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Small Business Digest


Debt Illiteracy Imperils America's Families, Professors Say

Many Americans don’t understand how interest rates work or the basic decisions associated with borrowing money. Couple that lack of knowledge with high amounts of credit-card debt and very little savings, and it’s no wonder that two financial experts are concerned about the nation’s fiscal future.

In an article published in Harvard Business Review, Annamaria Lusardi, the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College, and Peter Tufano, the Sylvan C. Coleman Professor of Financial Management at Harvard Business School, describe U.S. workers as “ill-prepared CFOs of their own lives” and say companies would have more-stable employees if they helped their staff gain control of their personal finances.

“In light of the money consumers are pouring into credit-card fees and interest payments, wouldn’t it be wise for companies to put some effort into improving debt literacy, rather than focusing workplace programs exclusively on retirement savings?” wrote the professors in “Teach Workers About the Perils of Debt.”

Paying down debt and building a nest egg can be tough, so the financial experts say companies should offer some educational tools, such as adding a debt-literacy component to their employee-assistance programs. The authors also suggested that new hires be shown videos illustrating successful financial planning. 
Nationwide Support Services, a debt-settlement processing company, says it began offering its own version of financial services to its employees more than a year ago.
The company plans to take its venture public with the launch of “The Frugality Game.” Through a series of challenges and using online tools, the interactive program teaches users how to build financial strength.
“We knew a long time ago how important these types of financial tools were,” says Joanne Garneau, chief executive of Nationwide Support Services, in a prepared statement. “That’s why we invested in developing them for our employees - but there is still much work to be done.”
The game follows the Frugal family as they travel the world looking for adventures. By completing tasks and securing tokens, “travelers” learn tips to curb spending, ramp up savings and build their financial future.
“Why shouldn’t straightening out the long and winding road of your finances be fun?” the game description reads.

According to a June 2009 survey conducted by the market-research firm TNS, the professors say almost half of Americans reported that they likely wouldn’t be able to come up with $2,000 in 30 days – either from savings, borrowing, friends or family – to meet an unexpected financial need.
The professors say millions of family CFOs are “overseeing households with too much debt and too thin a buffer for emergencies.” Compared with a generation ago, American households now have more than twice as much debt.
“Unless people are better equipped to make sound financial decisions, the United States may face recurring episodes of financial weakness - a grim prospect for American companies’ sales,” the professors say.

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