Making Sense of Cents: A Debtor Education Program: Portugal

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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 [phone]
• E kgross_at_nyls.edu
• 
  Prof. Susan Block-Lieb
• Fordham University School of Law
• 140 W.62nd Street
• New York, NY 10023
• F 212-636-6782
• Fax [phone]
• Esblocklieb_at_mail.lawnet.fordham.ed
  u

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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.

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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?

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Is debtor education a good thing?

• Many would argue that it is too late to provide
  financial literacy training to debtors in
  bankruptcy.
• We dont 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. . .

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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.

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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.

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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.

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Pilot Project Making Sense of Cents

• Coalition for Consumer Bankruptcy Debtor
  Education
• Eastern District of New York

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The Classroom Component
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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.

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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.

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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.

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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.

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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.

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The Empirical Study
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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.

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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.

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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

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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.

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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.

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Attitude Question

• Questions for each of the 4 Scenarios
• Valence of ones own feelings to rent the
  furniture (displeased to pleased)
• Importance of feeling to rent for decision
  (unimportant to important)
• Valence of the feelings of family and friends
  (displeased to pleased)

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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)

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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
• 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? _____

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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? ? _____

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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 dont charge
  interest.

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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 debtors age,
  education, ethnicity or gender?

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Expected Results Positive Attitude, Knowledge,
and Behavior Scores
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What weve learned so far

• Think BIG start small.
• Consensus is great, but it takes time, effort and
  patience.
• When in doubt, dont wait call in the experts.
• Grant writing is an art and we are not artists.
• Remember to remember.

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What weve 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.