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Dr. Keith Moreland has a PhD in Accounting from the University of Cincinnati and has recently retired after a 26 year career in Accounting at University of Michigan Flint. He’s the author of the paper of today’s topic, Seeking Financial Advice and Other Desirable Financial Behaviors. Find out why your finances should not be a guesswork and seeking financial advise can only make your finances better!

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Chris Pratt: We have a fantastic guest today. He has a PhD in Accounting from the University of Cincinnati, in addition to an MBA from the University of Cincinnati and a BBA from the University of Michigan. He’s recently retired after a 26 year career in accounting at University of Michigan Flint and he’s author of the paper of today’s topic, Seeking Financial Advice and Other Desirable Financial Behaviors. His name is Dr. Keith Moreland. Welcome to the show Dr. Moreland.

Dr Keith Moreland: Thank you, Chris. It’s my pleasure. And, um, you know, those 26 years are just, um, part of my time in, uh, in accounting and in academia, I did have 26 years at the University of Michigan Flint and tired of that. I actually had about seven years at Xavier University in Cincinnati and Canisius College in Buffalo. And before that, I worked in, um, for a large CPA firm for about eight years and was the controller of a company for two years. So, Chris Pratt: wow. Dr Keith Moreland: I have a lot of experience.

Chris Pratt: So in your paper, you talk about this idea of financial advice, sort of correlating, if not necessarily having a causation correlating to better financial behaviors. Can you talk about the background of this paper? Like where did it come from and what was your goal in doing this research

Dr Keith Moreland: With this paper that I wrote, what I tried to do, and was basically built on that and sort of add another variable to that, to that mix. So I basically asked the question well, okay, what happens to people’s financial decision making financial behaviors, if they obtained financial advice and, and you can imagine that there’s, there’s several different scenarios. It could be that, you know, obtaining financial advice is a good thing on its own, that helps you take better financial actions and improve your financial behaviors. It could also be that the benefit of obtaining financial advice depends on your kind of preexisting level of financial knowledge. For example, maybe somebody already has a high level of financial knowledge wouldn’t benefit as much from financial advice and as somebody with a low level. So, so that’s basically what I attempted to do with this paper was to add that variable of, okay, is that useful to get financial advice in improving these financial decision making and financial behaviors?

And does the benefit depend on other factors like your, your level of financial knowledge going into the situation? And so what I found was that, you know, and again, this probably isn’t rocket science, since it’s maybe what we had hoped to find was that, that yes, if you, if you seek out financial advice that basically improves your financial decision making capability and improve the type of financial actions that you’re going to take to improve your, your financial wellbeing and that yes, additionally, it probably has a greater benefit seeking financial advice does for somebody who maybe doesn’t have as much financial knowledge going yet. And I think that’s somewhat of a, you know, kind of a comforting finding. In other words, if you don’t know the answers, ask somebody who, who does have information on this and it’ll improve your, your decision making ability or the actions that you’re going to take. So that’s basically lovely, when I found.

Chris Pratt: Yeah. And you mentioned that this is something that you might just assume in the first place, but anyone who, uh, anyone in the scientific community who kind of knows basic principles of science, those that are assumptions, aren’t always true. Right? We used to think that the sun revolved around the earth, we used to think that the earth was flat and it just, you know, it just made sense. So it’s really important. I don’t want to downplay the value of the research you did. It’s really important to quantify our assumptions and either prove or disprove them. So I’m also glad that, that you use the word comforting because, uh, I want to make sure that we can kind of prove to our listeners that there’s value in seeking financial advice and growing your, your financial knowledge and that there is a correlation between financial advice and financial knowledge and financial behaviors and the outcomes therein. Did your paper look a lot at outcomes?

Dr Keith Moreland: I would say the outcomes that I looked at are, again, are these in pain of presumed good or positive financial behaviors. And the specific ones that I looked at were, um, you know, are people saving for an emergency fund? Yes or no? Um, are they doing a good job of managing their credit and staying away from bad borrowing? So either being, you know, relatively debt-free or when they do incur debt, that it’s smart debt, you know, low interest rate that they know they’ll be able to repay it and things like that, are they saving for retirement? Are they making sure that they have adequate insurance for the various risks that people need insurance for anything from health insurance to, uh, say renter’s insurance? So those are the outcomes that we were looking at to action with respect to those outcomes, improved with seeking financial advice.

Chris Pratt: Okay. And I want to go over what you said, because you kind of just covered, like all of the things that we talk about here, and I missed one of them. So you said saving an emergency fund. I missed the second thing you said, do you remember what, what that was?

Dr Keith Moreland: Yeah, I, and I love the couple of measures together in that next slide. I basically said managing your borrowing for managing your credit. And there are actually a couple of things that are included in that, first of all, just making sure that you’re knowledgeable of what your credit rating is, so that you’re getting credit reports periodically.

Chris Pratt: And I want to pause one second. I just want to pause for people listening, pay attention to what Dr. Moreland is saying here, because these are the things that he’s correlated to positive financial behavior, which means that if you improve these things, then you are more likely to, uh, have positive financial behavior. So it’s really important that you learn about all of these topics, which is why I was bringing this up and that you understand them. And, uh, and you take action on them as well. So, sorry to interrupt. Go ahead.

Dr Keith Moreland: No, I actually, Chris, I’m really glad you did that because you’re absolutely right. That, I mean, it’s the details that matter. You mentioned that there were kind of two parts to this sort of managing your credit. The other part of it besides getting these credit reports or being aware of what’s in them for yourself is managing your credit card debt. You know, I think probably most of your listeners know that if you have a credit card and you put some purchases on it, and then you get that bill and you make that payment within 25 days or approximately a month, and basically you’ve been able to make that payment interest free for almost up to two months because you buy it, you get the statement 25 days later, and then you have to pay it within another 25 days. That’s great borrowing, right? That’s borrowing at 0%.

Um, the, the data that I collected or that I used in my study basically asked the question of the, the opposite of that approach, where people use their credit cards to make purchases, but then pay off that balance when it’s due. And of course, then the interest rate on that debt goes from 0% paid off when due to what, approximately one and a half percent per month, which, you know, annualizes to almost about 20% a year, that’s bad borrowing. And so we look at whether or not I look at whether or not in the paper, people are failing to pay off their credit card balances, uh, when due, and when that’s the case. That’s what I would describe briefly as, as bad borrowing. Right? If so, so in, in those are the, to me that’s kind of a real sort of tangible, um, financial behavior that you can sort of distinguish between a good financial behavior using a credit card, but using it wisely and paying off the balance when due versus using a credit card, but not being able to pay off the balance and then incurring a relatively high interest rate on your, um, on the amount that you owe.

Chris Pratt: And that’s a really, I think that’s a really important distinction too, because it’s like you said, it’s almost a really fine line after that too. It’s great that you can, you know, spend money interest free for two months, but then after that you start accruing interest and it can very quickly run out of control. And there are a lot of different people out there who have a ton of different opinions on how you walk that line. Um, some people just say, stay as far away from the line as possible, right? Don’t get credit cards, know don’t, don’t even get a debit card, pay with cash. Others will say, you know, you should walk that line because of the interest benefits, because, you know, you can get free points, you know, uh, you know, 1% cash back or, or, or what have you from your credit card, you get the fraud protection, et cetera, et cetera.

But the really, I think important thing to note is that that line exists and that you shouldn’t cross it. And, uh, I just want to say that if you are crossing that line, then, uh, you might want to take a second look at the financial, I guess, decisions that you’re, you’re making. I know for me right now, at least I don’t even want to, to get close to that. I have enough bad habits that, uh, um, I’m trying to hold back, right? I don’t want to eat too much. I want to make sure I’m getting out and exercising, you know, and et cetera, et cetera. And so a credit card for me is just another thing to worry about. And for me, it’s just not necessary. So I just stay away from credit cards. I don’t care if, you know, if people get a credit card, I don’t have a really big opinion on that. I just, you know, especially young people who think that they know everything and think that, you know, they can control everything. I just get worried that they don’t realize that they could very easily be the type of person to, you know, miss one payment and then everything spirals out of control from there,

Dr Keith Moreland: Chris, I couldn’t agree with you more. I’m in 100% agreement that in fact in the paper and gosh, this is just a it’s, it’s kind of a really specific thing. I described a good financial behavior as somebody who again, pays their balance when it’s due or as you can just point it out, has no credit card at all. And both of those are, are good in you’re absolutely right. That, um, if people are just uncomfortable incurring any debt at all, then don’t even get the credit card. That’s a good financial behavior. Um, in my view, and then again, if you have a credit card, you just have to be sure to take and pay that balance before it’s, by the time it’s due. So that again, you don’t incur any of that interest because then that can really hurt you. So I completely agree.

Chris Pratt: Another thing you talked about is staying away from bad debt. What do you define as bad debt? We mentioned, you know, that credit card interest bearing debt, what else would you define as bad debt?

Dr Keith Moreland: Yeah, well, right. That, that’s the most common one. Although, you know, sometimes when you just get into, you know, and these are really just sort of more severe cases going down, that what would like, but like a payday loan where you have to borrow money from, again, that storefront that’s charging you a very high interest rate, um, between now and when you get paid in two weeks, you know, generally, um, they add credit is just credit with, for the most part, there’s other things. But if it has a high interest rate and that’s, that’s bad, if it has a low interest rate, then it’s okay. Right. You know, a mortgage on a house, that’s again, assuming you can make those payments. You know, now you can get a mortgage at 3%. That’s not bad credit. That’s not bad borrowing, that’s okay. Borrowing, but things like payday loans, um, you know, these kind of rent to buy places can potentially be again, very high, essentially the same aside borrowing,

Chris Pratt: Can you explain what a payday loan is? Because I find, and this is ties back to your research that most people don’t really know what a payday loan is. And so then, uh, you know, they see an ad on, I don’t know, on TV, in the newspaper or on the internet or this awesome loan that you can get your paycheck early and they go do it, and it’s a payday loan. So what is a payday loan? So people know like, you know, what, what are they, what should they be looking out for?

Dr Keith Moreland: Well, I don’t have a lot of, um, hands on experience with these, but generally again, they’re short term in nature. And clearly the amount that you’re going to have to repay in that relatively short period of time is significantly greater than the amount that they’re, that you’re able to borrow. Um, and that’s, that’s the problem. That’s what the problem boils down to that, that basically you have to repay a lot more than you’re loaned, right. Um, and again, it’s relatively short term in nature generally. And I think the term payday loan is a little bit of jargon just to describe a borrowing arrangement. That’s very short term, at least the borrower hopes to tide them over until again, they get paid and some money.

Chris Pratt: I mean that, yeah, that’s so that’s where the term payday comes from, right? So you’ve ran out of money and you essentially need an advance on your, on your next paycheck. It’s kind of the, the jargon for like one of the worst types of loans that you can get. And, um, it’s very widely known for being a loan that preys on people, uh, low income people who, uh, cannot really pay that loan back. And so, um, they’re just in perpetual debt trying to pay that payday loan back. I also want to call out that there are some really simple calculators. You can just go on Google and search, um, interest rate calculator or loan interest rate calculator, and you can easily find out how much you’re going to be paying on interest based on whatever the interest rate is. And you can do that for fixed interest rates.

You can do that, uh, for variable interest rates. You can, uh, there’s, there are all sorts of calculators out there. Some that are super simple, you just punch in what you’re spending and the interest rate. Then there are other ones that can get more, more complex, but I just wanna make a call out to that if you’re wondering like, well, how do I know if a loan is a bad loan, you can just look it up and see, I mean, you can look up, uh, I buy a house for $500,000 in 30 years, I will have spent $750,000 total. Uh, and so there was $250,000 that I paid in interest over 30 years. And, and the problem with short term loans is that they do that kind of thing, right. 250,000 and interest is a lot, but they add a lot of interest in a short period of time. So, you know, 250,000 over, over 30 years, depending on your income, obviously might not be that big of a deal, but over two months, right? The vast majority of people aren’t going to be able to pay that back. So that’s why it’s really important to look at the details of the loan.

Dr Keith Moreland: Absolutely. And, you know, I mentioned them a couple of minutes ago that if you’re not able to pay that credit card bill off, when it’s due, then all of a sudden, you know, the monthly interest rate goes to probably at least one and a half percent, that that might not sound like much to somebody. Just, if you look at that

Chris Pratt: Right. That’s lower than a mortgage interest rate interest rate, right.

Dr Keith Moreland: Yeah. But it’s only for a month. So you’ve got, it’s always important for people to recognize that you, you want to put that infrastructure on kind of an apples to apples basis. And so one and a half percent a month multiply that by 12 for 12 months, and then add a little bit for compounding. And you’re, again, you’re close to 20% interest rate per year. That’s unacceptable, that’s too high. And, and of course these payday loans take that kind of idea and make it even higher. So

Chris Pratt: Yeah, they get even more aggressive. Um, okay. I want to kind of shift gears a little bit. We were talking a little bit before the show about your, your career as an accounting professor. And, um, you mentioned how you found that in introductory accounting classes, there were some opportunities to talk about personal finance. Can you talk a little bit about that?

Dr Keith Moreland: Yeah. Well, I think what a lot of that comes up know in most kind of introductory meaning first college level, and maybe some high school level, even financial accounting classes, you ended up talking a lot about, about borrowing, about the cost of borrowing so interest. And that’s really where you can get these ideas about, again, being able to borrow at low interest rates and, or versus high interest rates or avoiding borrowing, and actually being an investor in an earning a positive rate of return rather than a, rather than paying a rate of return on, on the amount you’re borrowing. So I think probably the best place to be able to talk about that in a financial accounting courses, again, with respect to just borrowing and in the interest that you’re paying when you’re borrowing or the interest that you’re earning when you’re, when you’re lending. And then of course, in the financial accounting course, you talk about the recording of that and the reporting of that. So it just sort of comes naturally, but I actually would spend a fair amount of time talking about this very issue that we’ve been discussing about good borrowing and bad borrowing in a financial accounting course. So, and I’m sure most or many of, um, accounting professors have that same conversation with their first year accounting students.

Chris Pratt: Yeah. Would you go as far as to recommend that a non-accounting student take an introductory accounting course?

Dr Keith Moreland: That’s a really good question. And, and I would say that’s one very good option. So going into a lot of different fields, you definitely would benefit from an introductory financial accounting course because you just really learn about essentially the money coming into a business or any other entity. It could be again, an individual and then the money going out and, and you, you become sort of acclimated and thinking about any situation over the long term, the financial inflows have to at least equal the financial outflows from the organization, the company, or other entity isn’t going to be able to survive. So I think that’s one good approach, having said that I’m kind of laughing at myself here because there are other approaches. Um, I know at UMM Flint, we actually offer a personal finance course that people can take in. And so that gets at this, the question of, again, building financial knowledge and financial capability from a different direction.

The reason I was laughing about it was because I developed the course at UMM Flint, but I didn’t get a chance ever to teach that because my teaching schedule is filled up with the regular accounting courses. But so that’s another option. And I think many universities have that something else. And I have come across this in, um, in some of the research and reading that I did leading up to this paper, a lot of universities actually, and sometimes this is being done in conjunction with the university’s financial aid office. They’ll have basically personal finance, kind of short courses and seminars and webinars and things like that that students can take. And I think the reason that it’s so appropriate and relevant, there is again, a lot of students have their, they have student loans. And so the financial aid offices is sometimes in conjunction with the faculty to offering these short courses, to help students again, become more knowledgeable in managing their student loan debt.

And Chris, I think, and I’m kind of going on this, but just sort of one sort of connecting point on this to my paper. It’s just, I think I just listed three options, an accounting course, a personal finance course, or even going to, you know, these different short courses and seminars, all of this sort of gets to the notion of there are different ways to, to become more knowledgeable about personal finance and making good financial decisions. And any of those would be a benefit and it’s, you know, some require kind of a longer commitment than others, but they would be I think, good options.

Chris Pratt: Yeah. And there are a lot of options out there. Uh, I know I’m the type of person who almost gets paralyzed. I get an analysis paralysis and I’m like, Whoa, there’s, there’s too much to do. So I’m just going to do nothing. And just, you know, I’m the type of person who will try to learn what the best options are to learn something. And as you can imagine, that for me becomes a kind of a spiral of learning about learning, about learning, about learning for a lot of people, uh, they just don’t know where to go or who to trust. And, uh, the interesting thing, and I had a guest, he goes by Early Retirement Dude on before. And the interesting thing about these days, I think, uh, my guest, Robert Farrington also said, this is that you just go on Google and you can look up anything you want, and you can find information from any number of, of reputable and non reputable sources.

And the interesting thing about personal finance is that as you do some research just on Google, just informal research, you’re going to find a lot of overlap, a ton of overlap with what I say on this show with what other people say with, you know, resources on, on, uh, you know, the IRS’ website. Uh, and you’ll find that, that this is actually this personal finance advice is really quite simple, which again, going back to what you described about saving an emergency fund, managing credit, staying away from bad debt, saving for retirement, having adequate insurance, those are really the, and I’m sure you can think of other things that are either encompassed by that or that kind of spin off of those. Those are really the things you need to know to do well, I would say the other thing, and you mentioned this with saving for retirement is investing. Uh, that’s super important. Is there anything that you, you wanted, any advice that you wanted to close with dr. MOreland for our listeners before we, uh, close out?

Dr Keith Moreland: Well, maybe I would just offer a couple of general comments as your listeners kind of start thinking about managing their personal finances. I think a good, a couple of good things to do upfront, one is to really, um, take a little time to think about what your goals and objectives are with respect to personal finance, you know, in the short term, and then maybe in the intermediate term and then in the, in the long term and say, okay, here’s what I, here’s where I want to be. Or here’s what I want to get to those different timeframes and then take the time to, and it doesn’t need to be detailed down to the last penny, but to develop a financial plan or a budget and basically say, okay, what do I have coming in? And then what do I have going out? And where does that leave me? And I, and I think just writing that down on a piece of paper or on a spreadsheet, or, or even on an app just really can help everybody. Maybe you find that, gosh, I’m not saving as much as I’d like. And so maybe there’s some ways where I can, um, you know, trim my, my expenses, maybe eat out one last time per month or something like that.

Chris Pratt: That’s great advice. Thank you so much, Dr. Moreland. Again everyone, Dr. Keith Moreland, you’ll be able to find the link to his paper, Seeking Financial Advice and Other Desirable Financial Behaviors, a link to that in the show notes, I highly highly suggest that you take a look at it and you can give it a read some really amazing findings in there. Thank you again for coming on the show. Dr. Moreland

Dr Keith Moreland: Chris, it’s my pleasure. I really enjoyed talking with you and I really like what you’re doing with the show. So, uh, best wishes going forward. Chris Pratt: I appreciate it. Thanks.

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