Are You Financially Literate

According to the Federal Reserve, 43% of Americans live above their means. Many Americans live paycheck to paycheck and are living in either low-income or middle income households – some just one paycheck away from being homeless. If they lose their jobs, they have no backup plan, no savings and no safety net to help them through a financial crisis. Some school systems do not teach financial literacy because they don't feel it is a priority.

Unfortunately, students who are not financially literate grow up to be adults who are not financially literate. These same adults develop bad spending habits, have bad credit and file for bankruptcy or foreclosure. If financial literacy was taught in all the school systems in the country, many Americans would be in a better financial position because they would be empowered with knowledge to help them make good financial decisions and they would have the tools to recover from a financial crisis.

Here are some questions that will help you determine if you are financially literate. If you answer "no" to 5 or more questions, you may need to gain some knowledge about financial literacy and change your thoughts about money.

1. Do you have a bank account?
2. Do you frequently overdraw your bank account?
3. Do you have an emergency fund? Do you have at least 9-12 months of savings in an emergency fund?
4. Do you cash your checks at a check cashing store or liquor store?
5. Do you pay bills late?
6. Do you have a retirement account or do you invest?
7. Do you know what your current credit score is?
8. Do you write all ATM/debit card transactions in your check book?
9. Do you regularly compare your bank statement with your receipts?
10. Do you have a budget?
11. Do you know how much debt you owe?
12. Do you know your net worth?
13. Do you owe taxes or have you owed taxes in the past?

If you are not financially literate and don't the basic about personal finance I encourage you to read self-help books on personal finance that discuss budgeting, investing, retirement, saving, paying for college and taxes. There are also several websites available such as CNN Money, Yahoo Finance, Bankrate.com, MSN Money and morningstar.com. The more you know the more you grow. Money can generate wealth or generate debt, you make the choice.

What the Financial Reform Means for You

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection financial reform bill on July 21, 2010. President Obama stated that there will be no more tax-funded bailouts for the financial industry.

The law permits the FDIC to borrow taxpayer money from the Treasury temporarily to help cover the costs of closing large banks that would have to pay the Treasury back over time. The law will allow the government to eliminate and split up companies that may weaken or threaten the economy.

The law will require regulators to look for risks in the financial system and will create an independent consumer protection agency, the Bureau of Consumer Financial Protection within the Federal Reserve to write and enforce new regulations regarding credit and lending.

Companies will have to meet tougher standards. However, there will still be different standards for different types of companies: for credit unions, thrifts, state-chartered banks, etc. The law will require the Treasury department to monitor insurance companies which are currently regulated by the insurance commission of each state.

The law will make the Office of the Comptroller of the Currency the only regulator for U.S. based banks with branches in more than one state. Previously, the Office of Thrift Supervision oversaw these banks.

The law will require banks to have more capital (money that is readily available) and regulators will decide how much capital banks must have to cover unexpected losses.

The law will require that brokers offering personalized investment advice must act in clients' best interests. The law will hold brokers to the same standard that financial advisers already must meet.

The law will allow regulators to monitor credit card companies and banks. The law will require credit bureau agencies to be more accountable. The law will allow regulators to limit the fees retailers pay when consumers make purchases with debit cards. The law will allow the Bureau of Consumer Financial Protection to write rules and eliminate products it feels are unsafe, such as interest-only mortgages. Investors will be able to sue agencies for ignoring risks.

The law will let shareholders of public companies to provide input on the pay packages for top executives. They will be able to vote to approve or disapprove of pay packages. The law will ban bonuses for brokers which were based on the cost of a mortgage. Brokers gave borrowers higher rates and mortgages even when lower rates were available based on credit history.

The law will require that lenders verify that a borrower can afford their mortgage and may be fined if they fail to review a borrowers' income and credit history.

Financial Reform - Keep Your Fingers Crossed

Your complaints have been heard. On June 30, 2010, the House approved a bill to implement financial reform. The bill authorizes financial industry regulators to impose restrictions on large financial companies that are in trouble and will create a way for the government to liquidate failing companies that will be at no cost to taxpayers, which is very similar to the process the FDIC uses for liquidating banks that have failed.

Regulators would have more options to impose restrictions on the largest financial companies which could help smaller banks have more competitive advantages. The Senate will vote on the bill after the July 4th recess. If the bill is passed this will be a historic moment in the financial industry.

To ensure the Senate passes the bill contact your senators at www.senate.gov/general/contact_information/senators_cfm.cfm. You can also thank you your house of representatives for passing the bill at www.house.gov/.