Building Financial Stability for American Indians

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Financial literacy among American Indians is very important to me and the students we serve. I have had the honor of working with Native communities over the past ten years, and one of the biggest challenges we face is financial stability. Often times the lack of credit history or bad credit stops many would be entrepreneurs from starting their dream business. The skills of spending wisely, making saving a habit, and using money as a tool to fulfill goals are unfamiliar concepts for many Native families. Native communities are not achieving their economic potential because most do not understand the fundamental concepts of managing their finances. This is true not only for Native families, but for most Americans. I would predict that most Native communities are cash societies. I have no documented research to back this claim up. However, I do know that most of the Native people that I associate with or come into contact with don’t have checking or saving accounts and have no desire to have one. I have taught many Financial Education courses and workshops over the years. I have come to realize that Native people prefer to deal with cash. Why is this so? The following are some of the answers I have heard: “I had a checking account before but I got myself in trouble writing bad checks.” “I don’t write enough checks.” “I can’t manage or balance an account.” “I can’t afford bank fees.” “I don’t trust banks.” So how do most Natives manage their money? How do we cash checks and pay our bills? Natives have an informal system of managing their money. A majority of Natives cash their checks via check cashing establishments, purchase money orders to pay their bills, and stash money in their homes. This system is common among Native people. Unfortunately, this system is not only costly and time consuming, but it is impeding our path to financial stability. AIBL offers five tips to get participants started on the path to financial stability: .

1. Stop Using Your Savings Account as a Checking Account. Do you have a savings account, but not a checking account? Do you use your savings account to cash your checks? Do you pay your monthly bills with money orders? If you answered yes to any of the above questions, you are missing a great opportunity to show lenders that you are a responsible, reliable, and accountable person. I have often wondered why lenders ask if you have a checking or savings account on the credit application. Having a checking and savings account has no bearing on your credit score, so why do lenders ask this question? Lenders want to know if you have a checking and savings account, because this shows them you know the basics of managing and controlling your money. If you have a savings account then it shows you are planning for your future. Therefore, if you are using your savings account as a checking account why not open a checking account and show the lender you have control of your money?
2. Know your credit score. Under the Fair Credit Reporting Act, you are entitled to one credit report a year, at no cost. Don’t put off getting your credit report. Go online today at www.annualcreditreport.com and retrieve your free credit report. Many people avoid getting their credit report because they already know it is “bad.” If you are going to make any positive changes towards improving your credit score you must know where you stand. FICO scores are the credit scores most lenders use to determine your credit risk. FICO Scores range from 300-850, higher is better. The medium FICO score in the U.S. is 723. FICO scores are calculated based on your ratings in five general categories: Payment History 35%, Amounts Owed 30%, Length of Credit History 15%, New Credit 10%*, and Types of Credit used 10%. Payment history has the most impact on your credit score. Therefore, I cannot stress enough how important it is to pay your bills on time.
3. Do a budget. Write it down now. Gather your family and write a budget together. It is important to involve your family. Family finances should not be the sole responsibility of one person. Like with any family goals it is important that the entire family is involved in the decision making process so they take ownership to the success of the goals. Developing a family budget is the first step to making a difference in your family’s financial future. It is important that your family knows how much money is spent and how much income is coming in monthly. Including your kids in the process will help them take ownership to balancing the budget. I recommend that families develop an excel spreadsheet to list their expenses and income. However, if you don’t have access to an excel spreadsheet program, use a good old fashioned spiral notebook. The key to success is writing it down.
4. Calculate your Debt-to-Income Ratio. Divide your total monthly debt by your total monthly income to calculate your Debt-to-Income (DTI) Ratio Percentage. If your DTI ratio is less than 10% you are in good financial shape, 10%-20% you a good credit risk, 20-35% credit is questionable, 35% and higher you are considered a high credit risk. To get your percentage lower,make a financial goal to pay off your higher interest rate debt first.
5. Live within your means. This rule is simple but hard to follow. You must be disciplined. Simply don’t buy items you cannot afford. If you are tempted to charge it, don’t buy it. If you really want something then you will take the time to save until you have the entire amount to purchase the item. Most people spend 10% more than they make**. Don’t let this happen to you make sure you know how much money you have left at the end of each month to spend. For example if you are paid bi-weekly construct your budget so you know how much expenses are coming out of each check and how much is left that you can spend. Challenge yourself and your family to not spend more than you can afford.

In conclusion, don’t just think about your financial future, take specific steps to make your financial situation better. Take action now. A basic understanding of household budgeting, checking and savings accounts, and credit scores will allow you to take full advantage of the economic opportunities in Indian Country. *About FICO Scores. www.myfico.com **Most People Spend 10% More Than They Make! http://www.mvelopes.com/mvelopes/sales/budget-worksheets.php?cpn=AFC-bud...