An Interview with Brooke Stephens by Sheldon Senek of Eagles Talent Connection
National Financial Literacy Month is in April, and what a better way to kick it off than with Brooke Stephens, a twenty-year veteran of Wall Street. Brooke is really amazing how she makes financial planning relevant for corporations, schools, AND families. What I love about Brooke is she’s a realist and tells it like it is‚ at the same time, she has humor and is filled by a positive ray of hope that, with the proper education and discipline, we can be financially secure.
Sheldon: Brooke, when I began researching you for this interview, I came across an edition of the Travis Smiley Show you did in May of 2003 on NPR. Even though your main discussion was about African Americans and overspending, it‚ was frightening how true your comments are for everybody in America. What happened between the generation of spending only what you have to the attitude of ‚ I’ll pay for it later?
Brooke Stephens. Most of the 20th century, money was a taboo subject regardless of what ethnic group, social class or educations background you came from and it was not discussed in polite society or even in families, except to pass on some painful messages and the usual aphorisms and misstatements from the Bible such as money being the root of all evil, or ‚ Money doesn’t grow on trees‚ and ‚ I’m not made of money–which every child has heard from their parents.
Then along came the fifties with what you might called the “two tools of our destruction”: television, which thrived on commercials and then the credit card, Visa was the first which was created by Bank of America back in September,1958. By the way, you probably missed any news about the 50th anniversary of Visa, which passed quietly last year with a small press release and no media fanfare whatsoever. Gee, I wonder why? LOL!!!!!
The Federal Trade Commission, in a very bizarre way, also contributed to the spread of easy credit by creating legislation that made it easier to get a credit card in the 70’s after charges of racism, age/income discrimination was charged against several department stores so that even students and people on welfare with incomes of only $15,000./year were able to get a credit card. Now, look what that generous social support has done for us.
The problem was, no one ever taught us in school about managing credit. When I was a kid, the banks used to come into the schools and give away free piggy banks to encourage us to save, told us about savings bonds and invited our parents into the bank to open an account for their children but they never explained the rules of borrowing money. They don’t do that anymore and with the limited funds of most school systems, financial education isn’t included in the curriculum; only 18 percent of the school systems in the US have any classes offered on a voluntary basis and that’s not until high school when many bad habits have already been learn.
That’s why we now have three generations of people who have grown up with a buy now pay later mentality which is a seriously painful trial and error method of learning. One thing I frequently say in my workshops which freaks out some of the participants is that the two most powerful influences in all the decision-making in our lives are sex and money and we’re not taught enough about either one which is why we often end up with babies and bankruptcy and wondering how this happened?
SS. Okay, so there’s definitely a problem with Americans spending more than they can afford in their household‚ but what about businesses?
BS. Businesses are a better in their financial management skills but small businesses also seem to operate under the trial and error method of learning how to manage their credit and cash flow.
Businesses are run by people; people who may or may not have gone to business school and unless they have a relationship with a good bank and an even better bookkeeper and a fabulous accountant with a diverse background, they can still make some mistakes about handling, planning and projecting income, expenses and cash flow. The seasonal aspects of retailing are getting quite unpredictable in a market like we’re in now and if you haven’t experienced a down-turn in sales and know how to protect yourself and plan for survival it can become painful and ugly out there.
SS. I was recently watching a movie from the 90’s called Avalon. It seems to perfectly depict how America has changed, not just as a television family, but the business owners. In the movie, two cousins own an appliance store. They begin by selling televisions, then make the move to other appliances. They get products in advance to sell, more or less, a credit. One cousin does some shifting of money to pay for an expensive television commercial. Ultimately, what happens, their warehouse catches fire and the cousins are unable to recover because the ‘shifted’ money was taken from the insurance. This brings up two questions: Did businesses have credit first and then decided why not see if we can try it out on consumers? The other thought is, do you think there was a lot of shifting of money in businesses recently and they got caught in their own warehouse fire?
BS. I remember Avalon! I loved that movie, too, and you’re right. It follows the pattern of how many people, like I said with no business training or experience, just jumped into the Boom of the post-war generation of building a business to follow the suburban growth of consumerism that defined prosperity in that era. And many small or medium-sized businesses operate that way. Cut corners here and there, take the risk, just this once, postpone paying the insurance or the quarterly taxes, just this once and we’ll catch up later. Sadly, none us learn except by hind-sight, about the fact that sales and growth never keep going in a one-way upward directions even if we did study economics in high school or college. We just don’t want to believe that there can be a disaster like the one we’re in now.
History has shown us that the stock market, trading markets and money move in cycles and those cycles which used to be three to seven years are now getting shorter because most of us only look at business on a short-term, quarterly basis.
Long-term horizons for most people are, at most, six to nine months. The younger you are, the more of a short attention span you have for this kind of information which is why it’s so hard for anybody under forty to take retirement planning seriously which is really frightening because the younger you are, the less hope you have of any program or agency, government or private, besides yourself being around to take care of you in your old age.
SS. April, as you know is Financial Literacy month. Not only is the American family under scrutiny to do a better job of managing money, but businesses are as well. As you speak at corporate functions, what tips you are advocating?
BS. In the same way that they have to educate, train, groom and develop their employees in marketing, customer service, product development and a host of other skills, they need to know to keep competitive. Corporations have now taken on the role, even though they never planned to, of being the surrogate parent when it comes to financial issues in people’s lives. The company is often the first entity that introduces young employees to the idea of paying their taxes, setting up a savings account, joining the company credit union, purchasing company stock at a discount and investing in the company retirement plan. Believe me, the 401(k) plan isn’t in a high-school student’s vocabulary!
They never heard any of this in high school or college and many companies don’t invest much time or energy in educating their employees in the workplace about how to shape a financial life. And the job site where employees not only get their income and benefits. If they have credit problems, the company gets involved when there’s a judgment and paychecks have to be garnisheed; or worse, personal bankruptcy. Or in divorces the company is responsible for processing the QUADRO agreement regarding retirement plan separation and being the ‘meanie’ when they have to enforce child support payments to a court officer.
Several corporations have had to expand the personnel in their human resources area to cope with the financial problems of their staff and executives which can become quite time consuming and costly. Investing in financial education in the workplace can curtail many of these costs as well as create a happier workforce since they will not be taking time off to go to court or worrying about how to pay their bills, or, worse, they won’t be tempted to steal and pilfer from their employers.
SS. I read an editorial by Andre Jackson from the Atlanta Journal-Constitution (dated August 2008. Read article here.) where he quoted you a few times. In it, he reported Georgia was among 20 states that required some form of personal finance training. This seems to be a great idea for ALL states. What do you think is holding the rest of the states back from incorporating this training? Doesn’t this type of training only help the future of business and banking?
BS. Hindsight is wonderful, isn’t it? Remember what I said about short-term thinking? That’s a problem in most state legislatures and government agencies. Immediate problems of health care, crime and infrastructure (tangibles where politicians can be photographed breaking ground, kicking the bricks and cutting ribbons) get more attention and approval than long-term goals. America hasn’t focused on the long-term impact of educational benefits as a culture since the Kennedy Administration. The Federal government didn’t establish an Office of Financial Education in the Treasury Department until ten years ago and they are underfunded and managed by an appointee who made a sizable contribution to the party in charge. They didn’t create a policy of procedures or even a series of educational materials and a web site until two years ago. There’s no budget for major national public information campaigns on saving, investing, credit and mortgages which we desperately need.
If we had a national curriculum as part of ‘No child left behind’ or ‘Head Start’ like the pennies game and the ‘PayDay Game’ which could start in first grade and go through high school, or have some basic practical financial concepts woven into the overall subjects taught each year there wouldn’t be over a million young people under the age of thirty filing bankruptcy each year since 1999.
And that’s the sad part! These kids don’t realize that many career doors are going to be closed to them because of bad financial mistakes. Banks, law firms, any financial institution and many companies won’t hire you if you have a horrible credit record or have filed bankruptcy. It’s an indication of you being a financial risk to them and a poor manager of your personal affairs which could become a problem. If even half of Americans had gotten some information in high school about what it means to borrow money, buy a house, how the stock market works, how banks lend, how credit reports impact our lives and most important, the way we finance so many things in our lives especially the biggest investment for the average person, buying a house, we wouldn’t be in the financial mess we’re living through now. Do you think anyone who was able to read a mortgage summary and understood what an adjustable note was and how it worked would have signed such? The fact is, all that data about how payments change over time are in the loan document but it’s buried somewhere on page nineteen in a forty-page document, not on page one where it should be.
The financial services honchos have to take some responsibility as well. If they really wanted to avoid making some of the bad deals that now exist, they would have spent more time and money on educating the customer about what they were getting into. One of the major reasons I quit Citigroup ten years ago and started teaching these workshops and seminars is because they wanted me to take bank customers who had been investing in savings accounts and CDs for twenty years and turn them into investors in a ten-minute conversation at my desk in one afternoon. When I tried to get them to use a portion of the advertising budget to do educational material they ignored me.
SS. I have an (almost) six-year-old son who sees commercials ALL the time selling awesome Legos, or super-hero action figures. The first thing out of his mouth is ‘I want that.’ My first words are ‘get a job.’ (Sigh) I sound just like my father. How do we explain the economy to our kids in a way that they’ll understand? Also, do you do speaking engagements for elementary/high schools and universities?
BS. Don’t you love the challenge of parenting? And the financial issue is going to be a life-long discussion because the issue is always changing. The wonderful thing is that now in this era of the internet you have the tools of web sites, games, books and so many resources [such as] summer camps and special programs for teenagers like Junior Achievement and the NAIC Investing Camps for Teenagers to change the trend for your son. At six, maybe your should start explaining the difference between wants and needs and let him have a couple of dollars and discover the decision-making process of what to buy with a limited amount of income. I did something with my nephew one year when he was eight and he hasn’t forgotten it yet. He got $100.00 from his grandmother so I decided to make it a teaching experience for him. The five functions of money are: earning, spending, saving, investing and donating. He didn’t have to earn it but I showed him how we could do the other four all at once, but the right way. He was given $25.00 to do whatever he wanted, but he had to make a list of those choices, discover what they cost and then make a decision. The poor baby was crushed when he learned that he couldn’t buy a bicycle, Nintendo, laptop or new pair of sneakers with his $25.00.
Over the last few years I have done quite a few workshops and lectures/speaking engagements with universities, high-school students and parent associations, and they are all aware, often too late, how much they need to educate their students on these issues. One of my best experiences was at the National Assn. of Girls’ Schools in Boston a few years ago when the Head Mistresses of several schools asked me to help them develop a program for their students. I was also a consultant to Girls, Inc. in creating a national financial literacy program for their girls ranging from six to sixteen. That kind of program could easily be incorporated into any school curriculum with little expense for materials.
I’ve been to Spelman College, C.W. Post/Long Island, three of the CCNY campuses, Middlebury College in New Jersey and recently the Harpeth Hall School for Girls in Nashville where I spent three days with teachers, students and parents. That’s the only institution I have ever encountered which took the time and money to do it the right way; since they are a wealthy private school, they can do it based on their decision by the Board of Trustees and the parents to make it a priority for their children. Parents have to demand this as an emphasis in education so their children won’t make the same mistakes. Learning by trial-and-error can wreck a life for a long time. One afternoon at the mall with a couple of credit cards can take ten years to pay off if you only pay the minimum each month.
SS. I took my son to dance class last Saturday and, while waiting for the class to end, all the parents sat around talking about, what else, the economy and jobs. There is so much talk about banks and the threats of putting the cash under the mattress. Okay, putting the cash in the mattress isn’t going to help the economy, but will we trust banks again?
BS. You don’t have to worry about the banks now unless you have more than $250,000.00 in each account. You are protected up to that amount PER ACCOUNT, not per bank. This is a time for parents to learn along with their children about what’s what out there in the financial world. I’m surprised at people who lined up outside of INDYMAC Bank as it were the 1930’s again. We as individuals need to update our education. That’s the only way we can keep up with how the constantly-changing world of money. The ‘school’ for financial learning is still open and financial decisions are going to be lifelong events so constant learning is necessary to know what’s going on. Even if you hire a professional adviser, you have to pay attention to what’s going on and ask a lot of questions. It’s your life and your money, so pay attention.
SS. Let’s focus on business owners for a moment. Have I understood it correctly that in order to stay in business, companies need credit freezes to be lifted so they can purchase merchandise to sell to consumers? And on the flip side, consumers need credit freezes lifted so they can spend–wow, sounds like a stale mate. Is there a hold up in all of this or have I completely misunderstood what’s happening?
BS. Credit is the life blood of business and if there’s no access to working capital or a steady line of credit to cover the cycle of cash flow between purchasing inventory and sales, then the there’s little hope of being an on-going concern. Like John D. Rockefeller said, ‘Money is like manure. You can’t make anything grow unless you spread it around.’
The Domino Theory of how everything comes crashing down when the cash flow cycle stops operating properly is what we’re experiencing now, personally and business-wise. It’s always been like this but never at this scale.
SS. Without a doubt, most people know who you are but may not know how you got where you are. Talk about a wealth of experience! Would you mind going into your background a little bit–were you always interested in finance or was there something else that you thought you were going to do growing up?
BS. ( No, Shelden! Most people don’t know who I am! … If I were making the $6 MM a year as Suze Orman brags about, then I would agree with you.)
Oh, when I was a kid I scrambled between being an architect, or a pilot like my father, or a doctor like my uncle–and definitely and actress and a writer. Business was nowhere on my horizon growing up in a small town in Florida in the sixties. My financial lessons started at about ten years-old when my mother gave me an allowance and explained what I was supposed to do with it. I was good for about three weeks until some girlfriends talked me into going shopping after school for all the junk candy, fake cigarettes, hair barrettes and nonsense. When I got home, I had money for bus fare to school but no lunch money or fare home. I asked my mother for an advance on my allowance and she laughed and said that word should not be in my vocabulary and it was time to learn what financial priorities are. Needless to say, she didn’t bail me out and none of the friends who talked me into that spending would lend me a single dime. Those two lessons are still with me: 1.) Never spend your last dime until you know where the next one is coming from, and 2.) don’t expect your friends or family to always bail you out.
When I went away to college my mother explained that my father, who was dead, had set up a trust for me to cover my college expenses and since I acted like a precocious adult at sixteen, she introduced me to the lawyer and banker in charge of it. I had to give them a monthly budget of what I thought I needed and put it in writing. To start learning at sixteen, how to deal with a lawyer and banker who wanted everything at least a month in advance made me learn how to plan ahead and decide what expenses I could count on from them and what I needed to earn for myself.
The world of business opened up to me after moving to NYC. I worked briefly for a company that was buying up abandoned property and renovating it. The son of one of the partners went off to business school and told me that I should consider it. He loaned me copies of the case studies he used in classes and that perspective was an eye-opener for me; when he invited me up to Boston for an Open House weekend, I got hooked on the excitement of seeing the possibilities–all I needed was the education and the opportunity to do something new and different. The only thing that got in my way and slowed me down from achieving the ultimate career pinnacle was the racism and sexism I encountered on Wall Street.
nSS. There are many Baby Boomers retiring–which is a heavy weight on the Social Security System. Do we have to be worried about saving it? If so, what do you think our generation and/or future generations should do?
BS. Yes, we should be worried because Social Security and Medicare are going to be changing at some point in the next decade because of the heavy toll they are going to take on government entitlement expenses soon. What scares me is how long this message has been out there and people are just now paying attention. Boomers are going to have to work longer, leave less to their children and downscale their expectations. Right now, their 401k’s are looking like 201k’s and no miracle is going to make that recovery happen for at least the next five years. Privatizing Social Security didn’t happen, thank God–although, if it were done properly with a serious education program behind it and some minimal guidelines, it would work well in a good market, especially for people on minimum wage who don’t have IRAs or 401k plans. We’re already seeing some seniors busing tables at Burger King because they never saved or didn’t expect to live so long. I had a cleaning lady for a couple of years who was seventy-two and desperately needed every penny she got from baby sitting and any part-time job she could find. This is why it’s so important to learn early how to set financial priorities and have that emergency cushion of six months of basic needs in a money market account.
SS. The number one word I hear every day is ‘bailout’ this and ‘bailout’ that. There’s got to be a more positive word. In any case, there are a lot of players in this current national pastime of ‘bailout’: President Obama and his administration, Congress (House and Senate), Wall Street, Banks, businesses, citizens. When you speak at corporate engagements, do you find yourself having to explain the game and the rules? Or, are they just in need of projections and advice?
BS. I wish I could go to Washington and do a massive teach-in for a couple of weeks to some of the people who are sitting on those committees and making the bailout decisions. They need to pay closer attention to what happened in Japan and how they turned around their real estate problems. It’s embarrassing to watch those Senate hearings and hear the questions from Senators and Congresspeople who are supposed to be in charge! They ask things which are so basic that even an eighth grader could be more incisive in getting to the truth. Ranting and raving at them isn’t going to get the answers we need or make the critical decisions that have to be doled out to turn this around. Some of those guys were around and voted on the deregulation of the financial markets back in the early 90’s which created all of this with no foresight and now they are just grand-standing to impress their constituents, but they don’t seem to understand how much they are revealing about their own financial illiteracy. It’s frightening to see and know how far behind we are on cleaning up this mess we’re in.
I do spend a great deal of time explaining who the players are, how this game got started, what the warning signs were four or five years ago and why no one did anything. The brokers and salespeople behaved the same way (with greed and short-term selfish goals) in the internet bubble of the early 90’s but that wasn’t a worldwide epic debacle that has destroyed so many lives.
SS. Here at Eagles Talent Connection, we have seen an extreme negativity with the media towards companies holding conferences and meetings. However, each time a conference is canceled, it goes beyond affecting the speaker and client: it affects the hotel industry, the restaurant industry, airline industry, rental-car industry, dry-cleaning industry, etc. (click here to read our recent article about meetings and the economy) As a matter of fact, we are advocating that companies help the economy by holding conferences. Furthermore, corporate meetings are how businesses become educated, share ideas, and ultimately, grow. Do you feel that a couple of bad apples have caused the unnecessary scrutiny?
BS. Yes, the media has played up the bad apples who took things to the extreme because they like extreme stories which is unfortunate. Corporate meetings are more important than ever now because for many employees their workplace is like a second family for them and when families are in crisis, they need to spend more time talking about the status of what, why and how they plan to manage their current situation. Canceling these annual events becomes a message of fear for many employees at a time of great stress and concern when they need new ideas, support systems and reassurance that ultimately, their company and industry will survive this cycle. That Domino Theory of crashing industries can be mitigated by corporations continuing to have their events and dull the impact of possible losses on so many levels by possibly downscaling but not canceling their meetings.
SS. Okay, here’s my Inside the Actors’ Studio Question (courtesy of Steve Ruskin, one of our Sales-Team members): Name a song about where we are in the economy. Also, what song would represent where we’re going or where we should go?
BS. Hmmmm, the only song I can think of is ‘Brother, Can You Spare A Dime?’. How about a movie? What about Bonnie and Clyde?
SS. Thank you so much for taking the time to do this, Brooke.
After our interview, Brooke emailed me a wonderful quote from Thomas Jefferson…food for thought: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issues of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”
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