Tuesday, May 12, 2009

Banks score better than consumers on financial 'stress test'

Financial stimulus prayers answered
Banks did better on "stress tests" than consumers and when it comes to home mortgages, more than one in four homeowners said their mortgage terms escaped them, and turned out to be different than they expected -- likely because they didn't read the small print.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - Don't bust banks' chops too much without considering that consumers also could use a little knuckle busting.

Banks, graded by federal monetary agencies apparently did much better on so called financial "stress tests" than consumers who graded themselves on their own financial well being.

And when it comes to home mortgages, more than one in four homeowners said their mortgage terms escaped them, and turned out to be different than they expected -- likely because they didn't read the small print.

While Federal Reserve Chairman Ben S. Bernanke said banks' stress tests results "should provide considerable comfort to investors and the public," a consumer survey found consumers grading themselves C or worse on personal finance knowledge.

Less than half of 1,000 adults surveyed by Harris Interactive this spring said they keep close track of spending, according to survey sponsor, the National Foundation for Credit Counseling (NFCC).

NFCC's benchmark "Consumer Financial Stress Test", was based on its broader "Consumer Financial Literacy Survey".

"Would your finances be viewed as being on solid ground, or would you be told to address some weak areas before receiving the stamp of approval?" asks Gail Cunningham, spokesperson for the NFCC.

"The survey reveals startling deficiencies related to financial stability," she added.

Here are the questions and how consumers answered.

Q: On a scale of A to F, what grade would you give yourself in terms of your knowledge about personal finance?

A: Less than half, 41 percent of U.S. adults, or an estimated 92 million people, gave themselves a grade of C, D or F on their knowledge of personal finance. Tsk. Tsk.

Q: Which best describes how you manage your money?

A: Again, less than half, 42 percent, keep close track of their spending, with 7 percent, or nearly 16 million, admitting they don't have a clue how much they spend on food, housing, and entertainment, and do not monitor their overall spending. Sad.

Q: What best describes your financial situation?

A: More than one in four adults, 26 percent, or more than 58 million adults, admit they don't pay all bills on time; 13 million said they are hounded by collection agencies or are on the brink of filing for bankruptcy, or already are bankrupt.

Q: In which ways did the terms of your mortgage turn out to be different than what you initially expected?

A: Of those surveyed, 42 percent, or more than 94 million people said they have a mortgage. Of those, 28 percent say that the terms of their mortgage somehow turned out to be different, including either the payment amount or terms of the loan, the interest rate or its duration, or they had no knowledge of the required Private Mortgage Insurance.

Q: Do you have any savings excluding retirement?

A: 'No' said one in three adults. Nearly 72 million people have no savings. And for people without savings one in four say if they are faced with an emergency, they would charge that expense to a credit card or take out a loan. More debt. Still no savings.

Q: What percentage of your household income do you save toward retirement?

A: 'Zero' said more than 74 million people, or 33 percent, up from 28 percent in 2008.

Q: Compared to one year ago, how has the current economic climate affected your spending, and if you are spending less now, if your financial situation were to improve, would you be likely to spend more?

A: "Sure," said 45 percent of those now spending less. The survey said 57 percent of those questions are spending less due to the recession.

Q: Have you ordered a copy of your credit report, and do you know your credit score?

A: 'No' said 66 percent of those surveyed, even though credit reports are free from AnnualCreditreport.com (the ONLY federally approved free credit report service). Two in three have not ordered a credit report in the last year, even though you can get three, one from each credit reporting agencies, every year. Also, more than one third of those surveyed don't know their credit score.

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© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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