Monday, April 27, 2009

April... Financial Literacy Month (3)

Financial Literacy and Debt

In addition (as mentioned previously) to the efforts that US Senator Patty Murray has carried out during April intended to educate people financially, on the other hand, US Representative Carolyn Maloney (House Financial Institutions and Consumer Credit Subcommittee) has introduced the Credit Card Holders Bill of Rights aiming to stop abuses from Credit Card Companies; in this regard, Mrs. Maloney has said (watch also video at the end of this post):

“A credit card agreement is supposed to be a contract, but in recent years cardholders have lost the ability to say no to unfair interest rate hikes and fees. This balanced, moderate bill simply levels the playing field between card companies and cardholders while fostering fair competition and free market values. It sets no rate caps, fees, or price controls, nor does it dictate any business models to card companies,”

“There is no doubt that credit card companies provide a valuable service and deserve to earn a fair profit, but consumers deserve the right to be able to understand their accounts and be empowered to control them. Regrettably, regulators and prior Congresses have dropped the ball on protecting consumers in recent years. My bill would give cardholders the information and rights they deserve to make decisions about their own credit,”

Aditionally to Mrs. Maloney's bill, other significant events have involved statements from US Senators Christopher Dodd and Charles Schumer urging a freeze on credit card rates as well as a meeting some days ago at the White House between President Obama and Credit Card Executives intended to discuss with them as to how to protect consumers against abuses.

Even though these efforts involve an advantage for consumers, on the other hand, it's still difficult to ignore what Annamaria Lusardi and Peter Tufano (see slides) found about a serious lack of Debt Literacy and the underlying problems for consumers using credit cards disregarding financial risks and overindebtness; once again Professor Lusardi -based on concrete evidence- talks about an extended lack of financial literacy.

Hopefully, the efforts that the US Government is carrying out should contribute to address and provide alternatives for the public not only to avoid being victims of abuses but to provide incentives to spread financial literacy (a convincing one is avoiding bankruptcy...) although there's some controversy about the "inconvenience" of not giving credit cards to teenagers.

It's only my humble opinion but if we want to see people -particularly teenagers and college students- being financially literacy, How about if they earn the right (literally) to have a credit card after approving compulsory financial education courses? There are cities, counties and schools working on that but as we've said before, a huge task is still waiting to be done.

Even Fed Chairman Ben Bernanke has warned the public about the urgency to spread financial literacy... (including of course, credit card literacy)...

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Financial Culture / Cultura Financiera
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best credit cards said...

Great videos! Consumers deserve the right to be able to understand their accounts and be empowered to control them. I agree with this.

Mario P. Lopez said...

Thank you very much for your kind feedback.

There's a lot to discuss about this particular issue and its overall financial impact on credit users.

Kind regards.