Kate Marshall & Elliott Parker: Improving financial security for all Nevadans
April 12, 2015
No state suffered as much from the Great Recession as Nevada. No state saw a bigger drop in median incomes or a bigger share of its residents descend into poverty. No state saw higher foreclosure rates or a greater proportion of its mortgages go "underwater." At the depth of the recession, no state suffered more bankruptcies per capita. While some of this may have been due to factors beyond our control, there is no denying that poor financial decisions contributed to the crisis we experienced.
Knowing how to manage finances and get access to the resources we need to better our financial prospects, be that education, a job, or a retirement plan, leads to improved financial security. The more we improve our financial security through better-informed decision making, the stronger and more resilient Nevada will be. This in turn will better position us to meet the demands of a global marketplace and strengthen the rungs of our economic ladder.
Approximately a quarter of Nevadans are under-banked, which means that they either have no bank account or no access to affordable credit. Often, they must rely on alternative high-cost financial services, like payday loans, to pay for basic needs, loans they have great difficulty repaying. Two thirds of Nevada's adults have subprime credit, and the average credit card debt of an adult Nevadan now exceeds $9,000.
Over half of Nevada's households lack enough savings to cover 90 days of expenses, should there be a job loss, medical emergency, or other financial setback. Fewer than 40 percent of Nevada's workers participate in an employer-based retirement plan, and more than a third of our residents indicate that they have no retirement savings at all.
Thus, while Nevada's economy has begun to improve and people are feeling more confident about the future, our personal finances have a long way to go to providing the financial security necessary to connect Nevadans to the economic prosperity we hope is in store.
What can we do to build a bridge from the financial strains of the Great Recession to the financial security we hope will come with economic expansion? How can we strengthen individuals and families to help them attain and preserve assets, become more financially stable, and achieve long-term financial security?
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It might be helpful to think of our financial future as resting on four pillars: financial education, earnings, savings and asset building, and consumer protection. As we build these pillars, each of them works with and strengthens the others.
Financial education matters. The legislature is currently reviewing SB220, a bill to expand financial education in our schools. Current instruction is woefully inadequate for facing the financial complexities of modern life, and leaves our students unprepared to deal with today's financial challenges. More than ever before, young adults need to know not simply how to find and keep a job, but also how to use banks, loans, and credit cards responsibly, how to budget, and how to save.
But the problem is not limited to students. More than 40 percent of adults give themselves a grade of C, D, or F on their personal knowledge of finances. In some states, like Texas and New Mexico, there has been a movement to create financial coaching networks, where organizations and employers can train their members and employees to reach their financial goals. Nevada might consider doing the same.
Earning a decent living matters, and workforce development is a key ingredient. Nevada must match the needs of its workforce with the demands of our employers and those employers we want to attract. It helps to have portable credentials, and these should go beyond the degrees and certificates offered by our schools into the workplace where most develop their skills. We need to be constantly orienting our education and workforce services with metrics that look at education and employment outcomes to support the needs of both employers and employees if we, as Nevadans, are going to get the most out of our economic expansion.
Saving and asset-building matter. We need policies that encourage more of us to save, whether for our kids' college or for our own retirement. We should encourage more Nevadans to become homeowners, but only of homes they can afford to keep. We should be wary of asset limits for government assistance that discourage the poor from trying to save. We should encourage more of Nevada's employers to offer retirement programs to their employees and, at a minimum, we should demand this from every firm we woo to Nevada with tax breaks.
Finally, consumer protection matters. Consumer fraud is becoming more and more of an everyday problem for Americans, on issues ranging from identity theft to financial exploitation of our elders. Our state government is often too far behind the crooks to catch up with them. Nevadans also face increased challenges in the areas of mortgage fraud and in the growth of targeted fraud on Spanish-speaking consumers. An example of a consumer protection measure is AB318, a bipartisan bill before the legislature. It extends the Military Lending Act to our veterans here in Nevada. The Military Lending Act was passed by the U.S. Congress at the request of the Department of Defense to cap interest rates charged to active duty military to 36 percent per year. It's an important start.
What more can we do to put our financial house in order? The legislature might consider passing SB381, which would establish a task force to review Nevada's financial security. The task force would identify best practices from around the country and report back to the legislature with recommendations on how the public, private, and non-profit sectors can work together to strengthen Nevada.
By the time the next financial crisis rolls around, Nevadans need to be better prepared.
Kate Marshall recently completed two terms as Nevada State Treasurer. Elliott Parker is professor of economics at the University of Nevada, Reno.