Part 2: Learning from experience

By Neil Berman

(The opinions and views expressed in the commentaries of The Somerville News belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville News, its staff or publishers.)

It is the sense of Congress that States should develop curricula relating to the subject of personal finance, designed for use in elementary and secondary schools.

– The Bankruptcy Abuse Prevention and Consumer Protection Act

It was satisfying to me that Congress inserted this section into the Act. I believe that most bankruptcies result from people not understanding their personal finances. But how do they learn about personal finance? It varies, of course, but I can tell you my own experiences.

When I was growing up in the 1960s, personal finance was a simple thing for the people I knew. Many families had a mortgage, owned by a local bank. They paid it back over 30 years.  Many people had two bank accounts—checking and savings. Very few people had a credit card, and most of those who did used it for work-related expenses. I watched my father pay bills at the kitchen table. I suppose there were investment accounts, but I didn’t know they existed.

I opened a savings account when I was about 12 and put in savings from summer and part-time jobs. I drew from it once, for a trip to visit my cousin in Jamaica. I still remember withdrawing the money and walking across the street to the travel agency, carrying all that cash. It was a serious decision to use one’s savings—they were to be touched only rarely.

When I went off to college in the early 70s I opened a checking account and began depositing my paychecks from the odd jobs I worked. I ignored the check register that the bank provided. So I bounced a few checks, then more (I’m a bit of a slow learner.), and eventually began balancing my checking account.

Near the end of my undergraduate years I began to understand, listening to others’ stories, the need to establish credit. I took out a small personal loan to buy a motorcycle, and eventually I got a credit card. I continued to have a savings and checking account. While the financial world became more complex, I kept to the same basics, despite friends telling me I should borrow more, invest more, use my money to make money.

When I decided to move or change careers, when I lost a job or had an unexpected expense, I would write up a budget. I’d estimate my expenses a bit high and my income a bit low, calculating how much savings I had (usually none) and how much income I expected. Then I would cut out those expenses that I could not afford, until income and expenses balanced. I weathered various crises and tried to understand how to avoid them in the future.

In a conversation with some friends in the 1980s, one said that he could not understand how people did not think of using a credit card as spending money. I could not imagine this was possible, and I said so. This led to an hours-long conversation that made clear that I was part of a small minority who were concerned about how we would pay for credit-card purchases.

When I expressed confusion I was told in no uncertain terms that I was old-fashioned and depriving myself. Over the years since I’ve watched friends live beyond their means, steadily increasing their credit-card balances and refinancing their home mortgages. Although burdened by interest charges, late fees and other penalties, they told me that I was missing out on things that I deserved.

From all these experiences I came up with some simple rules to live by. In my opinion, managing personal finances comes down to knowing what you need and what you only want—knowing what you can afford and not spending money you don’t have. Of course the doing is harder then the saying, but sitting down and budgeting really isn’t that difficult. Sometimes I do miss out on things, but I think that’s okay. Wanting something now, but waiting until you can afford it is just how life works.  I check my credit reports every year, keep my finances balanced and in order, always try to put some money into savings, make sure I pay my bills on time.

When I became a lawyer at age 40, I focused on bankruptcy proceedings. I talk with my clients about how they handle their money.  I have found that most do not fully understand how they got into trouble.  They have never written a budget, nor checked their credit reports.

Bankruptcy is the act of moving forward from financial disaster. Being able to get a handle on personal finances is essential to moving forward. As I talk to my clients I explain how they can assess their financial situation, how to make budgets, and how to understand their entire credit situation, not just their credit score.  With a short conversation about simple rules, I help them begin to control their financial situation. And I continue my own financial education as well.

Which brings us back to Congress’s sense “that States should develop curricula relating to the subject of personal finance, designed for use in elementary and secondary schools.” Doing so would save a lot of heartache, although financial service companies that thrive off of high interest rates, late fees, and penalties would have to make do with less, just as families are learning to.

Neil Berman is a Somerville-based bankruptcy attorney.