Financial literacy in vogue again
President and CEO of Northeast Bank and author of “The Great American Mismatch,” a book about the value of selecting the right financial planner
If anything good has come out of the recent economic downturn, it is a renewed interest among the general public in personal finance and budgeting.
Throughout my 38 years in financial services, I have stressed the importance of having a long-term personal financial plan or, at the very least, a documented budget process in place. That’s been my consistent message during the years I worked as a financial planner early in my career and as president and CEO of a Maine-based community bank for the past 29 years.
Given that background, the past decade has been painful to observe. The United States led the way in developing a society that basically said, “Let’s live for today and worry about repaying our debt tomorrow.” Wall Street cooperated quite nicely with this philosophy by creating securitized pools of money that welcomed mortgages, credit card balances and any other type of debt, regardless of whether the applicant had the means to pay it back.
Needless to say, the present state of our economy, both in the United States and the rest of the world, is reflecting the sins of the past. We are all paying dearly for this irresponsible behavior.
Millions of Americans have lost their jobs, and the Census Bureau estimates that 2.6 million U.S. residents have fallen into poverty. Bankruptcy rates are up sharply, while the personal income and assets of too many of our neighbors have fallen.
During the credit binge that led up to this downturn, people often ventured into my office to complain that one of our lenders had denied their application for a new mortgage, while other lenders were more than happy to grant approval. I recall sitting down with these folks, reviewing their budget (for those who actually had such a thing), and telling them that, in my humble opinion, they could not afford to repay the debt. Perhaps, I would say, they should set their sights on something more affordable.
For the most part, these folks scoffed at this advice, while noting that their advisers had pointed out that real estate prices were rising. If the homeowner could not afford the payment, they could always sell the property for a profit.
The sad news is that many of these folks came back over time and said that they wished they had listened, as they were forced to go bankrupt and start over.
History teaches us many lessons, and the good news, from my point of view, is that suddenly financial planning and budgeting are back in style. We face a new paradigm: Our world will have to adjust to lower wages, fewer raises, higher costs of living and taxes and, generally, the need for a strict budget and planning process.
At our company, we are working to meet that need and are in the process of adding half a dozen financial professionals to our existing staff. The only thing holding us back from hiring even more is that we are determined to only bring on licensed professionals with significant experience and training.
In the same way, it is not enough for people to seek financial counsel. They also need to consider the quality of the advice they are being given about something as important as their financial plan. It is a good idea to get references or, at the very least, make sure your adviser has the requisite level of knowledge and experience.
Too often, I meet with people who purchased a product or borrowed money simply because their adviser or a particular salesperson said it was a good idea.
I believe in what I call needs-based advice. By that, I mean you should take the time to find an adviser who will make certain that your personal goals and objectives are well matched to your financial plan or actual needs.
I have hope because recent events and this new period of what I like to call “economic reality” are changing people’s attitudes. We’re seeing a dramatic surge in interest for financial advice, direction and assistance.
I have always been and shall remain a strong advocate for financial literacy. And given all that has happened in the economy, I am hopeful that our educational system — despite the many challenges it faces — will find a way to increase the teaching of basic financial subjects. We try to do our part, by providing personal finance education to our employees.
It’s crucial that people understand the importance of having a solid financial plan and budget. I am always amazed to meet with people, only to find out that they have no plan or budget.
My career has allowed me to witness, first hand, the incredible value and peace of mind that comes with a proper budget and plan, and I sincerely hope that this trend continues. We cannot afford to return to assuming that we can borrow our way to prosperity.
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