Dakota Beacon

This half-day seminar for college students was presented by the 2010 Human Services Institute during the morning of February 25, 2010 at the Harold Schafer Leadership Center at the University of Mary.

The North Dakota Deputy State Treasurer’s office presented opening remarks. The “meat” of this event involved round table discussions employing facilitators from The Bank of North Dakota, The Village Family Service Center, Capital Credit Union, and Mid-America Credit Union Association.

Three round table topics were offered, of which each student could pick two to participate in. I chose to participate in “Digging out from Debt” and “Credit -Credit Cards, Credit History, and Identify Theft”. The third offering was “Budgeting and Planning Your Financial Future” which topic was also covered within the “Digging out from Debt” offering.

Of the approximately 27 students and 3 baby boomers in attendance for the opening remarks, only one student and I chose to participate in “Digging out from Debt”. About half of the students participated in “Budgeting and Planning Your Financial Future”.

“Net Worth” vs “Human Worth”

North Dakota’s Deputy State Treasurer very eloquently described the difference between “economic net worth”, a financial condition, and “worth as a human being”, assuming that all in the room understand their own intrinsic value. Perhaps time constraints prevented more from being said concerning what young people typically understand their “worth as a human being” to be as compared with their infinitely greater “potential worth as a human being” that exists within us all, just waiting to be tapped by the individual and those that surround the individual to nourish such spiritual growth.

Digging out from Debt

I found out that the average person spends about $21 per week on items that immediately fade from memory. Perhaps we could call these items “impulse buying”.

The underlying assumption of the opening remarks and of the facilitators was that down payments and loans are required to purchase cars and homes.

It was also stated that it is difficult to purchase real estate or secure car/home insurance if one does not have an adequately high credit rating (700+ considered good).

The assumptions in the budgeting examples presented assumed zero savings.

It was suggested that young debtors with multiple outstanding loans pay off the loan with the lowest principal first, giving the person a “sense of success” derived from lowering the “number” of loans.

I was advised that “financial counseling services” in general have good working relationships with lenders, and that the main reason for this was that the lenders avoid costly repossessions and home foreclosures in return for cooperating by reducing the rate of interest.

Credit -Credit Cards, Credit History, and Identify Theft

The facilitator shared that her mother had closely controlled her college debt, telling her to be “afraid of debt” from her single credit card designated for “emergencies”. I said it would be wonderful if everyone had such a mother!

The recent credit law reforms were then explained. One protects those students under 21 years of age. Another requires creditors to pay down the highest interest rate portion of credit card debt first.

The suggestion was made that students talk with an immediate family member concerning any credit difficulties and not keep any problems secret.

Limiting a college student to a single credit card was suggested, along with “opting out” of any contractual agreement that allows the sharing of your personal information with any other entity.

The suggestion was made not to spend any more than you know you could pay off in full on the next monthly billing. It was also suggested that one save into an account at one’s local bank for unexpected expenses rather than using credit for such a circumstance.

Negotiation of terms with credit providers by the student was suggested, preferably with mentoring of a parent of other adult experienced in the art of negotiation.

Examination of one’s credit report (from three web sites) was encouraged, to correct any mistakes that may exist on one’s credit record. The important elements of a credit report were discussed. Payment history, representing 35% of one’s credit score, is obviously the most important since it represents one’s sense of responsibility in consistently making auto/home/other mortgage payments on time. Amount owed, representing 30% of the score, is likely to be optimized when the total of payments due is from 25% to 35% of annual income, a standard historically used by banks. Third most important is the length of ones credit history, representing 15% of the score. The last two elements were “types of credit in use” and “new credit”, both almost self-explanatory by their descriptions.

An example of identity theft was shared, emphasizing that such occurrences are increasing locally at a dramatic rate. I appreciated that this was a very much needed element of the event; a warning, to those willing to listen and understand, of the threat of identity theft.

Disclosure of My Motivation in Attending the Event

I shared my initial observations with the facilitator of the “Digging out from Debt” round table after completion of the presentation. I explained that I was attending with the intent of writing an article on the event in the Dakota Beacon magazine. I then began to explain my concern with what was not said at the beginning of the presentation and my disagreement with a few of the suggestions within the presentation. At first the facilitator became slightly defensive, but quickly became conciliatory after realizing that I was genuinely concerned with the economic well being of young citizens and how their education in financial matters is paramount to correcting our societal indifference to saving and subsequently buying with cash, a “life skill” those professionals in multiple disciplines aptly term “delayed gratification”.

Discipline, Delayed Gratification, and Love

Excerpts from “The Road Less Travelled” by M. Scott Peck:

Discipline is the basic set of tools we require to solve life’s problems. Without discipline we can solve nothing. With only some discipline, we can solve only some problems. With total discipline we can solve all problems.

What are these tools, these techniques of suffering, these means of experiencing the pain of problems constructively that I call discipline? There are four: delaying of gratification, acceptance of responsibility, dedication to truth, and balancing. Balancing is the discipline that gives us flexibility. To function successfully in our complex world it is necessary that the higher centers of our brain (judgment) be able to regulate and modulate the lower centers (emotion).

Discipline, it has been suggested, is the means of human spiritual evolution. …what lies in back of discipline – what provides the motive, the energy, for discipline, this force I believe to be love. I define love thus: The will to extend one’s self for the purpose of nourishing one’s own or another’s spiritual growth. Indeed, as has been pointed out, we are incapable of loving another unless we love ourselves, just as we are incapable of teaching our children self-discipline unless we ourselves are self-disciplined.

When we extend ourselves, when we take an extra step or walk an extra mile, we do so in opposition to the inertia of laziness we call work. Moving out in the face of fear we call courage. Love, then, is a form of work or a form of courage. If an act is not one of work or courage, then it is not an act of love. There are no exceptions.

What was Missing From the Event?

A glaring omission from the event was a brief explanation of the relationship between, love, discipline, and the delaying of gratification, along with an example of how an individual’s life might be changed by such delaying of gratification.

One underlying assumption of the event was that a down payment and monthly payments are a given requirement to purchase a car or home.

Another underlying assumption was that a low credit rating makes the purchase of real estate difficult.

A third underlying assumption was that most young folks seeking a home loan cannot arrange with a bank to demand to pay their own real estate taxes and insurance.

A fourth underlying assumption was zero savings for young people just starting out in life.

A fifth underlying assumption was that one absolutely must achieve a high credit rating by establishing a record of timely payments on one or more car/home/other loans.

A sixth underlying assumption, perhaps the most ridiculously illogical, was that one should do other than pay off the highest interest rate loan first, then the next highest, etc., while making only minimum payments on the others.

Economic Elements of “Delayed Gratification”

The next time this financial literacy event is presented, it is recommended that a minimum of ten or fifteen minutes be set aside at the outset to make the points outlined below.

Love is a form of work and/or courage that provides the motive and energy that underlie “discipline”, a term almost universally understood to include responsibility, truth, and emotional control. The fourth primary element of discipline, however, the delaying of gratification, is far from being embraced currently by contemporary society in the United States of America.

For example, the average 30 year home mortgage results in the home “owner” paying two (at 5.3% interest) to three (at 9.4% interest) times the purchase price over the length of the loan. The home “owner” pays the purchase price to the seller, and then pays one to two times the purchase price back to the bank over time.

Examples of “delaying of gratification” include the following:

• Resolving to avoid buying anything on credit, avoiding the associated slavery to lenders and ignoring the scam of “credit scores”
• Saving to purchase a bicycle with cash
• Saving monthly (an amount equivalent to what the payment on a 6 month bicycle loan would have been) to purchase a car with cash
• Saving monthly (an amount equivalent to what the payment on a 60 month car loan would have been) to purchase a mobile home with cash
• Saving monthly (an amount equivalent to what the payments on a 60 month car loan and a 60 month mobile home loan would have been) to purchase a “starter home” with cash.
• Using the subsequent sale of the mobile home to perform “sweat equity” improvements to the “starter home”
• Saving monthly (an amount equivalent to what the payments on a 60 month mobile home loan, a 180 month “starter home” loan, and a 60 month car loan would have been) to replace the car with a new one (when necessary) and to purchase the home of your dreams with cash
• Saving to provide an emergency fund equivalent to at least one year’s combined household income, purchasing low-cost high-deductible car and home insurance, and avoiding the cost of traveler’s insurance
• Eating only home-cooked meals while raising a family, leaving “eating out” for special occasions like Valentine’s Day, Mother’s Day, etc.
• Shopping around and subscribing to the minimum cable or satellite television package, avoiding costly movie theaters and movie rentals except on special occasions
• Matching fully any employer incentives to save for children’s college, weddings, and one’s own retirement

The most “gratifying” aspect of the “delaying of gratification” might be the family togetherness fostered by eating together at home at scheduled times.

One form of the “delaying of gratification”, but definitely not the smartest, would involve paying one’s lowest interest rate loans off first, leaving the highest interest rate loans for later. This would insure the significant delay of the gratification of paying off all of one’s loans!

For those wishing further encouragement concerned the delaying of gratification, I recommend listening to the Dave Ramsey talk radio program once or twice to fully appreciate the concept.

And those wishing to extend the logic into their future need only imagine reaching age 50 or even younger with the definitive option to begin the “giving back” phase of one’s life, greatly extending this unquestionably most satisfying stage of one’s life…