SALT LAKE CITY — "We couldn't figure out how everyone had a home but us," says Ann Neslen of the three years she and her husband Jared first took a class and then socked away little bits of cash toward the purchase of one. It sometimes seemed they were the only ones who couldn't just jump right into ownership.
In truth, they were just better prepared than most when they finally plunked down a hefty down payment and signed the mortgage paperwork two years ago.
She says they were cautious. "Wise" is how financial experts see the Neslen's make-haste-slowly approach to what for most will be the biggest purchase of a lifetime, buying a house.
An alarming number of people don't have the basic financial information they need to make wise financial decisions and manage their money well, according to state Sen. Pat Jones, D-Salt Lake. And she's determined to do something about it.
Tuesday, Jones will kick off a week of financial challenges under the title "Utah Saves Challenge Week," complete with knowledgeable partners, legislative backing and the chance to win some prizes by the end of the week if you take the challenges. The grand prize is a $500 Utah Education Savings Plan scholarship provided by Jones. There are also three $100 gift cards to Temple Square Hospitality, five $100 UESP scholarships provided by UESP and a $100 savings account provided by Zions Bank. It promises, says Jones, to be educational and enjoyable.
"I think so many people lack financial knowledge and education," says Jones, who notes that Utah wins acclaim in the business world for many aspects of its fiscal management as a state. But it's also near the top in individual home foreclosures and personal bankruptcies. There's a disconnect somewhere.
Utah Saves Challenge Week will formally begin Tuesday as Gov. Gary Herbert signs the Financial Responsibility Concurrent Resolution, sponsored by Jones and Rep. Patrice M. Arent, D-Salt Lake, and Jones announces the first of what will be a week's worth of daily financial challenges. Those who take the challenges can log onto Imagineahappieryou.com to report on each day's challenge. Participating in even one makes the individual eligible for various prizes.
For every couple like the Neslens who are taking financial literacy classes of some sort — they took a homebuying course, but there are others on debt reduction, investment strategies and more, many of them free — there are people who don't even know their own basic financial situations, much less how to build a solid future. It stuns Al Bingham, of Republic Mortgage, who wrote a book on the FICO credit scores called "The Road to 850."
"I think the thing that really catches me more so than anything is that people don't understand how much having a score that's above average or below average costs them," he says."
A person's FICO credit score (the name derives from the software that calculates it, produced by Fair Isaac Company) impacts the cost of financial services, interest rates, auto insurance and more. Bingham says getting into private school, having elective surgery, scoring a decent interest rate on a student loan and being allowed to rent a certain apartment could all hinge on that three-digit number. It no longer affects solely whether you get a loan, but also now how much you pay for it, as well. A few-point drop on the FICO can add thousands of dollars to a mortgage, he says. Prospective employers may look at credit reports.
A car insurance agent told him recently that the FICO score is the second-highest factor in determining car insurance premium, behind whether the person has had a driving-under-the-influence conviction. Speeding tickets and accidents may count less than the credit score toward the cost of insurance.
When the mortgage market collapsed three years ago, followed by the credit card market, experts like Bingham said credit limits would drop and interest rates would shoot up substantially. That's what happened. And in the new credit world, making small changes can significantly alter your credit score. People who cancel a credit card, thus reducing credit available to them, for instance, see their score drop. And Bingham says even so-called experts don't necessarily understand the new rules. He helps write a section of an accreditation test for mortgage and lending staff. The pass rate on the credit section among those who work directly with consumers is in the low 30 percent range, he says. "What I realized is that loan officers and lenders don't always give advice you should follow. It's very complex." But if people knew how much extra they pay for things because of their credit scores, they'd be stunned, he adds.
That somebody needs to teach averages Americans about money is the consensus of a growing crowd that just happens to include Jones, Bingham and many more, including other local Utah Saves Challenge Week partners.
And inroads are being made. A program called Understanding Your Credit Report is now being offered at some high schools. The Utah Legislature, Bingham says, is considering funding it. And a couple of years ago Jones sponsored a financial literacy program that's now imbedded in public schools. There's a website, put together by the State Office of Education, Financeintheclassroom.org, where anyone can go and get very good lessons. "It's a fabulous website, but very few people know about it.
Preston Cochrane, CEO of AAA Fair Credit Foundation, another Utah Saves Challenge partner, is used to seeing people from all walks of life who are struggling financially. But he says he has been struck recently by an increase in people 65 and older who have "substantial amounts of debt and inadequate savings." People are cashing out their retirement to help family members with kids, health issues, unemployment. Or they didn't have adequate retirement savings to begin with.
And they're not the only ones. When someone has been unemployed for 18 months and depleted savings, credit cards can be a lifeline, Cochrane says. Some have taken a reverse mortgage on their home, "which may or may not be the best choice." And health or medical issues have mowed down others.
There's something mysterious about finances for people who've never had a class or whose parents never talked to them about it. Still, some of it's really pretty basic, according to Cochrane. "If you're too far in debt, you really just have gotta stop digging," he says. "If you're putting new debt on top of old, that's a red flag you're living beyond your means. Lock up the credit cards, put them in the freezer in ice. If you just think it will get better and you'll find a job or whatever and continue to go at it as usual, that delay in seeking assistance makes it worse."
While saving is crucial, if you're paying high-interest debt, focus needs to shift to paying that down first. Remember, he says, paying off debt is a form of saving.
The best case financial scenario begins when you're young. "Committing to save, learning to save, having an emergency fund, putting whatever you can from each pay check into a savings account," says Cochrane. Any extra money — business, birthdays, windfall — that money goes into savings. That can help hopefully through short-term emergencies. "For the older population, just financial organization can be a challenge. Someone passes away, the one who paid the bills, the one who knew the passwords, who knew where the account resides, it's a lot of work putting pieces together."
There is no magical formula. Just make sure you're doing what you can every day, staying educated, they agree.
Both Jones and Cochrane are hopeful that Americans are getting the message. Savings rates, basically flat before the recession started, are up.
"I think people are starting to ask the difficult questions or reevaluate their own spending and savings. We are seeing people increase savings efforts and scrutinize where they are investing their money. They are looking at every facet of their finances with a magnifying glass," Cochrane says.
The other big change? They're beginning to talk about finances with each other. It used to be the big taboo subject, but people are beginning to discuss finances more openly and help each other figure it out.
Utah Saves Challenge Week partners include Utah Saves, Utah State University Extension, Republic Mortgage Home Loans, Utah Educational Savings Plan, America Saves, Zions Bank, Believe Financial Empowerment, Finance in the Classroom and Imagine a Happier You, which is Deseret Media Companies' financial empowerment campaign that targets women.
The Deseret News will publish articles starting Tuesday with each of the daily challenges. You can also learn more about aspects of finance including classes that are being held at various locations around the state by going online at Imagineahappieryou.com.