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Financial Education & Economic Development
Jeanne M. HogarthDivision of Consumer & Community Affairs
Federal Reserve Board, U.S.A.
With assistance from Marianne Hilgert, Jane Kolodinsky, Michael Wilson. The analysis 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. Mention or display of a trademark, proprietary product, or firm in the presentation by the author does not constitute an endorsement or criticism by the Federal Reserve System and does not imply approval to the exclusion of other suitable products or firms.
Why is education important?
Increased sophistication of financial products and services
Shifting responsibility away from institutions and towards individual
Demographic changes affecting the marketplace
Long-term economic situation
Why is the Fed interested in financial education?
Consumer protection
Why is the Fed interested in financial education?
Community development
Why is the Fed interested in financial education?
Financial access
Education is only one pieceof the puzzle
EducationDisclosures & informationSubstantive protectionsRedressProfessional advice
How financial education works
Educated consumer
How financial education works
Educated consumerBetter use of
resources
How financial education works
Educated consumerBetter use of
resourcesIncreased economic security, better jobs, more home owners
How financial education works
Educated consumerBetter use of
resourcesIncreased economic security, better jobs, more home owners
More involved in schools, community participation
How financial education works
Educated consumerBetter use of
resourcesIncreased economic security, better jobs, more home owners
More involved in schools, community participation
Vital, thriving communities, well-educated labor force
Components of education
TopicsAudienceLearning styleStage in behavior change
What topics?
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
Who are target audiences?
YouthMilitaryLow-income familiesFirst-time home buyersEmployeesPre-retireesRetireesWomenMinority groups
Learning styles
VisualAuditoryKinetic
How do people learn?
517Other course
519H.S. course
521Employer
1136Media
2142Friends & family
48%68%Experience
Most important
Learned“a lot”
How do people want to learn?
Media (TV/radio, magazines, newspapers) 71%
Brochures/print materials 66Video 64Internet 56School 53Community courses 53
Stages of behavior change
Maintenance
Action
Preparation
Contemplation
Precontemplation
Components of education
TopicsAudienceLearning styleStage in behavior change
What is “success”?
Information is not educationNeed to change behaviors
Are behaviors the right outcome measures?
Satisfaction with life & lifestyleAttitudes -- feel confident Feel prepared for events
Financial education & community economic development
Opportunities Credit Union case studyPanel surveyed in 2001 and 2004
Small sample
What works and how do we know?
First level benefitsManage money, on track, paying
off debtsSecond level benefits
Expand goals, save more, more assets, income increased, job opportunities improved, housing opportunities improved
Third level benefitsSelf confident, quality of life improved, hopeful, more involved in neighborhood & community
Importance of education & savings account balances
$115
$223
$68$82
$0
$50
$100
$150
$200
$250
E ducation im portant E ducation not im portant
20012004
Savings balances
$ 0
$ 1 0 0
$ 2 0 0
$ 3 0 0
$ 4 0 0
$ 5 0 0
1 3 5 7 9 1 1 1 3 1 5 1 7Q u a r t e r s
Dol
lars
E d u c a t io n im p o r t a n t
E d u c a t io n n o t im p o r t a n t
Importance of education & loan balances
$647
$82
$369
$882
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Education important Education not important
20012004
So what?
Those who feel education is important report positive outcomes at all 3 levelsPattern of saving is “craggy” (save up and then spend down)
When do you measure outcomes of program? How do you measure outcomes of program?
So what?
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
So what?
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
What works, and how do we know?
NEFE High School Financial Planning ProgramIncreased knowledge, skills, and confidence Improved behaviorsMeasured before, after, & 3 months later
Financial/consumer education in high schoolFinancial 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 is the Fed doing?
Promoting awareness of the importance of financial educationIncreasing access to information about financial products & servicesCollaborating with educational and community organizationsPromoting research and identifying best practices
Educating our employees
www.federalreserve.gov
www.federalreserveeducation.org