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.
Increasing the Efficacy of Financial Education Jeanne M. Hogarth Federal Reserve Board With contributions from Marianne Hilgert (former FRB) and Jane Kolodinsky.
Dec 22, 2015
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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.
GoalsWhat 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?
KnowledgeMotivationTools & skills (information search, decision making)Equipped to change behavior
What is financial education?
Economic knowledgeWhen the Fed raises interest rates, what happens to your credit card interest rate? To you savings account interest rate?
Consumer knowledgeIf 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 knowledgeOver 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 programsJacob – CES, credit counseling, employers, financial institutionsNEFE – 150 program resources
New funding for 36 programs out of 810 applications
FRB-San Francisco – 56 programsJump$tart – more than 100 partners
“Everyone is doing it”
What financial education is going on out there?
Financial Literacy & Education Commission
Mymoney.gov; 1-888-my-money
NEFE “Not if we can help it” (smartaboutmoney) campaignState Treasurers and State Securities Commissioners
Investor Protection Trust
Thrift Savings Plan Open Elections Act of 2004 (employee financial ed.)
Who are target audiences?
YouthMilitaryLow-income familiesFirst-time home buyersEmployees
Church membersPre-retireesRetireesWomenMinority groups (Blacks, Hispanics, Native Americans)
Something for everyone
What topics do programs cover?
Cash-flow managementBasic budgeting/financial managementBanking, check-book management
Saving and investingAsset building
Credit managementHome buyingRetirement planning
For & in retirement
What do people know?
Not much!CFA/American Express studies w/ high school, college, adults (1990-93)EBRI – RCS, 1997
11% have low level of financial knowledge
CFA/CES 1998 consumer survey
Ave. score = 75
What do people know?
ASEC 1999 student survey18% don’t understand financial mgt7% do “poor” job of money mgt
NCEE’s 2005 survey28% of adults & 60% of youth failedImproved since 1999
Jump$tart’s bi-annual surveysRHS 2004 Financial Literacy Module
What do people know?
University of Michigan’s Surveys of Consumers (Nov. & Dec. 2001)1,004 respondents interviewedAdditional 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” lawHighest 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 ownershipLow, medium, and high levels of
Cash flow managementSavingsCreditInvestment
Behavior Indexes
Low Medium High
Cash Flow
Saving
Investment
Credit
What influences “the index?”
Low, medium, and high behaviors as function of
Financial knowledgeFinancial learning experiencesEconomic stabilityMotivationSocioeconomic & demographic characteristics
What influences “the index?”
KnowledgeThe more you know, the more you do
ExperienceThe 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)
Cash flow, savings &
invest.
Credit, savings & investmentSavings &
investment
Investment
Cash flow &/or credit; savings, or
investment
Saving & investment
What works, and how do we know?
NEFE High School Financial Planning Program
Increased knowledge, skills, and confidence Improved behaviorsMeasured 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 counselingImproved credit scores, better credit management, lower delinquency
Homeownership counselingLowered 90-day delinquency rates
What works, and how do we know?
Retirement planningSave More Tomorrow
Increased participation in 401k, increased rates of contribution, high retention after 3 years
Members of TIAA-CREFRevised retirement savings goals, plan to modify saving & investment
What works, and how do we know?
Money 2000Increased savings, decreased debts
American Dream Demonstration (IDAs)
Financial education increases savings (maxes out at 8-10 hours)
Money SmartIncreased financial understandingNot associated with opening bank account
What works, and how do we know?
Employee Financial EducationIncreased 401k participation & improved other financial behaviors
Financial Security in Later LifeImproved 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 benefitsExpand goals, save more, more assets, income increased, job opp. improved, housing opp. improved
Third level benefitsSelf 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 levelsThose 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 programsNeed to ask attitudinal as well as behavioral questions to get at program impacts
New evaluation initiatives
CFA evaluating multi-level impacts of Cleveland SavesCFA/AmEx/CRC evaluating the efficacy of credit counseling
Multiple delivery techniques -- in-person, phone, web
New evaluation initiatives
Philadelphia FRB – home ownership counseling programsFRB & 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
Experience 68% 48%
Friends & fam.
42 21
Media 36 11
Employer 21 5
H.S. course 19 5
Other course
17 5
How do people want to learn?
Media (TV/radio, magazines, newspapers) 71%
Brochures/print materials 66Video 64Internet 56School 53Community courses 53
Where do we go from here?
Micro- measuresSelf-anchoring – what are your goals and are you on target for achieving them?
Macro- measuresCredit scores go upSavings rates go upBankruptcies go down
Where do we go from here?
Information is not educationNeed to change behaviors
Are behaviors the right outcome measures?
Satisfaction with life & lifestyleAttitudes -- 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?
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