Congresswoman Johnson introduces National Financial Literacy Act

With the prospect that under the "Bad Bank" scenario, the taxpayers will own these Troubled Assets which are comprised of "Toxic" mortgages, the need for Financial Literacy becomes more critical.

In effect, the US government (taxpayers) will be bearing the loss on these “toxic” mortgages. The growing concern is that these losses will continue to materialize as defaults increase with the projected 8 million foreclosures expected over the next four years. It seems that the key to this crisis IS THE BORROWER!

The underlying “troubled assets” are the “toxic” mortgages such as Alt-A, Option ARMs, Interest-Only, etc. that are interwoven into the Mortgage Backed Securities, Collateral Debt Obligations, and other derivative investments that are leveraged into investments valued in the trillions of dollars worldwide.

Since the valuation of these “toxic” assets depends on the Borrower’s ability to make the monthly mortgage payments, the key to a solution of this Economic Crisis is the Borrower!

Everyone is betting that the Borrower will default and foreclosures will follow. The high rate of foreclosure should have been expected because the Borrower has no concept of managing money and is like a "Boat without a Paddle".

The Borrower is in desperate need of "Financial Guidance" in this complex economic environment that requires "informed" financial decision-making. The Subprime Mortgage Crisis, out-of-control consumer spending and credit card usage, and the spike in foreclosures and bankruptcies provide evidence of that fact. Loan modification or "Bailout" will not work. Even after loan modification, the re-default rate was 60% within 6 months!

The solution is a program of Immediate and Specific Financial Guidance that will help the Borrower "naturally" be able to make the monthly mortgage payment, without "bailout" or extensive loan modifications which have proven to be a failure. This program is NOT the so-called Financial Literacy initiative that simply disseminates "information", but rather it is a program that will help the Borrower "understand" how to manage money and avoid the pitfalls that have previously caused financial distress.

Borrowers, both small business and individual, require Immediate and Specific Financial Guidance in order to avoid default and foreclosure. As the Borrower is successfully guided to avoid default, the financial and housing markets will respond favorably. The result will be a reversal of the downward trend in the valuation of the “troubled assets”.

If we are successful, we can turn this crisis “all around” and stimulate the economy “naturally” rather than by “bailout” which does not guarantee success.

Instead of the expected losses, the US government (taxpayers) will benefit from the unexpected gains that will result as these investments grow in value.

Samuel D. Bornstein Professor of Accounting & Taxation Kean University, School of Business, Union, NJ Tel: (732) 493 - 4799 Email: bornsteinsong@aol.com

ProfSamuelDBornstein Anonymous

9 months, 4 weeks ago
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Pavel...

There is a schism between what we need to know and what we actually understand in our complex financial and credit-based economic environment. This is because, at least in part, we teach remarkably little about money and credit in our schools, and unfortunately, what is taught is often not understood.

School would be a good place to teach about "money", but it has not worked. Whatever was "learned" was often "forgotten".

Unfortunately, traditional education is best represented by.. 1) Memorize 2) Regurgitate 3) Forget

The problem is that HS students who took courses in Financial Literacy in HS scored lower than students who never took these courses. In fact, traditional financial literacy is merely disseminating "information". What is needed is an "understanding" of money and how to use it. All studies that I have seen attest to the fact that we must change the way we "teach" financial literacy.

ProfSamuelDBornstein Anonymous

9 months, 4 weeks ago
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Seems like that horse left the barnyard at least 5 years ago.

snowboard9 Anonymous

9 months, 3 weeks ago
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We need teaching of ethics not financial training.

We are broke, but our politicans continue to spend money we don't have to try to fix problems which can't be solved.

Greed has been around as long as Moses, and teaching financial responsibility isn't the realm of government. Especially when government is the cause of financial negligence.

CitizenKane Anonymous

9 months, 3 weeks ago
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I am all for anything that prepares people to be more responsible. It’s going to be some great effort though getting people to change their habits. There will still be a considerable portion of the population who just don’t want to learn or take responsibility. It’s so much easier to stand there looking dumbfounded, saying “But I didn’t know...”

jtmbls Anonymous

9 months, 3 weeks ago
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Teaching ethics would probably work about as well as teaching abstinence. Good luck.

jtmbls Anonymous

9 months, 3 weeks ago
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I hope Rule 1 in the book is "don't spend money you don't have."

Rule 2 will be to vote out politicans that break Rule 1, including EB Johnson.

CitizenKane Anonymous

9 months, 3 weeks ago
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Excellent. The more financial education being delivered in the greater variety of venues the better. Sammy www.itsahabit.com www.sammyrabbitblog.com

savingsammy Anonymous

9 months, 3 weeks ago
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Did anybody read this closely? It AMENDS the CRA (Community Reinvestment Act) which is one of the biggest POS ever laid on the American public! Don't amend it. Kill it.

"It provides for small businesses and corporations that offer free financial education to receive preferential treatment for government contracts, and for those small businesses to receive tax breaks."

Hey, no abuses possible there! GAG!

pabloindallas Anonymous

9 months, 3 weeks ago
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While I certainly do applaud our esteemed Congresswoman for introducing this legislation I am concerned that the nature of the program is open to "for-profit" corporations and businesses to offer financial literacy programs for tax breaks, etc. I own a business finance consulting firm in NJ and I assist business owners with their cash flow and working capital. I am also a published financial author and a member of the NJ Coalition for Financial Education (a 501c3 Non-Profit organization). I have been teaching financial literacy courses to teachers, financial professionals and to the general public for several years and can attest to the need for more funding to spread the knowledge. I am very hopeful that with this new program we can provide more programs to our neighboring school districts as I believe that teaching a child or an adult that wants to learn will stick with them forever. While I do not believe the current financial crisis is due wholly to "toxic mortgages" as Professor Bornstein has indicated above, I do believe that credit was given to people that were undeserving with the sole purpose of expanding the "American Dream of Home Ownership" that President HW Bush and President Clinton pushed while in office. Over the past 10 years that I have been providing mortgages I can say that many times we have provided loans to people that we knew would default but because they met the guidelines set forth by the lending institutions, we were able to provide them a mortgage. How many have defaulted I do not know and I advised each and every client about their rights and all of the nuances of the loan program in which they were getting their home. Due to this crisis in the housing market I hope a member of Congress introduces legislation that each and every loan officer is required to be educated and licensed as a fiduciary, just like financial planners. And it wouldn't hurt if each and every new mortgage loan included a 1 hour consultation with a non-profit housing counselor as well. Steve Felt www.creativebusinessfinance.com

bizmoney Anonymous

9 months, 3 weeks ago
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I believe this new act is just what was needed to push private businesses to help in the massive effort to improve America's financial literacy. The more ways we can get this critical information to kids, the better. Here is one such company that is already taking that initiative. http://www.kidscreditschool.com

dblackhall Anonymous

9 months ago
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