensions, many of them stay enrolled at the default rate, even when that rate is a “bad” one and unlikely to correspond to a rate that the individual would have chosen had he/she made an active choice. Most importantly, the employees who tend to stick to the default are disproportionately those with low income, which is often a proxy for low financial literacy.

Different seminars in the series had different formats. While the majority of talks were given by academics, at times we had a discussant or, as mentioned above, a panel of policy experts. Even without a discussant, our audience had so many experts in this field that there always was a very lively discussion with many questions asked of the speaker. To continue the discussion in a less formal setting, we held a reception after the seminar so that participants could continue the discussion with either the presenter or other attendees (sometimes with the help of a glass of Italian wine). The Dean of the Business School would also stop by the reception to greet the speaker or meet the attendees and to hear how the School could continue to promote financial literacy.

One of the privileges of organizing the seminar series is that I get to meet with the seminar speakers, discuss their paper in depth, hear in more detail their views and their insights as well as learn about their future projects. Another equally important privilege was getting to know and work with a group of researchers from the Federal Reserve Board. They have been a great group to work with: they combine an interest in theoretical and empirical research with a focus on policy; they ask important questions and have very high standards for research. Together, we were unstoppable; we started to work on the series in August and in October we were ready to start.

And speaking of privileges, last June, I had the opportunity to meet with Chairman Bernanke. Sitting in his elegant office at the FRB, I told him about the projects that our teams at the Financial Literacy Center (FLC) were working on and what we were doing to promote financial literacy. He proposed more interaction between the researchers working on financial literacy and the researchers from the Federal Reserve Board and suggested organizing some joint activities. As a result, the Financial Literacy Seminar Series was born, and it benefits from the financial support of the Federal Reserve Board. Because the end of the year is a time for evaluation, I have to say I am very proud of our new Financial Literacy Seminar Series. And I am especially proud of being a student of Ben Bernanke.

Learning from Elsa Fornero

The front page of the Wall Street Journal last Monday, December 5, had three pictures of a woman in tears. That woman is Elsa Fornero, the Welfare Minister in the new “technocratic” government of Italy. The fact that she was in tears was truly remarkable and it deserved to be on the front page of a major business newspaper. This is something new, and there is a lesson to be learned from it.

Elsa Fornero, a professor of Economics at the University of Turin, is an international expert on pensions. In charge of one of the most difficult reforms, i.e., changing the pension system in Italy, she has set out to implement a set of new and severe measures that nobody before her has been able to do, even though the current system is unsustainable.

Reforms might be right, but they are painful, and the fact that they are necessary does not alleviate any of the pain they inflict. Technocrats normally describe necessary reforms as the inevitable medicine that a country has to swallow to get better; the numbers are on their side, and no one had ever shed a tear when reform might mean that someone wouldn’t be able to pay their bills at the end of the month. But not Elsa Fornero. The woman who, for more than forty years, has done the calculations about the pension system in Italy; has shown in many scholarly papers that the Italian pension system is unfair, inefficient, and too expensive; has set up a center to study this topic in the most rigorous way, looking at data both in Italy and in other countries, was there at center stage to announce her reforms. The new Minister, who was appointed for her unique expertise, stopped speaking at the very moment she had to pronounce the word “sacrifice”—and cried.

This is not only a sign of humanity, a recognition that reforms often equal pain, but also an act of humility and of immense courage. It took a woman to attack reform of one of the most difficult and stubborn pension systems. She had one week to do it. She knew what to do and what was necessary. And when she described it, she told it as it is, and she cried.

I hope this is the start of a new phase both for politics and for women. Politicians need to have the skills and good judgment to set countries on sustainable paths and (financially literate) citizens should hold them accountable. And I hope we are done with the “iron lady” and similar clichés about women in command. I highly recommend that other Italian politicians be so bold in their actions as the Fornero reforms, as well as show that they care about the well-being of their fellow citizens. We all can learn from Elsa Fornero to be ourselves; in her case, a woman who cares. When I grow up, I want to be Elsa Fornero.

Getting ready with PISA’s new module on financial literacy

I am turning in this blog post to the new financial literacy module that will be added to the Programme for International Student Assessment (PISA) in 2012. PISA’s group of financial literacy experts met in Melbourne at the end of September and finalized the questions that will be asked of 15-year-old high school students in 18 countries. I wrote about this module in a previous post (see link below) and it is time for an update.

I have the honor of chairing the financial literacy experts group, and an honor it is because the group is composed of some of the most accomplished and knowledgeable people in the field of financial literacy from a number of countries. Because the importance of financial literacy was first acknowledged outside the school system and was first dealt with by policy makers and regulators, many of these experts come from Treasury departments or hold jobs in central banks, regulatory authorities, or are involved with other government agencies. Nonetheless, the work has been academic in nature, meaning we went through a very rigorous process of designing a set of questions that can measure financial literacy in many different countries.

Our first task was to design a financial literacy framework to help us define the objectives of the module and the areas to cover when designing questions (The framework can be accessed on the OECD web site—the link is below). The development of the framework followed a sequence of six steps:
• Development of a working definition for the domain and description of the assumptions that underlie that definition;
• Identification of a set of key characteristics that should be taken into account when constructing assessment tasks for international use;
• Operationalization of the set of key characteristics that will be used in test construction, with definitions based on existing literature and experience in conducting other large scale assessments;
• Evaluation of how to organise the set of tasks constructed in order to report to policy makers and researchers on achievement in each assessment domain among 15-year-old students in participating countries;
• Validation of the variables and assessment of the contribution each makes to understanding task difficulty across the various participating countries; and
• Preparation of an interpretative reporting scheme for the results.

It was a long journey for all of us. We started this work in June 2010 with a meeting in Boston and we worked steadily for a year and a half. We met at regular intervals, each time in a different country, which also reminded us that our focus was to design questions that could be answered in different economic settings and different educational systems.

The OECD has been a pioneer in financial literacy and adding a new module on financial literacy in 2012 in PISA in countries that have not even formally introduced financial education in school speaks of their long-term vision and their capacity to lead and draw the attention of countries toward important topics such as financial literacy. I particularly like the statement that the OECD displays on the top of their PISA webpage:

“Are students well prepared for future challenges? Can they analyse, reason and communicate effectively? Do they have the capacity to continue learning throughout life? The OECD Programme for International Student Assessment (PISA) answers these questions and more, through its surveys of 15-year-olds in the principal industrialised countries. Every three years, it assesses how far students near the end of compulsory education have acquired some of the knowledge and skills essential for full participation in society.”

This statement serves to remind us that financial education is as important as the traditional subjects taught in school: As I have mentioned often, just as it was not possible to live in an industrialized society without print literacy—the ability to read and write, so it is not possible to live in today’s world without being financially literate. The financial crisis has put economic news on the front pages of newspapers almost daily, requiring individuals not just to be abreast of concepts such as deficit, national debt, and interest rate spread but also to evaluate the economic reforms that political leaders are proposing. Not only are young people required to make one of the most important decisions of their lifetime— whether to invest in higher education—during high school, but they are also confronted with numerous decisions of economic consequence: having a car, a cell phone contract, a bank account, and a debit or credit card. Financial literacy is an essential tool for anyone who wants to be able to succeed in today’s society, make sound financial decisions, and—ultimately—be a good citizen.

We, on the PISA committee, are only at the beginning of our journey. Our next meeting has been scheduled for Heidelberg, Germany, next September, so we fly to yet another country. I have collected little items from those trips to remind me of our meetings. From our trip in Australia, I brought home a little yellow road sign that hangs in my study. It says: “Kangaroos, next 15 km.”

To read the financial literacy framework, please see below:
My previous blog on PISA:

We are All Blacks!

This has been a busy fall so far with a lot of travelling (I am on my way to Sweden), starting a new financial literacy seminar series (more in future blogs), and keeping up with my newly acquired interests: football and rugby! It has been a season full of exciting games, including the Rugby World Cup, which was held in New Zealand. I am extremely happy to announce that the New Zealand All Blacks are the World Cup champions! I am ecstatic and wish I were in New Zealand to celebrate their victory. What could be sweeter than winning the World Cup when your country is the host and your fans are in the stadium? I can only imagine the explosion of joy in Eden Park in Auckland at the end of the match with France (and the sense of relief as well since the score was so close, I could hardly breath...).

I will celebrate this great victory by writing about New Zealand and the role they have played in the field of financial literacy. Under the leadership of feisty Diana Crossan, the Retirement Commission has done a lot of innovative work on financial literacy. I mentioned in a previous post that they have one of the best national web sites dedicated to improving the financial literacy of the population. They were also one of the first countries to conduct a second national financial literacy survey in order to measure financial knowledge over time and therefore assess their progress in improving financial literacy. They have many programs targeted to specific groups of the population, recognizing that different people have different needs and different economic circumstances. One group of great interest is the Maori, and specific programs have been designed for them as well. While small and without a big budget, the Commission is a mighty group. And to better communicate the focus of their work, they have recently changed their name from Retirement Commission to the Commission for Financial Literacy and Retirement Income. The main lesson here is not to underestimate the power and ingenuity of what one institution—however small—can do for financial literacy. And while New Zealand is a small country, it has been a model to look to for financial literacy.

I have one recommendation for Diana Crossan: go to that talented captain of the All Blacks, Richie McCaw, show him your muscles (figuratively, I mean), and ask the team to support financial literacy. I am sure a lot of New Zealanders would pay attention. In my view, sport and financial literacy go very well together (wink)!

But for now, congratulations to the All Blacks and to New Zealand for being World Champions and hosting the World Cup. Bravi!

Financial literacy, the Maori, and … rugby

I am just back from Australia and New Zealand and will write first about my trip to New Zealand. I was invited to attend a meeting at the University of Otago with representatives of the Maori population, who have become interested in financial literacy. If you do not know the Maori, they are the indigenous people of New Zealand and represent about 15% of the population today. Their name is derived from “Ma-Uri,” which means “children of Heaven.” Maori comprise many “iwi” (tribes), “hapu” (subtribes), and “whānau” (extended family units). Having originated in Polynesia, they brought with them the rich culture of the region, where song, dance, art, and oratorical skills were significant, especially as there was no written language at that time. On my visit to New Zealand a couple of years ago, I went to Rotorua, a town settled by the Maori on the North Island. This time, I was in Dunedin, on the South Island of New Zealand, home of the Ngāi Tahu. See below a picture of the formal greeting among the Maori.

In one of the papers that is part of an international comparison of financial literacy across countries, which I have edited for a special volume of the Journal of Pension Economics and Finance, a research group in New Zealand headed by Pension Commissioner Diana Crossan documented differences in financial literacy among the new Zealanders of European descent and the Maori population; the Maori tend to know less. However, this is not the case for the Ngāi Tahu, and one explanation offered for this finding is the fact that Ngāi Tahu have promoted a series of programs aimed to increase financial literacy and saving. A description of Whai Rawa, their matched saving initiative, is provided on the web page noted at the end of this post. The meeting at the University of Otago was about trying to measure the effectiveness of the new initiatives and changes in the well-being of this population over time.

It felt special to sit among this group. The meeting opened with the traditional Maori greetings, and much of the discussion and questions were led by one of the Ngāi Tahu representatives. He was just as one would expect a chief to be: charismatic, wise, and pragmatic. His questions to me were remarkably similar to the ones I often hear when I travel around the world: What is the business case for financial education? What works? and How do we know that it works? But there were major differences, too. The Ngāi Tahu’s planning horizon is very long. Their vision is “For us and our children after us” (Mō tātou,ā, mō kā uri ā muri ake nei). They feel strongly about their community and about sustainability of resources over time. I came away with not only a deeply felt respect for such foresight but also admiration for this capacity to lead and look ahead.

You may know about the Maori from the “haka,” or war dance, that the New Zealand rugby team performs before each game (if you have not seen it, you have got to watch the video posted below). I like the haka for many reasons. First, it shows how much the Maori traditions have been embraced by the population in general. Maori or not, every player in the rugby team plays the haka very seriously. Second, one wants to build up energy at the beginning of an important event. Third, it scares the hell out of the opposing team. And this brings me to my next topic: rugby! New Zealand is currently hosting the Rugby World Cup. Their national team is the All Blacks, and I spent a good part of my time in New Zealand watching rugby. The All Blacks are amazing players and I was glued to the TV for hours. On Sunday, I went to the stadium in Dunedin to watch Italy against Ireland. We (Italy) did not win, but we put up a good fight against the Irish; it was a good game. On the first leg of my trip back to the U.S. on Air New Zealand from Dunedin to Auckland, the flight safety video was done by the captain and the coach of the All Blacks and everything on the plane was about the All Blacks, including pictures of the players on the coffee cups. Believe me, they are irresistible! One advertisement said: “we are crazy about rugby.” Well, for a week I was too.

Kia ora.

Geocoding And Its Importance to Businesses

The value of geo-location and geo-targeting technology is manifold. It has done wonders for businesses in any sector in driving up customer awareness and increasing its sales. With location intelligence technology, businesses can better identify business solutions and make better business strategies.

In the marketing sector, GIS data has helped advertisers better target their products and services to the right audience. By appending demographic data to latitude and longtitude data, marketers are able to identify where specific consumers are located. They can therefore create marketing ads that caters to the interests of a specific target group and hence, boost profit.

Furthermore, insurance companies can better set premiums and make accurate underwritings that are based on a client’s specific location. If they are for instance, located in hurricane or flood prone areas, insurance companies can account for such factors in their insurance rate estimates, as well as make other offers that would help customers better cope with the financial responsibility in case their property gets hit with an occurrence.

Geocoder technology are also being used by the average consumer. Think about. How many times have used Google Maps or GPS mobile app to look for a specific restaurant or to find directions to a specific venue?

Many businesses have also incorporated geospatial technology into their online presence as well. Nowadays, if you were to visit a store’s website and inquire about their weekly flyer, the site would usually ask for your postal code which will then provide customers’ specific sale offerings that are available in their area. Through integrating GIS data into their website, businesses are able to provide a more enhanced and personalized experience for online visitors and even drive traffic into their retail store.

Geospatial technology is as important to consumers as it is to businesses. This blog post hopefully has helped you better understand the workings of geospatial technology and its value.

Mortgage Broker Role In Home Shopping

In business, there are many activities that are to be done. Investing is one of this main activities people do. Investment can be stocks, savings accounts or even real estate. Real estate examples can be a house, apartment, condos and even land.

Purchasing real estate is really a big kind of investment. It is not like shopping at the mall for a pair of boots. It is a bit more serious and it entails a large sum of money. People should get help before they make this important decision. The assistance comes from mortgage brokers Toronto. The broker is not necessarily the person that gets you a house. They are the person in charge of realizing the financial situation with the price of the home. They need to make sure the people can afford the dream house chosen. The first thing to they do is study the buyer’s financial situation. The persons will need a down payment for the first instalment of the house. The remaining price is almost improbable to pay in cash. This is why they need a loan. The broker revises the financial situation and they decide on what kind of loan the person we can get. Secondly, they are to revise the rates the person will borrow in. The rate and the info will determine how long the person will need to finish the loan.

The Toronto mortgage broker is extremely important in this exchange. They are the ones that ensure that the dream of getting a job is realistic depending on the financial standing. People should get help because it is extremely important.

Sensors, Tech and Life Applications

The technology that is developed by both science and engineering are constantly being used in daily life applications. The amazing thing about these developments is how they can make life easier for you. Understanding how these work sounds quite complicated in theoretical terms but when thinking of applications it is a whole other story.

First of all are the Load cells that transform force into an electrical signal. Load cells are quite popular when people want to measure. They can be found in multiple kinds of scales such as in platform and portable weigh scales. Then, the accelerometer is a device that measures all kinds of acceleration. They look at the weight and the frame of reference in order to measure. Some accelerometers can even measure an object that is not in movement by only using the force of gravity, otherwise known as the G-force as the reference. In the electronic applications you can find this development in smartphones or game stations such as Play Stations. In the next case are pressure sensors which measure the pressure of usually gases and liquids. It is the pressure that stops a fluid from expanding. The types can be absolute, gauge, vacuum and differential. They have a few applications as well. The measurement can be pressure sensing, altitude sensing, flow, or depth sensing.

Utilizing the applications are great manners to make daily tasks easier than what they can be. Scientists all over the world are working towards the improvement of societal development as a form of solution for daily life.

Internet Banking - Just A Click Away

Many people usually go to a bank branch to run financial errands such as depositing, paying bills, making investment transactions, etc. During rush hour after work, you end up being part of a long, never ending line which makes banking process into a hassle. With internet banking, these financial errands can be done instantly without a wait.

Online banking can be done anywhere as long as there is an internet access. This allows you to do banking whenever it is convenient for you, not limited to branch's operating hours. Also, internet banking offers as much as traditional banking does; both financial and non financial banking can be done online.

Online banking
lets users to view and track their transactions anytime, helping them with managing money. Instead of waiting for a monthly bank statement, which is already outdated for few days during the delivery, users can see updated bank statement instantly. Loan and credit card applications can be made online as well.

Financial transactions can be done online as well. Instead of sending monthly cheques or travelling to a branch to pay, you can pay all your bills at convenience of your own house, or anywhere. This means you can pay for your bills even when you are on a trip. With one click, you are on time for your bill payments: no more forgetting the deadline and paying for late penalty. Setting up recurring payments of transfer is available as well. With this process, you don’t even have to log on to make monthly transactions. Everything will be done for you automatically at the same time of the month. You can make investment purchases and sales through internet banking as well.

With internet banking, there is no need to travel to a brand to run errands after work. Almost all financial errands can be ran at your convenient time, anywhere. You can finally rest after work without having to rush to a branch and get trapped in that miserable line - banking is only a click away.

You Could Be Richer Than You Think: Tax Free Saving Account

In general, tax free is the most fascinating appeal to the public. Though there are limits on this banking account, we still can see benefits more than limits. The followings are the dos and dons about TFSA:
You can carry everything into , such as cash, GIC, stock, mutual funds and bonds. Basically TFSA can carry in possibly every type in RRSP (registered retirement savings plan) but with tax free. More than that, money in deposit won’t get tax deduction when doing TFSA. Without the disturbance from interest dividends, money and other things you are worrying about all can saved with tax free.
But everything has two sides, same to the TFSA Scotiabank. There is contribution limit in tax free saving account policy. It is important to keep in mind that you can only contribute 5000 thousand in every tax free saving account. Once you exceed the contribution limit, bank will penalize you 1% for every month over contribution amount remaining in the account. And if you withdraw off the account, you can’t redeposit any portions of these funds until one year after withdraw. So, it will be much better to consult your personal income notice of assessment when planning to take unused terms withdraw from TFSA.
When facing high tax rate, people always keep complaining about government. Though we all know tax is the resources for government to pay the society services, new roads and hospitals for the public. Basically, we can’t live without tax, and tax can’t exist without the public. There is tax in work, goods, drinks and everywhere. How to save from tax and to invest for the future becomes an issue people start caring about. Under the situation like this, bankers are launching a new banking product called: TFSA, tax free saving account, which is different from genetic saving account. It may be easier to think about TFSA more like investment vehicle or a basket can carry everything in it. In short, TFSA is a good way to save.

Advice to rookies

If you’re a regular reader of my blog, you’ll know that I have become a football fan. People change over the course of their life and pick up new hobbies and interests. For me, it’s football. So this Sunday, I watched the Ravens score a crushing victory against the Steelers. It was a beautiful game! I also watched the kickoff last Thursday. Two games in a week; that is pretty good for a rookie fan, no?

In this new season, with rookie players on their field for their first games, there is an abundance of discussions and articles about these newcomers. In the New York Times yesterday, there was an article about finance and financial advice to the rookies. The link to the article “Financial Lessons from Sports Stars’ Mistakes” is at the end of this post.

As I have mentioned in previous posts, the statistics about football players mismanaging their money are pretty staggering. The article mentioned several star athletes who have had brushes with bankruptcy: Michael Vick (recently acquired by the Philadelphia Eagles); Bernie Kosar, formerly of the Cleveland Browns; and Mark Brunell of the New York Jets.

Some have argued that the behavior of football players is similar to those who win the lottery. Flushed with large sums of money that come to them suddenly, players squander it and are left with little or nothing a few years out. I do not think that this is a good analogy. One difference between football players and lottery players is that we know the former are very talented people: Who else could do the things they do when they are out in the field? Moreover, these people know discipline; they show up to practice every day. They also know the correlation between efforts and outcome; if one works steadily at something, he will get better. These are great skills that can be applied not only to playing football but also to managing money.

So, why do we see players going bankrupt? One of the reasons why people (including football players) make mistakes is because they lack financial knowledge. This problem can be particularly acute for young, inexperienced people whose highest earnings are concentrated at the beginning of their career. But this is not an impossible problem to fix, and the New York Times article outlined a set of lessons that could be learned from some players’ mistakes.

I have three pieces of advice for rookies. (There is more advice to give, but let me start with this simple list; I will follow up in future posts.)

1) Do not spend it all. The career of football players is short and risky; you want and need to have provisions for the future and for uncertain events. An example? The recent lockout. What would have happened if the lockout had continued? Another example? Even superstars have injuries and/or cannot play for health reasons. Peyton Manning, for example, just had neck surgery.

2) Take it in your hands. Money management is too important and too personal to be delegated entirely to someone else. You are the one who knows your needs, your aversion to or love of risk, your objectives for the future. If you leave it to others to manage your money, chances are they will not make the decisions you had wished for. Even if you seek financial advice, rely on reputable experts and stay involved in the process. After all, it is your future that is at stake here.

3) Be humble about finance. My research repeatedly shows that the majority of people are overconfident about what they know of finance. Four out of five Americans gave themselves high financial knowledge ratings but, when asked questions about basic concepts, they answered incorrectly. And ignorance hurts. Study after study documents that it is those with low financial knowledge who pay more for financial services and who are more likely to end up in financial distress. Do not be afraid to speak up about what you do not know; it is not a weakness, it is a strength, and you will intimidate anyone around you when you admit it. Most people do not have that kind of courage. Do not jump into projects or investments you do not understand well. Tell people around you, “I want to be smart about my money.” Over time, you will be.

When I got my first job as an assistant professor at Dartmouth College about twenty years ago, I showed up in the Human Resources office and was given all of these forms to fill out, requiring me to indicate which of the three pension providers I wanted and how I would allocate my pension money. I remember feeling puzzled that such an important decision would be asked of me without inquiring about my knowledge and whether I needed any help. Throughout the years, I have worked to change that process and, with the collaboration of some great people at Dartmouth’s HR office, there are now programs in place to help new hires. I take a little pride in that.

The NYT article is posted here:

Think big, in a practical way

I left for Italy in mid-August feeling pretty discouraged. Most of the recent discussions I had heard about financial literacy were focused on cost. This is clearly an important concern, but, in practice, when people talk mostly about costs, it often means they are not interested in “buying” it. And while the cost of improving financial literacy is a very legitimate concern, how about the cost of this financial mess we’re in. How about that?

The discussion around some financial education programs was also not a mood booster. Some of the papers I saw presented this summer covered programs in which individuals—often impoverished and with little education—were brought to a classroom and given a few hours of “financial education.” The expectation was that those few hours would transform people into savvy entrepreneurs or investors. And what was the main discussion around this? How much these programs cost!

This dominant concern about cost obscures the fact that we face a very important and challenging problem in need of a solution. But we need to think big; we need creative ideas that can help overcome big barriers. Lack of financial knowledge is not something that can be tackled by bringing the adult population back to a classroom for a lecture or two on financial education. We need to be practical, too, regarding what can be implemented. As my college friend—a successful entrepreneur I get together with every time I return to Italy—put it: "think big, in a practical way."

Being in Italy, with a break from my daily routine, allowed me to focus on big ideas, and I have some recommendations, that are also practical, to at least start the discussion, and I would like to hear from others.

Big Idea #1: TEACH THE YOUNG. Financial literacy needs to be implemented in schools. It is too difficult to reach the adult population and it is hard to do any teaching if there is little or no base to start from. Also, we need people to be financially literate before rather than after they engage in financial transactions. There will and should be costs of educating the young. It is meaningless to mandate financial education without, for example, training the teachers to teach those courses. Mandates do not make people any smarter, but having a well-developed curriculum that is followed by trained teachers might.

Big Idea #2: FOCUS ON WOMEN. Women have low levels of financial literacy (lower than men), but they also know that they lack knowledge. Moreover, they want to be “treated”; in most financial programs I have been involved with or read about, the majority of participants have been women. It is going to be much easier to reach and deliver to a population who is interested in financial literacy. This is a simple truth that has been mostly ignored. There are costs of only thinking about costs!

Big Idea #3: MAKE IT SIMPLE. Some financial decisions are truly complex, but there are universal concepts that are at the basis of most financial decisions and that can and should be explained in very simple ways. I am talking about the power of interest compounding, the effects of inflation, and the benefits of risk diversification. In fact, even this is economic jargon we can get away from. Let’s use plain English and explain these ideas in very simple ways. We can even come up with ways to tell stories to teach the concepts so that even a five-year-old could learn them.

Speaking of five-year-olds and of being practical, I was given the following test to see whether one can think practically. Here it is: How do you put a giraffe into a refrigerator? The answer is at the end of the post, but please do not look before you come up with your own solution. I thought about it for five minutes and came up with a method about as simple as putting a man on the moon. That evening, I saw my little niece Giorgia drawing a picture of the family dog, depicting him with 9 legs and 2 enormous eyes. I thought she would be an ideal person for the giraffe test, so I asked her very innocently: “Giorgia, how do you put a giraffe into a fridge?” She looked up, gave me a big smile, jumped from her chair, and ran to the fridge. Moral: you can never beat the creativity of a five-year old!

Question: How do you put a giraffe into a refrigerator? Answer: You open the door and put the giraffe in.

What Are Document Shredding Services?

Paper shredding service is a service used by businesses to destroys sensitive information that can otherwise lead to identity theft and fraud. Many businesses today are using shredding services to protect the personal integrity of their company.

Banks, financial institutions, as well as medical facilities collect thousands of consumer information on a daily basis. To safeguard the identity of consumers, several laws have taken place that prevents these institutions from sharing information to the public. Aside for the financial loss, businesses can also be subjected to corporate espionage that can severely reduce their competitive edge if corporate information where to land on the hands of their rivals.

To keep information private, businesses are choosing to purchase shredders for their companies. However, for businesses that work with high volumes of documents on a regular basis, purchasing a shredder may be cost inefficient since they tend to break down more often and would require a replacement. For such businesses, paper shredding services are their best solution.

Additionally, document shredding services Dayton also provide companies several options when it comes to the use of their services. For one, these shredding companies can come directly to the company and do the disposal of the documents themselves. Another alternative is for the company to box and ship all the documents that needs to be shredded to the shredding company who will then shred it and dispose of it accordingly. Which option a business will choose depends on a number of factors. If a company for instance works closely with highly sensitive documents then the first option would be their best solution.

Some shredding companies such as New York shredding services give customers the option to rent their shredding equipments. For document-sensitive businesses, this is a great option since it would prevent outsiders from getting their hands on corporate information.

Investing on shredding services can be the difference between information confidentiality and identity theft or fraud. Make sure you consider shredding services for you company and know your business is secure.

The Different Types of Paper Shredding

There are many different types of shredders available in the market. There are those that are capable of shredding down DVDs and others than can reduce the size of a tree trunk. Paper shredders were once considered as an office tool but today, many people use them in their homes as well. What are the different types of paper shredders?

One of the least expensive shredders available in the market is the strip-cut shredders. These shredders contain a series of rotational blades that shreds paper into long narrow strips. Because they produce strips of paper, they can be easily reassembled by a determined individual. As so, strip-cut shredders are the least secure form of paper shredder and are not considered a good option for businesses wanting to destroy sensitive information.

Another type is the cross-cut paper shredder. They shred documents into tiny rectangle or diamond shaped pieces that are almost impossible to be reconstructed. The smaller models of cross-cut document shredder can process up to six sheets at a time, making them not only secure but very efficient as well for home use.

Granulator document shredders works in the same vein as cross-cut shredders. In that they produce tiny shreds of paper. However, unlike cross-cut shredders, shreds of paper are constantly processed until they are small enough to fall through a filter. Document shredding through Granulators will produce Manchester confidential waste made up of particle size pieces of shredded material. They are therefore the most secure paper shredding option that businesses and government offices use.

Document shredders are available in any office supply stores. If you are thinking of buying one for personal use then smaller models will be just right for you. Businesses on the other hand, who shred hundreds of documents everyday may want to opt into purchasing heavy duty shredders.

Technology, Business and the Importance of Location

How do businesses make it today? Well the answer is technology. Corporations are able to increase both markets and profits by relying in the technologies offered today. Data management and location intelligence are one of the ways they increase their competitive edge and give better service to consumers.

Location intelligence is the technology that utilizes data to make more sensible decisions in regards to consumer market and the services. This data includes most importantly factors about geography. Companies use analysts to compile, decode and organize the data to be able to apply it in daily work functions. They want to increase the odds of better services to consumers. This is what makes a true difference and allows them to be more successful. For instance, a telecommunications company may choose to use geographical data to know how to better service phone or cable clients. Further away clients may need a different kind of service in order to maintain the minimum quality.

Locations and Gis Data are extremely relevant to yield certain services. Companies need to be dynamic and flexible as they adjust their strategies. In this case, locations allow them to make these kinds of decisions with more of a foundation. This in turn helps the company’s profitability and their competitive edge in the market. With better assistance, they can improve customer service. They can also optimize their resources by using them were they are most needed. Conclusively, location data helps greatly for businesses who want to make a difference in their industry.

What Buying a Boat Really Entails

It is not uncommon for people to be enticed to get a boat. From the most daring adventurer to the sportiest of fans, boats seem to be the ticket for those in search for a good time and great memories. Nonetheless, there are many factors to take into account when going through this purchase. From a boat exam to boating safety, owners need to make sure they take all the precautions to make the experience as best as possible.

Most of what boats entail has to do with costs. First of all are the costs of attaining ownership of one of these. The prospective owner should shop around to get as many options of stores and brands as possible. The more information, the better founded the decision will be. A way of saving up is to get a used boat. Nevertheless, people need to be very careful that cheap doesn’t mean broken. Get an engineer to check the engine and the other aspects to ensure a great purchase. If the boat needs external financing, allocate this in the cost. Shop around for several interest rates that will suit your needs and will fit in the total budget as you acquire this device. Once purchased, the boat is now ready to be put to the test!

Now that you own a boat you are going to need a boating license. To get a license a person would usually need to take a boat course and then go through a boat exam. This is a procedure that is at times required in certain countries. Now, for the boat to operate other costs are needed. An example is fuel expenses. The boat won’t move until it is prepared with all of these. As time goes by, the boat will also need maintenance. It is a machine and it definitely depreciates. The more you use it the more it will need a technician to oversee it. Overall, these will be the most important things to consider when having a boat.

Ten questions and things to know about financial literacy

While on vacation under the Italian sun, I was asked a lot of questions about financial literacy. Rather than writing a blog post about a single topic, I thought it might be useful to answer some of the questions I’ve been asked in order to hit on a lot of general information about financial literacy. So, here is my list of the top ten questions and things to know about financial literacy:

1) What is financial literacy?

Financial literacy is like reading and writing. It is the knowledge of basic but essential concepts that are needed to be able to operate in today’s society.

2) How do I know whether I am financially literate?

You can take a test here:

3) How do I compare with respect to others?

The above test will tell you how the average American responded to five financial literacy questions. If you live in the U.S. and you want to know how financially literate people in your state are, check here:

4) How does financial literacy in the United States (or Italy) compare with respect to other countries?

We have done a comparison of financial literacy across eight countries (the U.S., Italy, Germany, the Netherlands, Sweden, Russia, Japan, and New Zealand). In a nutshell, the world is flat in terms of financial literacy! You can read about this work here (warning: these are long papers but still fun to read)

5) Why should I become financially literate? Can’t I be happily ignorant?

There are costs of being financially illiterate. Studies show that those who have low financial literacy are less likely to take advantage of the opportunities offered by financial markets (for example, refinancing mortgages when interest rates go down or getting higher returns by investing in stocks and bonds), are less likely to invest in mutual funds with low fees, and are more likely to have problems with debt and to pay higher borrowing costs. Overall, ignorance is not bliss.

An overview of these studies is provided in this paper:

6) Where do I go for information if I want to improve my financial literacy?

For readers in the United States, a reliable and independent source of information is One of the best web sites for financial literacy is New Zealand’s national site. Here is the link (after all, we are going global!):

7) What if I want to have fun while I’m learning?

Excellent idea! Doorways to Dreams has designed financial literacy games, so you can become financially literate while having fun. Here is their financial entertainment website:

8) What do I do to promote financial literacy and to become financially literate?

Ask for financial literacy programs in your school, your workplace, and your local library. Become an ambassador for financial literacy.

Three examples of initiatives or tools to use are here:

9) Who is promoting financial literacy? Just academic nerds like you?

Are you kidding me? Here is a list of people (and one puppet) who are promoting financial literacy.

(i) Elmo, puppet and TV celebrity (for you younger readers):

(ii) Ben Bernanke, Chairman of the Federal Reserve. You can read one of his recent speeches here:

(iii) Ray Lewis, football star. You can read about one of his talks here:

(iv) Both President Bush and President Obama have been supporters of financial literacy, via, for example, the President’s Advisory Council on Financial Literacy

10) Are there any big initiatives happening on financial literacy?

Yes, there are many. One important initiative is that of the OECD (Organisation for Economic Cooperation and Development). Starting in 2012, the OECD’s Programme for International Student Assessment (PISA) will measure financial literacy among 15-year-olds in 19 countries. You can read more about this important initiative here:

Choosing a Mortgage Broker

Are you thinking of buying a house or a condo perhaps? Such investments are expensive. For many, buying an estate property is the most lucrative purchase that they will ever make in a lifetime. Finding the right broker is therefore crucial in ensuring that new homeowners will not get stuck in a financial mess.

The recent financial crisis has illustrated the need to find reliable and trustworthy mortgage brokers to help prospective buyers find the right mortgage loan. These experts represent the borrower and are not the lender themselves. Their expertise and know-how of the mortgage market allows them to find the best rates that fit the prospective homeowner’s financial situation. It pays to work with a professional mortgage broker Toronto to assist you obtain the best mortgage financing possible.

When looking for a reliable mortgage broker, make sure to keep these points in mind:

  • Referrals are important. The best way to learn about the credibility of a broker is through someone who has done a successful business with that person. If they had a good experience with the individual, chances are, you will have one too.
  • Sometimes, finding a referral may be difficult. Therefore, prepare to do some intensive research on the individual. Your real estate agent may also provide you with at least one recommendation. If all these are futile, the newspaper, phone book or the internet can help you find a mortgage broker. Of course, extra caution is necessary when checking on the reliability of these individuals.
  • Make an appointment with your prospective brokers. This will give you a feel of how this business transaction will go. As well as allow you to question him about his or her past experiences and even obtain a list of references.

Finding the best mortgage broker Richmond Hill can be extremely difficult. But with a lot of diligence and commitment on your part, you will be able to find the best broker that fits your needs.

No Roman Holidays

I am in Italy where, it has been said, even the statues go on vacation in August. While this is the feeling one normally gets in the summer, the Italian government, under pressure from the European Central Bank, has just—in a short period of time—put together a series of decisive reforms. Little was left untouched, from cuts that reached into the pockets of politicians, from whom many privileges have been taken, to the abolition of small provinces to reduce the costs of local governments to tax increases —including a new “solidarity fund” which will require temporary tax increases for those whose income is above 90,000 Euros—to increases in the pension age for women (a gradual move from age 60 to age 65).

This was no Roman holiday (for those of you who have seen the wonderful movie with Audrey Hepburn and Gregory Peck) for the Italian politicians, who have used all of the tools at their disposal to rein in the deficit and tackle a public debt as high as 120% of GDP. And for those who think these are the reforms that Socialist Europe makes, I want to remind readers that Italy, in fact, has a right-wing government. For those who wonder why this was not done before, I would argue that this is a good way to use a severe crisis (no crisis should be wasted) to convince both citizens and politicians that changes are necessary.

The reason I have chosen this topic for this blog posting is that in many countries around the world the crisis has profound consequences, with or without changes in government policies. In the newspapers, the first pages are now dedicated to economic news. Long articles are written about the reactions of the financial markets, about the spreads in the government bonds of different countries, and about the economic measures that countries have taken in reaction to a severe crisis.

This is another reason why we need financial literacy. Every day we read and hear economic news. This news is not only affecting or reflecting the macro economy but has an effect on our lives. The behavior of financial markets is affecting our savings, our cost of traveling abroad, our capacity to retire or to donate to the initiatives we deem important. Similarly, the changes in economic policies are affecting the services that we get from the government, our income, our capacity to find a job or to get a good education. We need to be able to understand what this news means, we need to be able to take advantage of the opportunities offered by the financial markets, we need to be able to understand the causes and consequences of the economic reforms that governments are proposing to us. And it is perhaps in a time of economic crisis that we need financial knowledge the most.

So, while Italy pauses during this national holiday, I am writing a new blog post about financial literacy because it is a regular Monday in other countries, because many stock markets are closing with moderate gains today, and because economic crises may even bring good things, for example new and much-needed economic reforms.

If some of you are wondering what I will do with my non-Roman holiday, I will do three things: bask in the sun, go to the opera, and of course write more blogs.

Financial literacy for politicians

I have argued in my blog postings that individuals need financial literacy because we are increasingly asked to make financial decisions that have important consequences. But there is a group for whom financial literacy is even more important, since their decisions are going to affect the whole population. These are our politicians.

As a case in point, the consequences of the standoff about the debt ceiling are severe. For the first time in history, the US debt has been downgraded from AAA to AA. This could mean higher interest rates, for example, on mortgages or car loans, and thus higher costs for many consumers. The stock market gyrated last week, dropping sharply, and it dropped more than 600 points on Monday, destroying in less than a week most of the gains that had been made slowly over many months. These are serious problems that affect real people!

When politicians make decisions with such consequential economic implications, they must be financially literate. Consumers learned about the costs of financial illiteracy during the financial crisis; politicians will likely get their lessons soon, if what they want to see is what happens to an economy in which basic economic principles are ignored.

There have been a number of statements by politicians that reveal their financial illiteracy. One example: the argument that it does not matter (or we should not care) if the world is watching or what the world thinks of how the US handles the debt ceiling. This is unfortunately wrong. A large portion of US debt is held by the Chinese, and so it does matter what other countries think of the discussion about the debt ceiling, and politicians should care—in fact, they should care a lot. Another example: the suggestion that we should let the government default to demonstrate how important it is to reign in the deficit. This is strange financial decision-making. It is the equivalent of a household wanting to burn down the house to discipline its members. I would recommend trying that strategy on a desert island but not in a country inhabited by 300 million people.

I doubt financial illiteracy is concentrated in one political party only. We have witnessed poor economic decisions a lot in the past few years. Having public debt on an unsustainable path is not only problematic, but it provides a bad example to citizens as well. Not just the federal government but also state and local governments have done a poor job in keeping their finances in order.

The decisions that politicians make have enormous implications for the economy and for all of us. We are the ones paying the cost of the decisions that are made. We should demand that the politicians we sent to represent us and who are bound to make these important decisions be financially literate and explain their decisions to us in economic terms. A fragile economy that has survived a very severe crisis and is trying to recover from a great recession needs politicians who understand basic economic principles, now more than ever.

The NFL is Back

I was very happy to hear that the NFL lockout was over, and I have been avidly reading the sports section of the newspapers. I normally read the business section, but this week I could not bear to read the discussion about the debt ceiling any longer, and it was good to go straight to the sport pages. While attending the National Bureau for Economic Research (NBER) Summer Institute last week, I startled a few economists with my conversations about football; I enjoyed that!

There are four things I like about the agreement that was reached last week:

1) Players’ safety and health. The agreement limits on-field practice time and contact. Importantly, it limits full-contact practice in the preseason and regular season. Who needs concussions? I was appalled at the statistics about injuries among football players when I read them. These are serious issues and I frankly wonder why it took so long to worry about players’ safety. This discussion has already trickled down to college football, and I was very happy to see that the Ivy League colleges have also adopted a limit to football practices to reduce head injuries. Importantly, the new agreement provides enhanced injury-protection benefits and an opportunity for current players to remain in the player medical plan for life. It also set up a fund for medical research, health care programs, and NFL Charities. These are smart features; a big thumbs up.

2) Benefits for retired players. The agreement provides additional funding for retiree benefits and sets up a fund to increase the pensions of pre-1993 retirees. This is also a good and needed program. The career of players is often very short (and cut short by injuries as well) and it is hard to accumulate a good pension during a short career (let alone think about pensions when one is 22!). We have read too many stories of players running out of money after they stop playing, and it is important to find ways to provide for the players’ future. Another thumbs up.

3) Improvements to career transition and degree-completion programs. Because, as already mentioned above, the career of players is short, it is important to provide help in their career transitions. Players have very specific skills that can be used well in sports but also in other fields, but they need help in translating those skills or simply in being connected to other fields. Some players have not completed their college education and, given the returns to higher education, it is beneficial to facilitate and help players finish their degrees. A thumbs up here as well.

4) Sharing among players. To those who believe players are greedy and want absurdly high wages, I would like to point out there are absurdly high amounts of money on the table, and the projections are for high growth in that money in the future as well. In fact, players have agreed not only to a stricter salary cap but a new fund will also be created to redistribute savings from the new rookie pay system to current and retired-player benefits and a veteran-player performance pool. And we have now heard news about Peyton Manning staying with the Colts but passing up being the highest paid player in NFL history. This will allow the Colts more flexibility to sign other players. This is the statement Manning made: “Whether I deserve to be the highest-paid player over the next five years is irrelevant. I would rather them use the money and keep the players they want to keep and get other players.” One thumbs up to Peyton Manning. Another thing I want to remind readers is that players donate generously. Many have their own charities and are very sensitive to social issues related, for example, to poverty, education, and discrimination. Because of that spillover, I would have preferred to see more rather than less money going to the players.

But the best news is that we will be able to go see the games. I am getting ready to not only watch them on TV but to go to the stadium. As for the other lockout (about the debt ceiling), I think politicians could learn a thing or two from the NFL.

Interesting Technology Inventions

Most inventions by science are meant to help people’s lives become easier. Some others are used to further move the technological improvements to better futures. The uses are great and the inventions are too. Here are three interesting inventions to look at:

For starters, a nice invention is the load cell. This cell is basically a transmitter of force which becomes an electric signal. This happens indirectly and in two stages. It’s important to know there are many strain gauges in a load cell. These are then deformed when the vibration is sensed later converting the signal into an electric one. There are many uses and these include force measurement, weigh scales, crane scales, inventory control and impact measurement. Load cells are used widely in industrial areas. They assist the any measurement aspects that help research of weigh and information.

Next is the accelerometer which clearly as stated measures acceleration. It unit of measurement in acceleration is weight per mass. They define the acceleration by weight not velocity. A weird example is measuring an object even in inertia. The non-moving object will yield useful info in the accelerometer which will help gather info for much application. Some of these are in engineering for vehicles, buildings and machines. They are also used in biology, navigation, health and in industrial applications. These are industries that need to gather specialized information that accurate and follows perfect physics principles.

Last but not least you have the pressure sensor. This particular tool measures gases or liquids. It measures the pressure that serves as a transmitter that generates a signal. This pressure stops the fluid from being expanded. Its measurement unit is force per area studied. Like the others it is widely used in science. Its main applications are used to sense pressure to measure weather, altitude to help rockets and aircrafts and many others such as flow sensing and leak sensing.

Document Shredding in Businesses

Companies use New York shredding services to protect themselves from information theft. The implication of any mishandle of information can lead to serious lawsuits from customers whose info has been misplaced.

There are documents that are not as obvious to be shredded as some. Examples of them include passwords and junk mail. In the case of usernames and passwords, people may write them down anywhere without even noticing. Even if it is written in a post it note, employees should make sure to properly dispose of them or in other words shred it. Companies receive a lot of junk mail from direct mail. It may not be as obvious but these have addresses and names on them. Again, these can be extremely dangerous. Anything that can be suspicious or potentially dangerous should be shredded immediately. If employees are not sure they should ask managers or their supervisors for confirmation.

The more visible documents are the ones with financial info. This kind of data is managed by companies no matter what they do. They can be a hospital and still deal with information that’s crucial. Any bank statements containing info about accounts, credit cards or letters should be kept in a safe place if they are used for that years bookkeeping. All others should be shredded to avoid any misplacements or misunderstandings. Companies usually keep three-year-old papers and dispose of the rest. In hospitals, doctors keep records of all their patients. Many companies do the same as well. This is dangerous for these have names, addresses, phone numbers and other personal info. Avoiding issues can be done if these are kept under tight lock and the older ones are dealt with shredding services Dayton accordingly.

Why is Document Shredding So Important?

Every company big or small deals with information on a daily basis. This information can range from a small post it to financial statements. The papers with personal information are extremely delicate for they can be used to steal someone's identity. This is why document shredding has become popular over the years.

The paper shredding machines are in charge of destroying evidence of really important information. There are many documents that are worth shredding. A first example is financial documents. Any paper that states financial data of credit cards, debit cards, loans or other money sources should be shredded. People tend to keep financial data for up to two to three years. Other statements should be shredded. Luckily, banks are now also providing online statement to decrease the risk that paperwork may sometimes entail. By the same token, personal information in any document makes it really dangerous and should be disposed of properly. Facts such as date of birth, social security numbers or addresses will be kept secret.

Information on accounts such as online bank accounts, social media or any usernames and passwords are to be shredded. These are not quite considered by people as much but they can be extremely risky. Another even more surprising is junk mail. People tend to not pay attention to them for they are considered spam. A lot of advertisements and such may also contain important information that can be stolen by someone else. No matter how meaningless it looks, it should be shredded too. This cardiff confidential waste service is a great way to maintain secrecy and avoid any identity or theft issues in the future.

Questions to Mortgage Brokers

The business in mortgage loans is very dynamic and ever changing. This is why buyers need to have the best mortgage broker Richmond Hill help they can get. They should make sure that the professional knows enough to be able to answer all the questions posed and better serve the client needs.

The first question should determine the mortgage broker’s ability to study the financial situation. They should provide the buyer with a great analysis of the market and the financial environment. Their credentials and experience would speak for themselves. This will give the Mortgage broker Toronto the ability to answer any question that may be posed at anytime. As well, there should be a thorough understanding of the interest and annual percentage rates. Failing to properly calculate them can result in unpredicted expenses that may cause borrowers to default their home debts.

As mentioned, expenses should be calculated before they happen. This creates a shield and a realistic expectation of what the debt should look like in the future. Many expenses can arise from credit reports, titles, pest disinfections and taxes. As well, they need to account for payment times. They should tell the buyer how much time will be needed to pay out and if pre-payments are possible. Sometimes these pre-payments can come with penalties.

Online Banking Tips

Managing your finances has never been easier. With online banking services, you need not visit a bank branch to transfer funds, deposit a check or inquire about your balance. In a couple of mouse clicks, you can do all that at the comfort of your own living room. However, finding the right bank to open an account requires diligence. Here are some online banking tips to consider:

Make sure that the online bank is genuine. With the freedom the internet provides, it can be easy for an ignorant customer to be swindled by fake banks. Don’t be a victim and trust only banks that have solidified themselves in the industry.

Make sure your bank accounts are insured. Similar to your credit card being stolen or lost, you don’t want your money to vanish if your bank suffers downtime and becomes bankrupt. With insurance, you have money back guaranteed.

To safely bank online, never use the same password for financial sites that you use for everyday internet activities such as checking your email. This makes it easier for hackers to guess your password and leave you susceptible to identity and funds theft. Nor should you share any other private information such as PIN numbers or login information online.

4. Lastly, if you have something in the banking process that you don’t understand, you shouldn’t hesitate to ask. If you have question about fees, rates and other charges, ask a representative to take you through the process.

The ability to conduct your Jamaica business finance activities online is a huge benefit. Being able to bank online has been one of the most convenient technological innovations in the 21st century. Arm yourself with information so that you can conduct transaction comfortably, knowing that each transaction is secure and protected.

Hopes for the Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) officially opened its doors on July 21, 2011. Established by the Dodd-Frank Act, we finally have an institution that, as the name says, will be devoted to protecting consumers. This is an important milestone. It is not possible to live in a world of individual responsibility without at the same time having a structure in place to protect consumers. This is not just a political choice, it is an inevitable step to take when we put people in charge of their financial well-being. The shift in responsibility from governments and employers onto individuals has stemmed from changes in the age composition of the population (an increasingly elderly population) and in the increased mobility of the labor markets (which requires that pensions be portable), and I do not see a way of going back to a system dominated by, for example, defined benefit pensions. But consumers face a formidable task, particularly now that financial markets around the world have become very complex and the choice of financial products has dramatically expanded.

I have several hopes for the Consumer Financial Protection Bureau.

• First, I hope they will set the right expectations about what they can accomplish, in particular in the short run. Protecting consumers is a very complex task; it requires a combination of both regulation and financial education, and it will take time to get that combination right. Having the Bureau does not make people smarter overnight, and—given widespread financial illiteracy—the Bureau has a challenging task in front of it. I can already envision front-page news articles the next time we will experience financial troubles (and there is trouble to come; more on this below), which will argue that despite the existence of the CFPB, we have not prevented financial woes. Having the CFPB does not mean that consumers will not make financial mistakes or that the supply of financial products will have no flaws. While the Dodd-Frank Act provides guidelines on what the Bureau should do, it is very important to make clear what it can realistically aim to accomplish in the short run.

• Continuing on the previous point, I hope that the Bureau will devote ample attention to financial education. One of its mandates is to promote financial education but, as we know, education inevitably takes time—and no one has time; no one can wait. But, as Federal Reserve Chairman Ben Bernanke has said, “well-informed consumers, who can serve as their own advocates, are one of the best lines of defense against the proliferation of financial products and services that are unsuitable, unnecessarily costly, or abusive.” We need an institution that has the brains, the courage, and the vision to think beyond the short run. In this respect, the Bureau could set itself apart from other institutions intent on pleasing people, politicians, or voters, with no consideration for the future. Myopic policies are costly and these costs will eventually be paid (young people, be warned). Most of our financial decisions have to do with transferring resources to the future (for example to pay for expenses after retirement or for children’s college education), and we need institutions with a long planning horizon.

• Third, I hope that the Bureau will pay careful attention to what has happened during the recent financial crisis but it will also look ahead and be proactive in addressing potential future problems. There are early indications of serious problems brewing inside the Defined Contribution pension system. There are also problems regarding how people assume and manage debt. These are issues that emerge when looking at data, and is important to use that evidence for prevention.

• Finally, I hope the Bureau will focus its efforts on those who need protection the most. While everyone will benefit from the existence of the Bureau, it is clear that there are vulnerable groups in society that deserves particular attention. These groups include not only the young and the old, which have been shown to display alarmingly low levels of financial knowledge, but also women, those with low educational attainment, and African-Americans and Hispanics. Again, the data speak clearly about who the vulnerable groups are and also provide suggestions on how to protect those vulnerable groups.

The CFPB is an institution that can make a difference in people’s lives. I want to remind you that we are all consumers; we all make financial decisions; we all need fair treatment in the market and financial products that serve our needs well; we all have grandparents, children, and female and minorities friends who are part of those vulnerable groups. Personal finance is, well, “personal.” We should not forget about that, and we should take time to recognize that with the CFPB we have made one important step forward. It’s about time.

Teaching the STARs

I recently taught a class on financial literacy in the new STAR EMBA program that the George Washington School of Business (GWSB) just launched. This is a new Executive Master in Business Administration (EMBA) for Special Talent, Access and Responsibility (STAR) students, targeted to athletes, celebrities, and others. For those who do not yet know, I have moved to GWSB, so you can say I went from teaching the little stars (Dartmouth undergraduates) to teaching the bigger stars (athletes and celebrities).

Programs like this one are much needed and fill an important gap. Irrespective of high salaries and lucrative contracts, an athlete’s career is normally very short and often riddled with injuries. Ken Ruettgers, a former NFL player and now the executive director of GamesOver, documented that 78% of NFL players are bankrupt, divorced, or unemployed two years after retiring. This is one of the ugliest statistics I have seen. As Doug Guthrie, the dean of GWSB, stated succinctly: “These individuals need help translating their special talents and access to resources at a very early stage in their lives into the business skills that will help them elevate their personal brands into business dreams that will change the world.” I particularly like the latter part of the statement. These are extraordinarily talented individuals who were recruited for the EMBA program because of their enormous potential to make an impact.

The program is customized to fit these students’ needs, including their playing seasons (several of the football players in class are still active). Thus, it started with two weeks of full immersion in many courses in Washington, DC, and will continue in the heart of the financial capital (New York) and on the West coast, in Los Angeles. Spouses were also accepted and very much welcomed into the program, and out of 23 students, we had four couples in class.

In spite of their special talents, the group, in many ways, behaved very much like regular students. After a few days, they were wearing GW T-shirts or caps, were complaining about homework, and had found the strategic places in the classroom where they thought they could surf the internet, respond to e-mails, or finish their assignments without being noticed (we saw them, of course). There were differences as well. After a few days they stopped eating the catered lunches (too many calories I guess); regular students would never pass up buffet lunches. They went regularly to the gym, many of them looking so super-fit that I could not avoid feeling very wimpy.

But beyond these differences, they were not, by any means, a regular class. Their insights were profound and they startled a few faculty members with their comments. They did not speak a lot in class, but when they did, they were succinct and nailed a point, as if there was no margin for error. Even though they were soft-spoken in class, I could sense their confidence and determination. I admired the female basketball players’ toughness—they had played in several countries, spoke many languages, and one of them, more than 6 feet tall, was wearing very high heels!

We knew we had great potential to work with. We knew we could push these students for more work, give them challenges, and expect the best. These students know endurance, the importance of hard work, the correlation between effort and results. As I looked at this class of football, basketball, and baseball players; Olympic gymnasts; and poker players, I knew I could expect a lot from them. I also knew they expected a lot from me.

My class on financial literacy was divided into three parts. In the first part, I discussed why financial literacy has become important for each of us, what the consequences of financial illiteracy are, and why—in a new world of individual responsibility—financial literacy is an essential tool for making financial decisions. In the second part, I discussed why financial literacy is especially important for athletes: given their short careers, good planning is particularly important, as is an understanding of how to grow and protect wealth to make sure that resources last a lifetime. While most people get rich later in life (apart from those pesky Harvard students who invent Facebook while in college), athletes are rich early in life, so they have to learn in their twenties about trusts, wills, and prenuptial agreements. In the third part of the class, I discussed how these students can make a difference in promoting financial literacy. My discussion here was focused on the divergence of wages between those with and without a college degree and the fact that high school students are asked to make one of the biggest investments of their lives—the investment in education—without having any notion of this basic concept or of the basics of economics and finance. I discussed what athletes can do to make a difference in the lives of the many young people who look up to them.

For those of you who think that we professors just show up in class and teach off-the-cuff, let me tell you that I prepared a lot for this class and was quite nervous at the idea of teaching this group of students. Several weeks ahead, I started reading about the different sports played by the athletes who would be in my class. For example, I read lots about football and football players: rate of injury, lengths of careers, what it means to be drafted. Because I did not know anything about the game, I read “Football for Dummies,” so at least I knew what a linebacker is and could understand the dossiers of the athletes in my class. I read the sport pages of the newspapers and read sports magazines (I understood half of what they were saying, but there were some good stories). At the end of the class, I went to talk to one of the students, who is a football player for the Baltimore Ravens. I had mentioned the Ravens a lot in class and talked about Ray Lewis (of the Ravens) as an example of an athlete who cares a lot about financial literacy, and I wanted to tell him that I think the world of Ray. He jokingly suggested I come teach the Ravens. When I told him I didn’t know whether I could really teach a whole team, his reply hit me like a ball in the head: “Yes, you can. Because you can relate to us.” I always prepare for my classes because I want to know who my students are, what they need, and to make the class relevant to them, but no student ever told me “you can relate to us.” I’ve been teaching for close to 20 years, and it was a linebacker from a football team in Baltimore who best articulated what teaching means for me and what I strive for every day in the classroom. I never felt so good. As I told you, these people are truly special, they are STARS!

The courage of women

I want to cover a topic that is not discussed much in the world of finance: the courage of women. In an arena in which women have been scarce and where financial genius and wizardry are often synonymous with being male (and there are many excellent men out there), it’s interesting to note, by gender, some of the key players in financial events of recent years.

In a world where corporate interests have a big voice, it was a woman who stood up and advocated protecting the consumer, the “little guy.” It was a woman who promoted regulation of the derivatives market, an arcane market that few understood well but in which immense risk could be taken. It was a woman who blew the whistle on Enron and its overinflated evaluations. And the list goes on.

In the same time frame, we witnessed Bernie Madoff carry out an enormous Ponzi scheme that defrauded individuals of their retirement savings and institutions of their endowments. And it was a young derivatives broker who brought down Barings Bank, one of the oldest of the United Kingdom’s investment banks. This dude even had the audacity to write a book titled “How I Brought Down Barings Bank and Shook the Financial World.” Another male trader almost took down France’s second-largest bank. The former head of the International Monetary Fund, which had been dealing with the financial situation in Greece, which is threatening the very existence of the Euro, has been under house arrest. And the list goes on.

At the risk of making gross generalizations about gender and finance, the above outline makes me hope we will begin giving truly serious consideration to furthering the role of women in the financial world and start opening doors more widely to them. One useful role I could see for women is in curbing the excesses that we have witnessed in recent years and that have caused some venerable firms to go knocking at the doors of government for help. The risk-averse attitude of women (considered a fact but hardly documented in the data), often considered a weakness, may turn out to be a strength. As women rise to the top, I hope their voices will be heard.

Some progress has undoubtedly already been made. The top regulator of financial markets and head of the Security and Exchange Commission is Mary Schapiro. At the Department of Labor, Phyllis Borzi is the Assistant Secretary of Labor for the Employee Benefits Security Administration, whose mission is to protect the security of retirement, health, and other employee benefits for America’s workers and to support the growth of the private sector employee benefits system. We are talking about trillions of dollars here! The endowments of some of the wealthiest universities, such as Harvard, are managed by women, and many Ivy League colleges and universities (which are some of the richest institutions in the United States) are headed by women. We have yet to see any woman go down in flames from their seats at those positions of power, but, of course, history will tell. The helm of the International Monetary Fund will be given to a woman. This is another milestone, though I wish women were not brought in only when crises occur and when everyone—man or woman—will face very difficult situations and is more doomed to fail than to succeed.

I believe that one ideal job for women in finance is that of financial advisors. A critical quality in that job is the ability to care for clients and listen to their needs and concerns, and women can excel in that. And, important in wealth management is not only wise investing but also the right amount of protection, against disability, death, and other risks. Coming back to my posts of a few weeks ago, there was much wisdom in the football players’ bringing their mothers to the New York Stock Exchange to discuss financial literacy. That memory still warms my heart.

Women have used cleverness and ingenuity when caring for others, achieving important results. My favorite example is Ethel Percy Andrus. A school principal who retired in the late 1940s to take care of her ailing mother, she was shocked to discover how many retired teachers had no health insurance. As there was no national health care program for people over age 65 (Medicare wasn’t created until 1965), Ethel turned to insurance companies to offer group health insurance to retired educators. She was turned down by more than a dozen companies but she persisted until one company agreed to develop a health plan for retired teachers. The plan became so popular that non-educators also wanted to purchase it. In 1958, Ethel established AARP (then known as the American Association of Retired Persons). The rest is, well, history.