Dollar signs: Experts show how to avoid financial foibles

Monday, April 16, 2001 | 8:53 a.m.

Finances probably are weighing heavily on the minds of thousands of people locally as they rush to mail their income tax returns to the IRS today, their last chance to file without penalty.

Where is the money going to come from to pay the tax bill? What about the mortgage and the car payment? What about electric bills, which continue to climb, seemingly on a monthly basis?

Personal finances can reflect the condition of the nation's economy, which seems to be headed for the Dumpster a shaky stock market that took a nosedive last year, the weakest economic growth rate in five years and the highest unemployment rate in almost two years. Federal Reserve Chairman Alan Greenspan has lowered interest rates on loans in an attempt to fight off a recession.

For many, filing for bankruptcy is one solution, but one that might soon become more difficult as Congress debates whether to throw up new roadblocks to seeking protection from creditors.

"Nevada, historically, has been among the top five (states) as far as bankruptcy filing goes," said Michele Johnson, president and CEO of the Consumer Credit Counseling Services of Southern Nevada, a nonprofit agency that counsels people in financial trouble.

Three years ago Nevada ranked fourth in the nation in personal bankruptices, with 7.7 of every 1,000 residents filing for protection against creditors, according to published reports. In Clark County the figure was higher, with nine of every 1,000 county residents filing for protection.

CCSC counselors see more than 1,000 people each month who have lost control of their finances and may be facing bankruptcy, or who want to learn how to avoid financial pitfalls.

"The amount of personal debt is increasing dramatically," Johnson said. "A lot of it has to do with the attitude of people, who seem to be saying, 'I want something and I want it now.' "

For those with the 'can't wait' attitude, there is easy access to credit cards.

"Credit cards give them the resource to have it now, without thinking about tomorrow, about whether there will be a job loss, extraordinary medical expenses or a divorce," Johnson said.

In the cards

The average American household with at least one credit card carried a credit card balance of $7,942 in 2000, according to cardweb.com, a credit-card research company. In 1990 that figure was $2,985.

"The total amount of credit available on each card is larger now (in the thousands). There used to be a $300 to $500 limit," Johnson said.

People live from paycheck to paycheck, she noted, and the least unexpected expense can plunge them into financial trouble.

"Nationally, less than 2 percent of the population has any savings," Johnson said.

She said there is a standard assumption that people should have enough money in a savings account to cover up to six months of unemployment or to take care of other emergencies.

"But that is idealistic, not realistic," Johnson said. "People don't save, prepare for emergencies or participate in retirement plans at work. They need the money to take care of daily living expenses."

Many people who must borrow money to meet expenses fall victim to astronomical interest rates, which takes even more money out of their income when they begin paying it back.

"Nevada does not have a usury law," Johnson said. "I've seen interest rates of 1,300 percent at deferred deposit companies, where they take a post-dated check from you."

Small loan companies, mostly frequented by low-income people, routinely charge anywhere from 250- to 800-percent interest, according to Johnson.

She blames a lot of the problems on a lack of education in the area of personal-finance planning.

"In general, there is a minimal effort in this country to educate people about financial planning," Johnson said. "Parents will talk to their children about sex and drugs, but not about finances.

"(We do) a lot of educating in high schools," Johnson said. "When we ask how many kids in a classroom know how much their parents make each month or how much the house payment is, only one or two hands will go up."

Greenspan, speaking recently at a community development conference in Washington D.C., said the country needs to do a better job of teaching basic financial education, preferably at the elementary and secondary school levels.

"Financial literacy can give people the knowledge to create household budgets, initiate savings plans and make strategic investment decisions for their retirement or children's education," he said.

Financial missionary

Jag Mehta says people should be taught the basic skills of financial planning when they are in high school, or before.

The 56-year-old native of India made millions investing in the stock market and counseling others in this country about financial planning -- and then, 10 years ago, he embarked on a personal crusade: to teach people, especially young people, how to spend their money wisely.

"Basically, I retired at the age of 46," he said. "I made a lot of money investing ... and so I decided ... to do this public service."

He doesn't charge for his financial-planning sermons, although he does receive a part-time salary for teaching two classes at UNLV -- one on financial planning and another on the fundamentals of investing.

"I want to teach (people) how to buy a house or a car, about insurance and how to do income taxes and wills and estate planning and how to plan for retirement -- all the good stuff I like," said Mehta, a graduate of Michigan State University, where he majored in business administration.

Many of those who sit in his classroom are there to audit the class, attending without receiving any credits. Many are not even enrolled in the university.

Mehta estimates he spends 12 to 15 hours a day, seven days a week on financial matters -- mostly discussing the subject with students or anyone else who might call him for advice.

"I invite people who can't afford a high-level financial manager to call me," he said.

Give credit to education

Peter Simon, 24, is enrolled in Mehta's basic course in financial planning. He was so impressed with what the instructor said that he changed his major from computer science to finance.

"Some of the things he talks about you never really think about," Simon said. "I wish I had had (the class) in high school. It's information you really need to know."

Among other things, Mehta teaches how to fill out tax returns, create a budget, balance a checkbook and how to buy homeowners or renters insurance. And he gives tips about how to save money every month and how to use those few dollars to begin an investment program.

"My parents know quite a bit about finances," Nic Larkin, 21, Simon's classmate, said. "But they didn't talk to me much about it."

Larkin took Mehta's introduction to investing course last semester and became a Mehta apostle. On the first day, he told his father about the class, who then took the class with him. This semester, his mother is taking the class.

"I have many friends I've been able to instruct on some of the ideas presented in the class," Larkin said. "I'm trying to get my friends from out of state to come to UNLV for one semester just to take Mehta's class on basic investing. It's the single most beneficial class at the university."

Miles Gwyn, 20, also a student in Mehta's financial planning class, said his parents "kept their finances pretty private.

"The kinds of things you learn in this class, no one told me about."

Ignorance is a common problem. But Mehta says with proper planning there is hope for everyone to have financial security and be free of debt, even those in the low-income bracket.

"People on minimum wage, living hand-to-mouth every month, can change their spending habits just a little bit and come up with some extra money to invest," he said.

He said almost anyone can raise $50 a month, simply by changing their spending habits.

"I show people how to start investing $50 a month in mutual funds," Mehta said. "If you start investing $50 a month at the age of 20, by the time you retire at 65 you will be a millionaire.

"With proper planning, you don't need too much money to do well."

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