Download Who Uses E-Banking? Changes From 1995 to 2001

Increasing the Efficacy of
Financial Education
Jeanne M. Hogarth
Federal Reserve Board
With contributions from Marianne Hilgert (former FRB) and Jane
Kolodinsky (UVM). The analysis, comments and conclusions set
forth in this presentation represent the work of the authors and
do not indicate concurrence of the Federal Reserve Board, the
Federal Reserve Banks, or their staff.
Goals
What is financial education?
What do people “know?”
How does “knowing” relate to
“doing?”
What works, and how do we
know?
Where can we tease out
improvements?
Why is financial education
important?
Increased sophistication of
financial products and services
Shifting responsibility away from
institutions and towards
individual
Demographic changes affecting
the US marketplace
Long-term economic situation
What is financial education?
Knowledge
Motivation
Tools & skills (information
search, decision making)
Equipped to change behavior
What is financial education?
Economic knowledge
When the Fed raises interest rates,
what happens to your credit card
interest rate? To you savings
account interest rate?
Consumer knowledge
If you lease a car today and change
your mind tomorrow, can you take
it back, since it’s within the 3-day
cooling off period?
What is financial education?
Stock market knowledge
Over a 25 year period, which
instrument has performed better:
stocks, bonds, treasury securities,
or savings accounts?
Money management knowledge
How does paying your bills late
affect your credit record? If you
make only the minimum payment
on your credit card, how long will it
take you to pay it off?
What financial education is
going on out there?
Vitt - 91 programs
Jacob – CES, credit counseling,
employers, financial institutions
NEFE – 150 program resources
New funding for 36 programs out of 810
applications
FRB-San Francisco – 56 programs
Jump$tart – more than 100 partners
“Everyone is doing it”
What financial education is
going on out there?
Financial Literacy & Education
Commission
Mymoney.gov; 1-888-my-money
NEFE “Not if we can help it”
(smartaboutmoney) campaign
State Treasurers and State Securities
Commissioners
Investor Protection Trust
Thrift Savings Plan Open Elections Act
of 2004 (employee financial ed.)
Who are target audiences?
Youth
Military
Low-income
families
First-time home
buyers
Employees
Church members
Pre-retirees
Retirees
Women
Minority groups
(Blacks,
Hispanics, Native
Americans)
Something for everyone
What topics do programs
cover?
Cash-flow management
Basic budgeting/financial management
Banking, check-book management
Saving and investing
Asset building
Credit management
Home buying
Retirement planning
For & in retirement
What do people know?
Not much!
CFA/American Express studies w/
high school, college, adults
(1990-93)
EBRI – RCS, 1997
11% have low level of financial
knowledge
CFA/CES 1998 consumer survey
Ave. score = 75
What do people know?
ASEC 1999 student survey
18% don’t understand financial mgt
7% do “poor” job of money mgt
NCEE’s 2005 survey
28% of adults & 60% of youth failed
Improved since 1999
Jump$tart’s bi-annual surveys
RHS 2004 Financial Literacy
Module
What do people know?
University of Michigan’s Surveys of
Consumers (Nov. & Dec. 2001)
1,004 respondents interviewed
Additional questions
true/false financial knowledge quiz
financial management practices
financial product ownership
learning experiences and
preferences
What do people know?
Average score= 67%
Lowest item – only 18% understood
“cooling off” law
Highest items – 94% know about
emergency funds and the effects of
late payments on your credit score
What do people know?
Most knowledgeable about
mortgages
Average score = 81%
Less knowledgeable about credit
and investments
Average scores = 62-63%
Scores were related to income,
education, age, race/ethnicity,
marital status & gender
How does knowing relate to
doing?
Do you know what you know
because you do what you do?
Or
Do you do what you do because
you know what you know?
Behavior Measures
Combined financial management
practices & product ownership
Low, medium, and high levels of
Cash flow management
Savings
Credit
Investment
Behavior Indexes
Investment
Saving
Credit
Cash Flow
Low
Medium
High
What influences “the
index?”
Low, medium, and high
behaviors as function of
Financial knowledge
Financial learning experiences
Economic stability
Motivation
Socioeconomic & demographic
characteristics
What influences “the index?”
Knowledge
The more you know, the more you do
Experience
The more you’ve done, the more you
do
Other influences were not
consistent across all behaviors
Income, marital status/gender, race,
household size, education, home
ownership, economic stability,
motivation
What financial education do
people need?
Savings
None
Basic
(all 4 topics)
General
(all 4 topics)
Investment
Cash flow,
savings &
invest.
Saving &
investment
Cash flow &/or
credit; savings, or
investment
Savings &
investment
Credit, savings &
investment
What works, and how do we
know?
NEFE High School Financial Planning
Program
Increased knowledge, skills, and
confidence
Improved behaviors
Measured before, after, & 3 months later
Financial/consumer education in high
school
Financial education in high school
associated with higher savings and net
worth as an adult
What works, and how do we
know?
Credit counseling
Improved credit scores, better credit
management, lower delinquency
Homeownership counseling
Lowered 90-day delinquency rates
What works, and how do we
know?
Retirement planning
Save More Tomorrow
Increased participation in 401k,
increased rates of contribution,
high retention after 3 years
Members of TIAA-CREF
Revised retirement savings goals,
plan to modify saving & investment
What works, and how do we
know?
Money 2000
Increased savings, decreased debts
American Dream Demonstration
(IDAs)
Financial education increases savings
(maxes out at 8-10 hours)
Money Smart
Increased financial understanding
Not associated with opening bank
account
What works, and how do we
know?
Employee Financial Education
Increased 401k participation & improved
other financial behaviors
Financial Security in Later Life
Improved financial management practices
(self-anchoring)
Economic impacts averaged $870 (savings
increased, debts reduced, etc.)
What works and how do we
know?
Opportunities Community Dev. CU
First level benefits
Manage money, on track, paying off debts
Second level benefits
Expand goals, save more, more assets,
income increased, job opp. improved,
housing opp. improved
Third level benefits
Self confident, quality of life improved,
hopeful, more involved in
neighborhood/community
What works and how do we
know?
Those who feel education is
important report positive
outcomes at all 3 levels
Those who feel education is
important are “high touch” and
like to stay in touch (newsletter)
What works and how do we
know?
Pattern of saving is “craggy”
(save up and then spend down)
When do you measure outcomes of
program?
How do you measure outcomes of
program?
What works and how do we
know?
Education seems to make biggest
difference at first level (manage
money, pay off debts)
As members (clients) stay with
program, need to develop
“higher” levels of financial
education
Need for financial education
curriculum, not just a course
What works and how do we
know?
People come to recognize &
appreciate benefits over time
Longitudinal evaluation plan for
financial education programs
Need to ask attitudinal as well as
behavioral questions to get at
program impacts
New evaluation initiatives
CFA evaluating multi-level
impacts of Cleveland Saves
CFA/AmEx/CRC evaluating the
efficacy of credit counseling
Multiple delivery techniques -- inperson, phone, web
New evaluation initiatives
Philadelphia FRB – home ownership
counseling programs
FRB & DoD – longitudinal study on the
effects of financial education on
military
A word of caution – most studies
based on self-selection
What would effects be if people were
randomly assigned to an educational
program?
Where can we tease out
improvements?
How much did
you learn?
“A lot”
Most
important
68%
48%
Friends & fam.
42
21
Media
36
11
Employer
21
5
H.S. course
19
5
Other course
17
5
Experience
How do people want to
learn?
Media (TV/radio, magazines,
newspapers)
71%
Brochures/print materials 66
Video
64
Internet
56
School
53
Community courses
53
Where do we go from here?
Micro- measures
Self-anchoring – what are your goals
and are you on target for achieving
them?
Macro- measures
Credit scores go up
Savings rates go up
Bankruptcies go down
Where do we go from here?
Information is not education
Need to change behaviors
Are behaviors the right outcome
measures?
Satisfaction with life & lifestyle
Attitudes -- feel confident
Feel prepared for events – getting
married, home buying, having kids,
taking vacations, college, home
repairs, car buying, retirement
Where do we go from here?
How do we link knowledge and
experiences to behaviors?
Do we work to increase knowledge in
the hopes of improving behaviors?
Do we try to provide better
(successful?) “experiences” in the
hopes of improving behaviors?
Can we find efficient and effective
strategies for financial education?