Avatars and Personal Finance

To be clear, I haven’t seen the recent James Cameron's movie “Avatar” – yet.

I have however, recently created my avatar on X-Box – it only took me 90 minutes to decide that what I see in the mirror absolutely cannot be what I created on the screen. During the process, I had to ask, “what the heck is an avatar anyway?”

Wikipedia says, “An avatar is a computer user's representation of himself/herself or alter ego, whether in the form of a three-dimensional model used in computer games,] a two-dimensional icon (picture) or a one-dimensional username used on Internet forums and other communities, or a text construct found on early systems such as MUDs. It is an object representing the user. The term "avatar" can also refer to the personality connected with the screen name, or handle, of an Internet user. This sense of the word was coined by Neal Stephenson in 1992's Snow Crash who co-opted it from the Sanskrit word avatāra which is a concept similar to that of incarnation.”

Huh?

In the cyberworld, Web customization is king--just as the millions of user-centric YouTube videos and Facebook pages attest. It's not surprising that avatars, digital representations of you, are growing in function and form.

The collection of downloadable and Web-based avatar generators range from the more cartoon-like engines to three-dimensional architectures where users give life to their pint-size replicates.

It occurred to me that wouldn’t it be a great teaching tool to create an avatar of yourself and then insert it (you) into a digital world and try different personal finance strategies to get a glimpse into your future?

How about going on a spending spree with credit cards and then you lose your job so now you can’t make the payments? Or buy a huge house before the real estate market tanks and now you owe more than it’s worth?

Then again, perhaps we’re all avatars in the current recession – except that we can’t reboot the darn thing.

The Sacred Cow of College Education

The following facts and figures are based on the Project on Student Debt’s analysis of data from the National Postsecondary Student Aid Study (NPSAS). Conducted by the U.S. Department of Education every four years, NPSAS is a comprehensive nationwide survey designed to determine how undergraduate students and their families pay for college.

The data from academic year 2007-08, recently updated this month, show continued increases in student loan borrowing. Wow what a big surprise.

Private for-profit colleges saw the largest recent increase in the proportion of students graduating with debt. In 2004, 65% of students graduating from all four-year colleges and universities had student loans. At public universities, 62% graduated with debt; at private nonprofit universities, 72%; and at private for-profit universities, 85%.

In 2008, 67% of students graduating from four-year colleges and universities had student loan debt. That represents 1.4 million students graduating with debt, up 27% from 1.1 million students in 2004.

• 62% of graduates from public universities had student loans.


• 72% of graduates from private nonprofit universities had student loans.


• 96% of graduates from private for-profit universities had student loans (a major increase from 2004, when 85% of these graduates had student loans).


• Average debt levels for graduating seniors with student loans rose to $23,200 in 2008 — a 24% increase from $18,650 from when they began as freshmen in 2004.

At public universities, average debt was $20,200 — 20% higher than in 2004, when the average was $16,850.
At private nonprofit universities, average debt was $27,650 — 29% higher than in 2004, when the average was $21,500.
At private for-profit universities, average debt was $33,050 — 23% higher than in 2004, when the average was $26,850.

Meanwhile, employment prospects for young college graduates have soured along with the economy. The unemployment rate for college graduates aged 20-24 was a challenging 7.6% in the third quarter of 2008, the highest third quarter rate since 2002 - before we were even talking about the Great Recession. By the third quarter of 2009 - one year later - it had risen to 10.6%, the highest on record. The majority of the class of 2008 fell into this age group in both years.

I’ve seen reports that for the most recent graduating class – 2009 – the unemployment rate hovers round 25%.

So let’s see if I have this right:

1. We told our kids to make sure you get a college education; it’s your ticket to a successful life – even if it means eating at a food bank.


2. Now that they have graduated, the job prospects are bleak because of the economy and because they’re competing with a zillion other people with work experience and not just academic experience.


3. They’ve added a huge monthly loan payment to pay for this education just as they are trying to figure out how to move away from home, begin an independent life, and start to define themselves as an adult.

But don’t worry – the colleges and universities all got paid.

Watch Those Fees!

From various accounts, the nation's financial institutions will be bombarding customers with new fees and products in 2010 as they try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.

So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, financial institutions are introducing new types of accounts that they hope will bring in new customers and reduce their acquisition costs.

For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit financial institutions from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.

Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.

In addition to the credit-card rules, the government will crack down next year on ways financial institutions charge overdraft fees, which are assessed when a customer overdraws an account.

New Federal Reserve rules will require financial institutions to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which financial institutions typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that financial institutions generate $25 billion to $38 billion a year in overdraft fees.

One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in financial institutions has eroded in the past six months. Call me old-fashion, but it seems to me the way to get the love back is NOT to ramp up the fees. But to be fair, how else are the financial institutions supposed to make money? Nobody holds onto their loan portfolios anymore so it is what it is (to quote a certain New England football coach)

To make up for lost overdraft revenue, financial institutions are promoting greater use of debit cards, which can be more profitable for financial institutions than processing paper checks, and new types of checking accounts. Other financial institutions are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.

It’s always about the dollars……

Power of Parents

For the past 12 years, I have been screaming into the wind that we need to increase the emphasis of personal finance within our educational system. I have been trampled by all of the arguments relating to availability of resources (financial and teacher), assessment testing pressures, unfunded mandates, local control desires, curriculum rigor, etc. etc.

Well, we just finished one of the most intense decades from a financial point of view – from enormous national debt levels to the highest unemployment rates in almost 30 years to an astonishing denial of our own sense of individual entitlement.

So who will teach the next generation the lessons learned from the last decade? I think the answer is the same as it has been for past generations – parents. Take a quick Google search around the Internet and you’ll find research after research that supports what our gut has told us all along – that parents are their children’s strongest role model and greatest influence. Our children will eventually adopt many of our values and types of behavior, just as we have been influenced by our parents. Children notice and respond to the way we deal with problems, express feelings and celebrate special occasions.

As a parent, it is impossible to not model. Our children will see our example—positive or negative—as a pattern for the way life is to be lived.

Keep in mind, though, that there is no such thing as an ideal family. Every family has problems, and everyone makes mistakes. Young people make mistakes, and parents make mistakes. What’s more important for learning is the way we handle the situations when we do make mistakes. Honestly admitting when we are wrong and making amends can be a powerful way to model the behavior you want our kids to adopt.

Independence is a natural development, especially among older children. Although our first instincts are to focus on protecting and helping our children, it's also important to encourage their efforts to be independent. A parent's role includes teaching children how to make decisions and how to draw on personal values when dealing with peer pressure.

Further, as every parent of a teen knows, at this stage of development, young people often have very strong ties to their friends. Our role as a parent tends to shift. We are no longer the first person our child always turns to for advice and help, and we move into a new role—that of listener and coach.

For some reason when it comes to talking to our kids about money, we get all jammed up. Who cares why it happens – let’s figure out a way to get past it so we can help our kids.

On February 6th, we are holding our 5th annual Financial Fitness Fair for parents and their high school children. The over-arching goal is to make it OK for families to have discussions about money and other financial topics. It will be these discussions that will help them to learn the lessons of the past decade.

Come and spend six hours with us as a family and learn how to get started. And tell your friends and other family members too. We need to do it for our kids. Details are here.