Educating the financially illiterate

For those who see government regulation of financial products as a means to help consumers empower themselves financially, recent changes may be reason for optimism.

The proposed Consumer Finance Protection Agency would create a more centralized regulatory authority, and help consumers educate themselves. In its current iteration, one of its tasks will be to compel lenders to give people clearer information relating to credit card calculations and mortgage costs. Additionally, The Credit Card Accountability, Responsibility and Disclosure Act is poised to help consumers reign in debt by blocking both excessive fees and increased rates on existing balances.

The proposal and the act did not come a moment too soon for people of color. According to The Survey of Consumer Finances (SCF) “minority families added on debt at a rate far greater than they increased their incomes, thereby reducing the overall wealth building power of every dollar they earned. Minority families also racked up more than twice the debt of their white counterparts.”

Financial product and credit reform may go a long way toward helping Americans reduce credit card debt, but there is another piece of this puzzle each individual can own to promote their own wallet security: Financial literacy.

According to a National Bankruptcy Research Center and Money Management International Financial Education Foundation study, “Consumers who received pre-bankruptcy counseling exhibited significantly improved credit profiles in as little as two years in comparison to consumers who did not receive pre-bankruptcy counseling.”

Financial literacy shouldn’t begin and end with bankruptcy education. The Institute of Financial Literacy points to “Four Options for Dealing with Debt” to help people gain financial stability and find alternatives ways to deal with debt:

1) Self-help or negotiating with creditors on your own behalf.

2) Credit counseling or debt management programs

3) Debt settlement programs that negotiate with the consumer’s creditors. (This industry remains largely unregulated, according to The Institute of Financial Literacy, thus it is important to shop wisely when looking for a program.)

4) Chapter seven or chapter thirteen bankruptcy, which should be considered after other preventative options are explored.

Whether you have received outside financial counseling from a formal program, or are planning to improve your finances on your own, the below tips will get you on the right financial path:

1) Get the right mindset. Be mentally ready to make the sacrifices needed to get your financial house in order.

2) Create an environment conducive to fiscal responsibility. Surrounding yourself with like-minded people who are also focused on financial success is important.

3) Save and control spending. Ideally, each household should have at least six months savings but, more importantly, start saving what you can as soon as you can.

4) Manage credit wisely. Although there will be more regulation in the credit industry in the near future, it is still important to avoid “bad” debt. If you are in debt, credit counseling from a reputable agency is a good move.

5) Prepare for the future. Speak with a financial professional about investing in precious metals IRA, 401k or another retirement tool. Get educated on retirement options to find the best one for you.

Safeguards to protect consumers against inappropriate tactics along with the promotion of financial education may strike the balance that our struggling economy needs.

Embracing financial literacy can help us ensure better days for our individual and collective financial future.