Students at Sally Mauro Elementary learn the ins and outs of the credit world on Thursday as they receive training from Zions Bank officials during a special presentation.
Scott Olson of Zions Bank spent some time with Helper Junior High students last week on a program called Get Smart About Credit. "In light of today's credit crunch, we are reminded how critically important it is for young consumers to be financially literate early on so that they can make smart decisions while navigating an increasingly complex financial marketplace," said Olsen, a commercial relationship officer at the Price office. "It's important for teens to know that the choices they make when using their first credit card, or handling their first loan, can change their lives for years to come."
Consumers across America are concerned about their money. People worry about their pensions, 401k plans and stocks investments.
United States consumers are also worrying about banks and credit unions, the financial institutions where they do business every day.
Bank failures have captured media headlines. But the biggest news involves institutions called investment banks like Lehman Brothers Investment banks handle securities and packaged assets.
The financial institutions most residents deal with on a daily basis in an area like eastern Utah are called savings banks.
Some savings banks also fail, a few every year. But recently, some fairly large ones have tumbled.
IndyMac Bank was one of the financial institutions that hit the news early in the financial crisis. However, no one lost money in that bank.
At the time, IndyMac was the fourth largest savings bank failure in United States history.
No one lost deposits in the IndyMac failure because, in the middle of the Great Depression (1929-1940), the United States Congress passed a law setting up the Federal Insurance Deposit Corporation.
The corporation insured, at the time, up to $2500 in savings and individual person might have in a particular banking institution. As the years passed, the amount protected rose as inflation changed the value of money.
Since the 1970s, the amount insured by the FDIC has been $100,000 per depositor. .
Recently, because of the crisis faced by the U.S. economy, the amount was raised to $250,000.
There is still controversy why the Great Depression occurred.
The average person may believe the major financial crisis was caused solely by the collapse of the stock market on Oct. 29, 1929.
But the stock market collapse was not the only factor contributing to the dire financial situation plaguing the nation.
The 1929 collapse of the American and then the world economy was brought about by an intangible, but very powerful factor - trust.
Banks and savings institutions survive only because the people who have money in them trust them to protect their funds. People buy stock and bonds because they have trust that a company or the government will either pay back their money with interest or in profit. When that trust starts to break down, financial institutions fail.
And while national and regional problems can certainly affect a savings institution, local trust can still keep a local savings business doors open.
"A lot of what is going on right now is being caused by panic which has been racheted up by the media," said Mike Milovich, the president of the Eastern Utah Credit Union. "Right now it is business as usual for us. We are still lending money for cars, ATVs, motor homes and even mortgages. We are not quite as aggressive with people with poor credit as we were, but we can still give many members loans for what they want."
Milovich says the expansion of the FDIC (in the case of credit unions it's called the NCUA) insurance to $250,000 should make people feel even more secure than ever.
Mary Patton of the Utah Central Credit Union also said that the financial crisis hasn't affected them in a negative way.
"In fact if anything we have seen some positive impact in our deposits," she stated. "Some people have taken their money out of the stock market and put it into regular savings accounts."
Like Milovich, Patton says that her credit union has plenty of money to lend and that they are still in business as usual.
"We are very careful in our lending policies and with mortgages," she said.
Across town, Errol Holt, says that his company, one of the most well known banks in the state is still going strong as well. Zions Bank has been around for a very long time and Holt says that it has survived the ups and downs because it is a bank that does things the old fashioned way.
"Zions Bank focuses on using deposits to loan money rather than using borrowed money to loan to customers," he stated. "That's what got some of these banks that failed into trouble."
Some lending institutions borrow money from other banks or even other kinds of banks to lend out. When trust in the economy goes south they get burned. Most people have heard that much of the trouble with the economy has come through banks that lent money to people for speculation on real estate or to people who couldn't afford the homes they bought. Some lent money to people whose house payments would ultimately be more than the money they made. This was done in some cases by using "stated income" loans rather than lending institution personnel researching to see if the people would qualify to make the payments.
"A lot of those kinds of loans were termed "innovative lending," said Holt. "Zions does not do that kind of lending."
Most people think that bank failures seldom happen, but the FDIC reports there were only two years when no banks in America failed; 2005 and 2006. And most people also believe that most of the failures of banks took place during the Great Depression, but one of the worst crisis happened only 20 years ago during the savings and loan fiasco of the late 1980s. According to US News and World Report during the savings-and-loan crisis (1986-95), 2,377 banks failed. This amounted to 67 percent of the 3,559 bank failures from 1934 through the spring of this year. At the peak of the crisis (1988-1989), 1,004 banks failed. That amounted to one failure about every day and a half.
Presently banks are being bought out and merged frequently in the global economy. Understanding banks, how they work and the kinds of institutions that deal with money is important when it comes to the average person using the financial system to their advantage.
Editors note: This is the first in three articles concerning the global banking system, how it affects the economy and the average person.