High Finance and Financial Education

Web-based financial education sites are eager to tell you how to assess your own credit reports and scores. But it’s not easy to find a credibility report on the sites themselves, some of which are sponsored by major players in the game they promise to explain.

Better Money Habits conveys useful information in a friendly and effective way. But, at least to date, it omits some of the most important information ordinary people need. Long on advice about how to qualify for more credit, it remains short on advice on how to shop effectively for lower interest rates.Bank of America recently teamed up with Salman Khan of Khan Academy, a highly respected on-line educator, to promote a website, Better Money Habits (a phrase they have officially trademarked). Huffington Post has a new collaborativefinancial education section.

Warnings are not entirely missing — viewers are urged not to sign up for credit cards just because they look pretty or offer store discounts. But the group of videos entitled “Understanding Credit” urges viewers not to pay off their entire balance immediately in order to develop a better credit record history – rather unseemly advice coming from the third largest issuer of credit cards in the United States, which profits from the resulting interest payments.

The video that best showcases Mr. Khan’s winning style of presentationcompares the total interest paid over the life of a $1,000 credit-card loan to buy a computer in two different scenarios, both at an annual percentage rate of 22.9 percent. In the first scenario, the borrower pays only the required monthly minimum payment; in the second, the borrower pays an additional $10 per month.

The comparison makes the second option look attractive by comparison, making it clear that the first option leads to a form of costly debt peonage. Yet the second option is hardly a good choice either, adding up to $443.29 in interest over the life of the loan. You don’t need a computer to figure out that’s not a great way to finance the purchase.

A comparable personal loan at my local credit union charges a far lower annual percentage rate of 9.9 percent. Paying off such a loan would also help establish a good credit record.

In general, university credit unions offer students better and more cost-effective services than commercial banks, but Bank of America is unlikely to point that out. Nor does it have much incentive to link to consumer-directed websites such as Credit Card Forum, which publishes detailed ratings of credit cards (including those issued by Bank of America) along several dimensions.

Those who worry about the devilish features of Better Money Habits can consult Dave Ramsey’s Financial Peace University, which purports to teach “God’s way of handling money” and urges young people to avoid going into debt if at all possible. Ironically, the actual courses offered charge a hefty fee, and the site promotes a number of specific businesses, as well as its own.

Some excellent noncommercial financial education materials are available online, including many offered by the National Endowment for Financial Education. These include a feature entitled “Life without credit cards – it can be done.”

The new federal Consumer Financial Protection Agency also offers reliable materials intended to help consumers understand their credit card agreements, as well as a fact sheet documenting the results of new regulations imposed in 2010 under the Credit Card Accountability, Responsibility and Disclosure Act. These regulations have reduced interest rates and penalty payments, as well as enforcing greater clarity in the explanation of credit card costs.

A recent survey financed by Bank of America found that 78 percent of adults in the United States believe it is difficult to learn about personal finance, and 43 percent worry they have missed good financial opportunities as a result.

The survey also found that the problem is not lack of information: Forty-two percent of adults say they are overwhelmed by the amount of information available. A related problem is uncertainty about whom to turn to for advice; 28 percent say they don’t know where or whom to turn to.

In general, it’s a good idea to turn to a source that doesn’t stand to gain from its own advice.