Financial Literacy: Making the Most of Teachable Moments

Amy KerwinChief Guaranty Officer

Great Lakes Higher Education Guaranty Corporation

Dr. Michael S. GutterAsst. Professor, Dept of Consumer Science

University of Wisconsin-Madison

Financial education

• Effectiveness of financial education programs in general is not well documented (Fox, Bartholomae, & Lee, 2005).

• Lyons, Palmer, Jayaratne, & Scherpf, 2003 – Most financial education programs lack any evaluation, and few

had evaluation in mind when developing the program – 3 reasons for the paucity of evaluation of financial education

programs1. The program provider did not have a background or expertise in

evaluation2. The provider failed to plan for evaluation during the development

stage3. The provider did not define how success or outcomes should be

measured.

Three prong approach at UW

• Money Talk$ Financial Education Seminars

• Focus Peer Financial Counseling

• Personal Finance Course– In class and online

What is Money Talk$?

• A peer education money management organization providing educational services to college students, community members, and high school students and parents.

• A resume and skill enhancement opportunity for college students.

• Created by Dr. Gutter and students in FOCU$

Name two things that hurt your credit rating

• Late payments

• Too many cards

• Too much debt relative to income

Name one way to build credit without using a credit card.

• Car loan

• Small personal loan

• Store credit (not card)

• Education loans

Money Talk$

• Educate on four main areas:– Credit Cards (Credit Report, FICO Score,

APR)

– Budgeting & Financial Services– Scholarships, Financial Aid, Loans– Renting & Tenant’s Rights

Money Talk$ II

• Investing for your future

• Employee benefits and job searches

• Credit

• Financial planning for the lifetime

Peer-to-Peer Education

And it is fun

The Purpose

• To get students to1. Think about their finances2. Learn about the environment they live in3. Take control of their finances

• Goal: Increase awareness about prudent financial management

• Good habits can last a lifetime

How do we do this?

• Peer-to-Peer Education– Students helping other students to learn about

their money

• Written materials

• Website

• CD-Rom with basic budgeting spreadsheets

Why is it effective?

• Makes sessions more inviting to students than if done by instructors or industry– Less intimidating than being lectured to – No one is selling them anything

• Excitement of talking with older students

• Facilitates discussion – Sharing of relevant and timely anecdotes

Benefits of Peer-to-Peer Education

• Builds confidence in peer educators– Learning through service

• Facilitates the learning process• Resume builder for members• Good P.R. for sponsors• May facilitate relationships with other

organizations and departments

FOCU$ Peer Financial Counseling

• Partnership between– Financial Occupations Club for University

Students– Office of Student Financial Services

• Susan Fischer (cant say enough about her)

– Department of Consumer Science in the School of Human Ecology

Mission Statement

“To use our knowledge, experience and empathy to empower our fellow

students.”

Empowerment leads to Self-Efficacy;

Self-Efficacy leads to Success.

Why do we counsel students?

• Need for financial literacy

• Need for credit management

• Need for debt management

• Need for education about money management

Achieve Empowerment Through Intervention and Education…

• Budgeting assistance

• Debt Counseling– Debt Repayment strategies

– Credit Card Debt

– Student Loans

• Credit Knowledge– How to obtain their FICO

score

– You can imagine the myths they have heard they want clarified

• Personal Loans

• Some Home Ownership Inquires

• Foreign Student Assistance

Who does the Counseling?

• Students in the Personal Finance Program

• They do receive course credit for their time

• 14-16 counselors per semester

What is a counselor’s creditability?

• Must have taken an Introduction to Personal Finance class

• Training - consisting of– Legalities!!– Ethics– Professionalism– Confidentiality– Sensitivity (Situations & Ethnic)– Power Pay Program (Thank You UW Extension)– Spreadsheet for budgeting – Role Play

Measuring the Impact of Financial Education

Assessing the impact of a semester long 3 credit course

Overview of the Project

• Create a behavior driven curriculum– Activities are the students own lives…

• Assess attitudes, personal psychology, behavior, background,

• Assess behavior, etc. at semester end and

• Assess at one year post

At UW

• Spring 2006– 2 sections of the course being taught– Just over 300 enrolled (total)– We used– 1 Professor– 1 Lecturer– 2 TAs

• Fall 2006– 2 sections – will also be about 300

• In class• On-line

Course logistics

• Typically meets twice per week– One hour 15 minutes– Professor or Lecturer (could be graduate student)

• Homework and activities due each week– TAs are helpful here– The online version will have more built-in grading features but

personal assignments always by hand (or email)– Grading guides are available

• Even when in class, I essentially posted most materials so they could print on demand except exams, surveys.

Overview of the Project

• Create a behavior-driven curriculum– Activities are the students own lives…

• Assess attitudes, personal psychology, behavior, financial socialization

• Measure baseline at the start of the semester

• Assess at the end of the semester

• Re-assess at one year post

A Model of Financial SecurityRisk

Management

Wealth Accumulation

Cash & CreditManagement

Financial Security

Economic

Environment

Preferences

And NeedsAccess

e.g. Awareness

Overview of the Course

Module 1: The Path to Financial SecurityModule 2: Establishing Financial PositionModule 3: Compound InterestModule 4: The Economy and Working with Financial InstitutionsModule 5: TaxesModule 6: Financial Aid and Education PlanningModule 7: Credit and Credit ReportsModule 8: Major Purchases: Cars and HousingModule 9: Employee BenefitsModule 10: Investment TypesModule 11: Investment Principles and StrategiesModule 12: Risk Management OverviewModule 13: Risk Management: Picking InsuranceModule 14: Staying on the Path to Financial SecurityExamsSurvey Instrument

Learning Objectives

• Learn about– Financial aid, semester-based budgeting– Credit, credit scores, and credit reports– Savings and investing– Compound interest and the impact of interest rates– Basic investing principles such as diversification, asset

allocation, and risk vs. return– Employee benefits and career paths– Managing risk and choosing insurance policies– Needs-based retirement planning– Basic cash management

Learning Objectives

• Be able to– construct basic personal financial statements and develop a record-

keeping system– construct a spending plan that helps you reach your needed surplus– read your own credit report and use credit strategically– construct personal financial objectives– strategically use financial aid and other forms of debt to achieve

goals– formulate a plan for savings including timing, levels, vehicles, and

allocation choices– value the full compensation of a job offer including benefits

packages– create a financial vision and – use financial services and other resources to get there

Activities

• Cash management– Tracking their spending for a month– Build personal finance statements and interpret them– Problems and cases– Use excel

• Getting credit report– www.annualcreditreport.com

• What could be improved?• If they have no credit, what would be a prudent way to begin

building it?• Podcasting

Activities

• Time Value of Money– Lots of problems, cases, for practice– Financial calculator

• Taxes – Do their own taxes

• Employee benefits– For a job they might really want, find the details about potential benefits

packages, what value can they assign to the benefits? • Working with financial institutions

– Interview a financial advisor, see what they do, how they get paid, etc. • The personal activities are done in both versions of the course

Rigor

• This course was originally simply the first course in our Consumer Finance program , registered with the CFPTM Board of Standards

• However, demand caused us to modify the scope to be more focused on themselves

• As was taught Spring 2006, the course is a 3 credit course.

Working with your GoalsFor each of your goals, you should determine how much you would need to save each year to achieve your goal. Create a chart plotting how much you need to save each year to reach all of your goals. Clearly, you will need to save more in some years than in others. You should assume the following rates of return:

Less than 5 years – 4% 5-10 years – 5% Greater than 10 years – 7%

Timeframe Describe TimeHorizon

Dollar Amount needed

Amount needed to save and frequency (e.g. $50 per month, $500 one time)

Very Short Term( this semester)

Short-Term (1-2 years)

IntermediateTerm (3-7 years)

Longer Term (7+ years)

Plus

• Web-based version will be pilot-tested this fall

• Designed so that it would be compatible with multiple course management systems– Desire 2 Learn– Web CT– BlackBoard

Lets look at the course website

Learn @ UW site

Walking the path Overview of the course and how personal finance topics are interconnected

Basic money management We will learn basics about creating spending plans, establishing financial position and budgeting

Compound interest See how we actually make money work for us and how it could work against us

Credit Learn the realities of credit management, credit reports, and credit scores

Taxes We will learn how to minimize taxes by taking advantage of various tax breaks. We will also see how taxes affect investing

Houses and cars These two acquisitions are big events in the lives of many. We will discuss basic issues affecting both decisions.

Paying for college From grants to loans to savings plans, we will explore how financial aid is determined and what strategies make the most sense for you.

Investing basics We will cover basic investment principles

Vehicles and account We will learn about stocks, bonds, funds, as well as different accounts like IRAs

Aa and retirement We will explore the retirement planning universe with emphasis on saving and investing to build wealth

Access and benefits Uncover the hidden value of your job offers, benefits may be as valuable as your pay.

Basic rm An introduction to risk management and basics of insurance contracts.

Protect income What risks to our income do we face? How do we manage these?

Protect wealth How do we protect our wealth from various perils?

Staying on the path Summary of key concepts in the course and how they will apply to life after college

Review of the Pilot

Pilot group

• Spring 2006– From two sections

• Formative and summative evaluation

Formative

• Most students (95%) were between 19 and 23 years old

• Roughly 2/3 female• Most of the students in

the class were Caucasian (88.8%). – 3.95% were African-

American– 1.7% were Latino– 5.6% were Asian.

Class Rank Distribution

Class Rank Percent

Freshman 15.1

Sophomore 35.2

Junior 26.8

Senior 20.7

Other/Graduate

2.2

Total 100.0

Formative Analysis

Rating of Various Course Elements

MeanStd.

Deviation

Lectures 3.7571 1.12450

Readings 2.0565 1.51776

Class Activities 3.0621 1.53059

Podcasting 1.0000 1.59545

Homework Problems

3.5198 1.13363

Perceived Usefulness of Course Activities

Mean Std. Deviation

Financial Introspection 3.4802 1.39435

Personal Financial Goal 3.8983 1.03948

Spending Diary 4.0395 .97911

Spending Plan/Budget 3.9661 1.08134

Personal Balance Sheet 3.8136 1.15022

Personal Record Keeping System 3.7684 1.19541

Interviewing Personal Finance Professionals 2.8927 1.48278

Doing Your Own Taxes 4.0565 1.15659

Planning First Savings Vehicle 3.4350 1.33038

Car Buying Process 3.2768 1.35562

Renting Process 3.1243 1.50239

Exploring Benefits Package 3.4689 1.25245

Insurance 3.5706 1.27780

Initial Impact: Cash Management

• An overall increase from 37% to 42% in students currently using a budget.

• No measurable change in actual usage of spending diaries. – But, there was a significant change in intention

to use such diaries; nearly doubled

Initial Impact: Consumer Credit

• Average number of cards held by students declined

• Frequency of use also declined during the semester

• It should be noted that balances were higher at the end of the term, “some students maxed-out”– Those who maxed our would have been some of those that

declined in frequency of use, but not all

• All students obtained a credit report for the class; follow-up surveys will indicate whether students obtain an additional one voluntarily in the next year.

Initial Impact: Saving

• Pre to Post: reduction in the percent of students who had no plan to save

• 7% to 4% – Overall, 7% of the sample had positive savings

behavior related change. • That is, students with no plan, created a plan; those with a

plan, began saving– A similar pattern emerged with respect to retirement

account participation. • Over 25% of students had a positive behavior change• 19% no plan to having intent to open one at some point• Nearly 6% no intention to actually opening an account

Initial Impact: Risk Management

• Significant increase in the proportion of students who had or intended to get renter’s insurance policy

• Increase in awareness of what they were exposed to– While there were changes in the proportions covered by

various policies, students also changed their self-reported behaviors

• Those that said they were driving, changed this on the post-test

Continuing Evaluation

• Follow-up study– Think back to those measures of intent…

• Second semester – Online versus in-class

• Grades

• Change in attitudes?

• Change in behavior?

Want to find out more?

• For a free copy of the initial report or to review the modules, contact:– Amy Kerwin

akerwin@glhec.org– Steve Schmidt

sschmidt@glhec.org