making sense of cents: a debtor education program: portugal contact:: prof. karen gross new york law...
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Making Sense of Cents: A Debtor Education Program:
Portugal
Contact:: Prof. Karen Gross New York Law School
57 Worth Street New York, NY 10013
F :212-431-2154 Fax :212-431-1864
Prof. Susan Block-Lieb Fordham University School of Law
140 W.62nd Street New York, NY 10023
F: 212-636-6782 Fax: 212-636-6899
Is debtor education a good idea?
• Growth in consumer credit has been astronomical over the past twenty years.
• Increasing competition within consumer finance industry has pushed lenders to seek out new markets – including sizable increases in the subprime lending market.– Subprime lending is disproportionately concentrated in
minority and low-income neighborhoods;– Some subprime lenders have employed predatory
practices to induce growth in this market.
Is debtor education a good idea?
• Consumers regularly are exposed to a complex array of credit products.
• Consumer protection regulation requires lenders to provide disclosure, but how effective are disclosure regimes in the absence of financial literacy training?
Is debtor education a good thing?
• Many would argue that it is too late to provide financial literacy training to debtors in bankruptcy.
• We don’t disagree that elementary, middle and high schools, colleges and community centers should be teaching our children and young adults how to balance check books, devise spending plans, and distinguish between credit and debit cards . . .but. . .
Is debtor education a good thing?
• Bankruptcy (“over-indebtedness”) provides a “teachable moment.”
• We think that debtors are ready to hear and learn about personal financial management upon the filing of a bankruptcy petition.
• Debtors can benefit from a financial literacy course, no matter why they filed.
Is debtor education a good thing?
• In our credit economy, debtors cannot obtain a “fresh start” following bankruptcy armed with simply a discharge.
• Financial literacy training renders debtors’ fresh starts meaningful.
• Debtor education empowers consumer debtors to re-enter the consumer finance market after bankruptcy.– Credit is not just a luxury and privilege for the chosen
few.– Diminished access to credit creates a type of aphasia.
Financial education is most needed by those who are financially vulnerable.
Financial education is an important tool for all consumers, but it is indispensable for consumer debtors looking for a fresh start after bankruptcy.
Pilot Project: Making Sense of Cents
Coalition for Consumer Bankruptcy Debtor Education;
Eastern District of New York
The Classroom Component
Teaching Financial Literacy:
• All consumer debtors who file either a chapter 7 or chapter 13 bankruptcy petition in the EDNY (Brooklyn, Queens, Staten Island, Long Island) can volunteer to take a three-hour long personal financial management course taught free of charge through the Coalition.
• The Coalition anticipates educating up to 1,200 individuals between September 2001 through January 2003.
Curriculum:
• The Coalition has developed a curriculum to be used in these training sessions called “Making Sense of Cents.”
• The curriculum addresses both the substance and psychodynamics of borrowing,
• It has four goals:– Assist debtors in becoming more financially literate;– Alert debtors to uses and misuses of credit;– Help debtors develop savings and spending plans;– Provide debtors with a vocabulary for discussing financial
issues.
Teachers:
• The Pilot Project relies on volunteer teachers: bankruptcy lawyers; bankers; social workers; educators.
• The Coalition has conducted three “train the trainer” sessions, and trained approximately 50 teachers.
• The “train the trainer” sessions combine:– Substantive information about credit and bankruptcy;– Material on the psychology of money and debt; and– Adult learning techniques.
Community Development:
• Currently, the curriculum is written in English, but the Coalition plans to translate the materials into Spanish and Chinese.
• The Coalition also plans to train teachers who can conduct classes in Spanish and Chinese, and then reach out to the Hispanic and Asian debtors in EDNY.
Website:
• Good pedagogical techniques anticipate the provision of continuing educational opportunities.
• The Coalition also plans to develop a website where debtors will be able to interact with their instructor and fellow classmates – post questions and supplement the course.
• We do not propose that the website substitute for a live classroom setting.
The Empirical Study:
Questionnaire:
• Developed by Dr. Richard L. Wiener, Chair and Professor of Psychology, Baruch College, City University of New York.
• Employs sophisticated survey methods to compare and determine changes in attitudes and behavior about money, credit, borrowing, and spending habits.
Short term longitudinal study:
• Two sets of questionnaires:– Once near time of filing of bankruptcy petition;– Again after some debtors have had a chance to
take the class and reflect on the material covered in that setting.
• Separated by three-month period.
Four respondent groups:
• Primary: debtors in EDNY who volunteer and take financial literacy course offered by the Coalition
• Control: debtors in EDNY who volunteer but do not take financial literacy course
• Control: debtors in EDNY who do not volunteer for financial literacy course
• Control: “debtors” who have not filed for bankruptcy in EDNY or anywhere else
Information sought in questionnaire:
• Demographic information;
• Questions to elicit information about respondents’ – Attitudes about borrowing and spending;– Money behavior;– Substantive knowledge about basic financial
information.
Attitude Question
• Attitudes toward irresponsible spending
• Theory of Reasoned Action:• Behavior = Intentions X Control
• Intentions = Attitudes X Subjective Norms
• Four scenarios: (scenario #1)1. Imagine that you live in an apartment filled with second-hand furniture. You learn about a store that will furnish your whole apartment for $600 per month. They can deliver the furniture within 24 hours.
Attitude Question
• Questions for each of the 4 Scenarios:1. Valence of one’s own feelings to rent the
furniture (displeased to pleased)
2. Importance of feeling to rent for decision (unimportant to important)
3. Valence of the feelings of family and friends (displeased to pleased)
Attitude Question
• Questions for each of the 4 Scenarios:4. Importance of others’ feeling for
decision(unimportant to important)
5. How much control do you have over the decision (no control to complete control)
6. How likely are you to rent (unlikely to very likely)
Behavior Measure
• Participants are asked to identify and then describe a series of economic actions that they have taken within a set period of time before bankruptcy and a set period of time after debtor education
EXAMPLE:1. Have you made a deposit into your checking account in the
last month? (circle one)
Yes No a. If yes, approximately how much were your total deposits? _____
Behavior Measure
EXAMPLE:2. Did you have any unpaid bills at the end of last
month? (circle one)
Yes No a. If yes, approximately what is the total amount that you
left unpaid? ? _____
Knowledge Question
Example Question: If you make only the minimum monthly payment on your
credit card bill each month, the amount of interest you will pay will be a. more than if you had made larger (greater than minimum) payments each month. b. less than if you had made larger (greater than minimum) payments each month. c. the same no matter what the size of your monthly
payment. d. zero, because credit cards don’t charge interest.
What do we hope to learn?
• Does financial management education increase participating debtors’ knowledge base at a greater rate than any of the control groups?
• Does it alter debtors’ attitudes about spending and borrowing?
• Does it affect their spending and saving behavior?• If so, does this correlate to a debtor’s age,
education, ethnicity or gender?
Expected Results: Positive Attitude, Knowledge, and
Behavior Scores
0102030405060708090
100
Pretest Posttest
CompletersVolunteersControlsConsumers
What we’ve learned so far:
• Think BIG – start small.
• Consensus is great, but it takes time, effort and patience.
• When in doubt, don’t wait; call in the experts.
• Grant writing is an art and we are not artists.
• Remember to remember.
What we’ve learned so far:
• When puzzled, move outside academia and brainstorm.
• Politics is inevitable, even on a seemingly apolitical topic.
• Watch out – success breeds more obligations.• Develop a thick skin; even the best projects have
detractors.• Building a pilot project is like building a house.