Lectura 4:00 min
Financial illiteracy
Mexican bankers, who after all are there to make money, are unfairly maligned as greedy grubbers, when in fact they undertake magnificent efforts in social responsibility areas, from helping homeless children to funding universities and yes, to educating their future customers.
Although it was virtually lost in the shuffle of the more political goings-on, the Mexican Banking Association (ABM) reinforced during this years annual convention in Acapulco a massive effort of financial education, aimed at people with or without bank accounts.
ABM chief Ignacio Deschamps told me he knows its a long-term undertaking that needs to be greatly expanded, because ultimately a greater financial culture will benefit existing clients and target market segments, the industry and the economy in general.
As part of the banking penetration effort, this year regulators authorized the banking correspondents scheme, where retail outlets from supermarkets to convenience stores are cleared to conduct basic banking services like deposits and credit card payments. By mid-November, correspondents had outstripped the systems 15,000 branches.
Consistent with that ambitious educational goal, the ABM conventions program this year was rich in related topics presented by an array of speakers, from top economists like Larry Summers of Harvard and Robert Shiller of Yale, to reps from the American Bankers Association, the British Bankers Association, the U.S. National Council on Economic Education, MasterCard and others including UNAMs head of Economics and Education Secretary Alfonso Lujambio.
In one of the convention highlights, Lance Triggs, VP of the non-profit organization Operation Hope, summed it up nicely. Everybody wants it. Nobody understands it. Money is the great taboo. People just wont talk about it. And that is what leads you to subprime. Take the greed and the financial misrepresentation out of it, and the root of the recent crisis is massive levels of financial illiteracy.
Since it was established in 1992, Operation Hope has been telling anyone who will listen about the problems caused by widespread ignorance of finance. Among other things, it offers mortgage advice to homebuyers and runs Banking on Our Future , a U.S. personal-finance course of five hour-long sessions that has already been taken by hundreds of thousands of young people, most of them high school students.
That many poor people do not have a bank account and that few of them understand why this puts them at a disadvantage (let alone other essentials of personal finance) is at the heart of the civil-rights issue of the 21st century , said Triggs. He calls the attempt to help people help themselves out of poverty through financial literacy and economic opportunity the silver-rights movement .
Triggs noted how during his presidency, George Bush appointed Operation Hope CEO John Hope Bryant vice-chairman of the Presidents Council on Financial Literacy. He was ratified by President Obama. The council was launched as part of Washingtons response to the financial crisis that followed the meltdown in subprime mortgages, many of them given to borrowers who may not have understood the risks.
Often, borrowers did not even realize that their monthly payment would rise if interest rates went up, says Triggs. Subprime borrowers on adjustable interest rates, whose mortgages make up just 7 percent of the total, has accounted for more than half of foreclosures since 2007, and the ratio only keeps rising.
The council is not short of expertise. It is chaired by Charles Schwab, of brokerage fame. Other members include Robert Kiyosaki, the head of Junior Achievement, which has been teaching children about money since 1919, and a co-author of Rich Dad, Poor Dad , a self-help bestseller. Already, it has approved a new curriculum for middle-school students, MoneyMath: Lessons for Life .
Other council endeavors of particular interest to Mexico is a pilot program to work out how to connect the unbanked (estimated at 70 percent of the population in Mexico) to financial institutions. And it is supporting what, echoing the Peace Corps, is called the Financial Literacy Corps: a group of people with knowledge of finance who will volunteer to advise those in financial difficulties.
Triggs noted that governments from Britain to Russia are declaring their commitment to financial education. Earlier this year, the World Savings Banks Institute, which represents retail and savings banks from 92 countries, held yet another summit in Brussels, home to the European Union, about financial education.
Financial illiteracy, he says, is not limited to subprime mortgage borrowers; it is pervasive in all age groups, income brackets and countries. Subprime is a mere symptom, he says, noting that many students at the best universities in the world, including MBA programs, dont even know the difference between the nominal and real interest rate.