Monthly Archives: August 2014

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Prepaid Debit Cards: A Primer

I thought it was time to learn more about prepaid debit cards and understand why they are one of the fastest growing financial products.  Here goes:

  • The elevator pitch:  “With all of the functionality of a debit card, but prohibiting consumers from spending more than they load on the card, this product provides a convenient financial service with significant benefits and control.”  (Huffington Post, TD Bank SVP)

  • Product description:  “General purpose reloadable” prepaid cards allow consumers to pay to reload the card and reuse it, and often allow consumers to take money out at ATMs. Many consumers use reloadable prepaid cards as an alternative to a traditional checking account (CFPB press release).”
  • Trends:  “The landscape has become much more consumer friendly,” said Greg McBride, senior financial analyst at Bankrate.com. “There are a number of low-fee card options that have come into the marketplace, much more transparent fee structures. Many cards have just one, flat monthly fee, which is much better than the prepaid cards from years past.”

  • Be sure to shop around:  A Bankrate study of 30 prepaid debit card providers in 2014 found a wide variation in fees:
    • Monthly maintenance fee:  $0 – $9.95/month
    • Card activation fee:  $0 – $9.95
    • ATM withdrawal fee
By |August 29th, 2014|Uncategorized|

Developing Financially Savvy Students: Comparing the Credit Card Comparison Sites

WSJ out with article earlier this week about inherent conflicts of interest with credit card comparison sites.  When your largest source of revenue comes from the products you are trying to compare, you better have a Chinese wall between advertising and editorial.  Well, surprise, surprise, that Chinese Wall disappears when revenue pressures hit.  

Over the past year, the mutually beneficial relationship between a number of card issuers and comparison sites has turned icy, with heated conversations between the parties, banks cutting off ties with some sites and, in one case, a lawsuit.  Interviews with a dozen card-comparison sites reveal that as card-issuer pressure ramps up—with increased requests for sites to delete or change some information—most sites are giving in to their demands.

This article can be a great jumping off point to developing the financial and media savvy skills necessary to navigate our financial lives.  In case, you naively thought that these sites were impartial, the WSJ research found the following (bold type is my own):  

These sites are beholden to the card issuers for revenue. At least six of the 19 most well-known sites show credit cards only from lenders. Another six show mostly advertiser cards, and those credit cards

By |August 29th, 2014|Uncategorized|

What’s New in Financial Literacy?

  • Behavioral finance experts weigh in on how to change those bad money habits (The Week):“A more promising solution to fight the urge for instant gratification? Take advantage of technology to keep you in check.

    “More and more financial service providers are offering simple tools for tracking and controlling spending with alerts, customizable spending limits and the like,” Zinman says. Some credit card companies will even send you an alert each time you use your card — reminding you how much you’ve spent so far, and how much closer today’s purchase will get you to your limit for the month.”

 

  • The man behind England’s push to incorporate financial literacy into their educational system (The Independent):

‘Consumers were conned out of £20 billion. Those issues would not have been nearly so seismic if there had been financial education. We’ve got a massive deficit in pensions. Kids need to understand that. We don’t save enough. We don’t understand how to make risk-based decisions. From now on, every child in every school that has to follow the curriculum will start to understand how the competitive consumer economy works.”

  • Another survey lamenting the lack of personal finance education in the schools.  Unfortunately all self-reported information and as
By |August 28th, 2014|This Week In Financial Literacy|

What Do Students Need to Know About the FAFSA?

Like an author writing a book, a curriculum developer also starts their process with that all too intimidating “blank sheet of paper.”  That is one of my favorite aspects of helping build out NextGen’s Personal Finance curriculum.  I usually start the process by thinking “what are the most important takeaways that students should have after completing this lesson on….” So, knee-deep in the Paying for College unit, I thought that given its importance, FAFSA deserved it’s own lesson.  

Here are the key questions, I hope students can answer after completing this lesson…

  • Why is it so, so, so important?:  No FAFSA = No Aid. FAFSA serves as gateway to federal financial aid (grants, loans, work-study) and by the way, most states and universities will use the results of FAFSA in their need determination too.   
  • What is it’s purpose?  The FAFSA collects information on your family’s financial situation and based on formulas, and produces a number called Expected Family Contribution (EFC).  This determines your level of financial need, so the lower the EFC the more financial need you have.  
  • What do I need to complete it?  In order to optimize the process, be sure to have the necessary information (checklist is provided) handy
By |August 28th, 2014|Uncategorized|

The Changing Nature of Investing: How Should We Rethink Teaching Our Students?

I tweeted about this earlier but thought it was worth a broader discussion as I thought about how best to teach students about investing.  This statistic from a Morningstar caught my attention:

John Rekenthaler stated in a post that indices are dominating fund sales. Some 68%—or $284 billion—of net US mutual fund sales for the 2014 fiscal year were exchange-traded funds and passive while only 32% were active funds.

“The post-2008 pursuit of index funds was no mere infatuation,” Rekenthaler wrote. “Passive investing is now the mainstream approach.”

Diving deeper there has been a plethora of recent articles about active management’s underperformance:

  • “Active fund management is outmoded, and a lot of stock pickers are going to have to find something else to do for a living…” (WSJ)
  • “Why Even Experienced Fund Managers Don’t Beat the Market (Economist):  “THE harder I practise, the luckier I get,” said Gary Player, one of history’s greatest golfers. And it is a widespread belief that experienced professionals are a lot better than neophytes.  But is that true of fund managers? A new study* suggests that the answer is distinctly mixed.”
  • Investors Like Passive ETFs over Active Funds (ETF Trends):  “More investors want index-based investments and exchange traded
By |August 26th, 2014|Uncategorized|

Lesson Idea: Should Your Students Get A Credit Card In College (or sooner)?

One great way to tackle this important question is to have students prepare for a class debate.  It would be best to have students research the position that are naturally opposed to.  So, if they think they want a credit card in college, have them research reasons why they should NOT get a credit card.  

How to get students more excited about this project?  Based on current law, they will likely not be able to get a credit card until they are 21 UNLESS they can convince their parents to co-sign their credit card application.  This debate will be helpful in both bolstering the argument on why they should get a card and also prepare them for objections they may get from their parents.  

Here are some articles/videos that you can assign groups of students to prepare for the debate:

Position:  College Students Should Have A Credit Card

  • Article:  4 Reasons Why College Students Need A Credit Card (Fox Business)
  • Article:  The Case for College Students To Have Credit Cards (US News and World Report)
  • Video:  College Students and Credit Cards (ABC News)

Position:  College Students Should Not Have A Credit Card

  • Article:  Why Credit Cards Are Bad For College Students (WSJ Blog)
  • Article:  Nine
By |August 19th, 2014|Uncategorized|

What’s New In Financial Literacy?

  • Increased education about financial concepts led to decreased rates of bankruptcy (Economist blog):

“Yet those who take on the most debt are the young, people who need to make large investments in education and housing, but who generally lack any experience with financial matters. Fortunately, new research* shows that courses in finance at school can help solve this predicament, reducing the harmful repercussions from taking on too much debt later in life…”

  • What two high schoolers tell us about the ingredients for a successful personal finance curriculum (Kiplinger):  Classes should be practical, fun and interactive and teachers should be comfortable in their role.

 

“I conducted my own mini survey with two young friends of mine, twin sisters Laura and Amanda. As high school sophomores last year, the girls completed a required course in personal finance. We discussed what they liked (and didn’t like) about the class, and their experience fit right in with what I’ve observed and what the research shows.”

  • Study finds that our perspective on time has strong influence on our financial health (Stanford Daily):

“The recently released report, entitled “Time Personality and Financial Health Study,” reflects the results of an online survey of men and women in various

By |August 19th, 2014|This Week In Financial Literacy, Uncategorized|

Back To School…Checking Out Checking Accounts

It’s back to school time, which means a plethora of articles about finding the best checking account for your rising college freshmen (it seems we are all procrastinators in matters like this).  What’s the biggest mistake people I think that people make in this process?  Going to a bank.  Come again?  How can going to a bank be a mistake.  Unfortunately, an incredibly high percentage of folks make their decision based on non-economic factors (branding, location, where their parents bank, etc.).  And when they step into a bank to set up an account, they want to leave with several things:  an ATM card, a checkbook and their new account number.

What’s wrong with that you say?  They did NO comparison shopping and therefore they are settling for whatever the bank offers.  So, how should you make this decision.  Let’s start with a few more questions…

  • Why do consumers behave this way?  Banks don’t make it easy to comparison shop with some banks providing different levels of disclosure as this transparency study shows.  A 2013 study found the average checking account had thirty fees which can seem onerous to review.
  • What are the most common fees you should worry about?
    • Account maintenance (or monthly fee):  may/may
By |August 19th, 2014|Uncategorized|