Bank Expert, Business Owners Find Big Gap in Congressional National Financial Literacy Act

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A Texas Congresswoman has introduced the "National Financial Literacy Act of 2009," offering incentives to financial institutions and small businesses for providing "continuing financial education" to customers and employees. While existing programs already focus on the typical consumer issues mentioned in the proposed legislation -- retirement savings, managing credit, identify theft, etc.-- banking consultant Jeff Judy believes that the need for "financial literacy for business owners" has been greatly underestimated. Better understanding among business owners of financial management practices could save considerable time and resources for both business owners and their banking partners, and the financial services industry could use some incentives to pay more attention to these customers.

Smart customers working with smart lenders leads to the best results.

Recent economic events have provoked a lot of second guessing about financial decisions made by individuals, businesses, banks, and government agencies. "Many people think that better understanding of basic financial management could have headed off some problems, or at least reduced their severity," observes banking consultant Jeff Judy.

Judy notes that as the impact of the economic downturn has spread, "financial literacy" has become a hot topic, especially in relation to credit. Many banking institutions, and many community organizations, are looking for ways to educate individual bank and credit union customers on the basics of financial management. A bill introduced into the House of Representatives by Texas Congresswoman Eddie Bernice Johnson would not only reward financial institutions for teaching customers how to handle their finances. The National Financial Literacy Act of 2009 would provide tax incentives to small businesses that regularly bring financial literacy programs to their employees.

"There are plenty of programs that explain how credit works, how to maintain a better credit score, what you need to know about how lending works. New ones seem to pop up all the time, and educating individuals about basic financial management is important," Judy says. "But small business owners also need explicit education in financial management, and there is much less attention paid to that segment of financial services customers." Johnson's bill, for instance, focuses on individual consumers rather than businesses.

"Part of the problem could be pride on the part of business owners," he says. "They may not want to admit that they don't understand something." He adds, "In the early years of the business, the owners are scrambling, they don't have time for formal education on finances. Once they are successful, everyone assumes they must know what they are doing."

Current economic woes have shown just how many of them didn't understand key financial practices. Credit requests from businesses are under tighter scrutiny, and business owners struggle to understand what their lenders want from them. "It's not that more knowledgeable business owners would have headed off the collapse of the economy," says Judy, "but that both loan officers and business owners are now spending a lot more time, when they can least afford it, going over the basics."

As he travels around the country training bankers in commercial lending, he hears the stories. Judy says it is clear that many small business owners don't truly understand how to manage their cash flow. And they frequently have little insight into how lenders evaluate their financial statements, or how they make loan decisions. He'd like to see a push to educate small business owners about using credit and other financial services, from regional and national trade associations in financial services, from business groups, and perhaps through legislation like Johnson's bill.

"Why go halfway?" he asks. "Why set up a system of incentives to provide financial education for employees of small businesses, but not for their owners, who have different, additional needs in terms of financial literacy?"

Talking more openly about the "financial literacy gap" for many small businesses could remove some of the stigma of taking classes on topics like cash flow management, according to Judy. "As long as we fail to provide good, explicit education in how to manage business finances, many of our small businesses will be less successful than they could be. And we all know how important a role small businesses play in our national economy," he says.

After years of teaching bankers all across the country how to evaluate their business customers, Judy realized that it made just as much sense to teach business owners about how their bankers and loan officers think. "I try to take business owners inside the minds of their bankers, so they can see for themselves why the same numbers -- the business's financial data -- seem to mean different things to the lender than they do to the business owners."

In his speeches, articles, and consulting, Judy urges banks, credit unions, and business owners to broaden their approach to "financial literacy" to include businesses. "There's a lot of good consumer information available, and initiatives like Congresswomen Johnson's bill could lead to even more resources for that audience. But let's bring business owners basic information that will help them and their lenders be both more efficient and more successful."

As he says, "Smart customers working with smart lenders leads to the best results."

About Jeff Judy:
Jeff Judy is a nationally known trainer and consultant in financial services who spends most of his time teaching bankers and business owners how to talk to each other. He educates bankers on a wide range of topics in commercial and consumer lending, safe credit practices, and relationship development through his seminars and presentations at trade association conventions and prominent banking schools; consults with individual banks and holding companies; and promotes best practices and optimal outcomes through his published articles, interviews, and his bi-weekly e-zine on banking and training, Jeff's Thoughts.

Judy also speaks to groups of business owners, taking them "Inside the Mind of a Banker" so they can better understand how to collect and present their individual business stories to their financial institutions. Jeff believes that smart bankers and smart customers are the optimal combination, and he works with both sides of the business-banking relationship to help them seek mutually beneficial outcomes.


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