The Educational Desires of Financially Distressed Credit Counseling Clients

1. The Educational Desires of Financially Distressed Credit Counseling Clients William C. Bailey, University of Arkansas Benoit Sorhaindo, InCharge Institute of America E. Thomas Garman, Professor Emeritus, Virginia Tech Presented to the Association of Financial Counseling and Planning Education Scottsdale, AZ - November 22, 2002

2. Statement of the Problem • Most Americans report they need additional financial education • Research indicates that all can benefit from financial education • Employees • Employers • Financial services providers know little about the education needs of severely financially distressed individuals

3. Previous Research on Financial Literacy • Jump$tart Coalition for Financial Literacy • Survey of Graduating High School Seniors • 1997--57.3% mean correct score • 2001—50.2% grade of “F” on average • Americans for Consumer Education • Random telephone survey of 801 seniors • 36.6% mean score on 13-item multiple choice test • Survey has ±3.5% margin of error rate

4. Changes in Today’s Financial Environment • Personal finances are becoming much more complex compared to years ago • Changes in types of mortgages, investment vehicles, and insurance • Changes in banking and saving industries • Treasury Secretary Paul H. O’Neill, stated that it is very understandable that the average consumer can be uncertain and ill-equipped to handle all of the issues associated with home mortgages, paying for an automobile, and making investment selections that range from stocks and certificates of deposit to “who knows what else” (Department of the Treasury, April 23, 2002) • One result is the newly created Office of Financial Education in the U.S. Treasury Department

5. Adults are Seeking Additional Financial Education • Traditional books and other written materials pour off the presses to inform and educate adults about personal financial issues • Media has targeted a variety of audiences for financial education, ranging from budgeting to retirement planning • Newspaper, radio, and television programs • Audio and video tapes • Internet sites • Distance education programs

6. Workers are Seeking Financial Education from Their Employers • Research has determined that a comprehensive approach to financial education in the workplace has beneficial results for workers, their families, and their employers (Bayer, Bernheim, and Scholz, 1996; Kratzer, Brunson, Joo, and Garman, 1998) • Research also indicates that personal finance education in the workplace can improve job productivity (Garman, Leach, and Grable, 1996; Joo and Garman, 1998).

7. Many Families are Financially Distressed • More than 2.5 million individuals and families in 2001 sought assistance with financial problems from NFCC accredited agencies • However, the research literature reveals little about credit counseling clients • Research indicates that credit reports improve as a result of debt counseling (Staten, Elliehausen, and Lundquist, 2002)

8. Methodology • The present study was part of a larger mail survey sent to clients of a national non-profit credit counseling organization. • In 2000, a sample of 1,800 was drawn from a population of 4,000 current clients. • Twenty percent (N=355) of the households who received a questionnaire returned it. • Eighteen months later, in January 2002, a second questionnaire was sent to those who responded originally.

9. Methodology (Continued) • Regarding the 2002 data collection • 300 of the 355 questionnaires were delivered. • 180 usable questionnaires were returned, for a return rate of 51 percent. • The questionnaire included one question asking, “I could benefit from additional information and/or education in the following areas?” with 13 choices plus “other.” • 160 responded to that question and 132 identified at least one financial topic in which they desired additional information or education.

10. ResultsDescription of Subjects • Of the 160 survey respondents, 68% were female • The mean age was 37 years • 49% were either married or living with a partner • Median annual income was $30,001 to $40,000 • Educational attainment • 43% had a high school education • 28% had some college • 30% had a bachelor’s degree or higher

11. Additional Financial Education Topics Desired Topics Percentage Budgeting and Money Management 48% Saving for Future Needs 48% Saving for Retirement 37% Lowering Credit Payments 31% Understanding IRA and 401K Plans 24% Understanding Credit Reports 24% Reducing Income Taxes 21%

12. Additional Financial Education Topics Desired Avoiding Costly Financial Mistakes 20% Understanding Credit Scores 19% Reducing Checking Account Fees 16% Understanding Rights as a Borrower 13% Selecting the Right Insurance Plan 10%

13. Additional Analysis • Several statistical tests were conducted to determine if there were differences by demographics among the desired financial education topics • No significant difference by gender • No significant difference by age (6 categories) • There were two differences in topics desired by education • Those with some college were more likely to desire information about “avoiding costly financial mistakes” than either high school graduates or college graduates (F=3.14, p=.046). • The results were the same among education groups wanting to “understand rights as borrower” (F=3.15, p=.048).

14. Item F-Ratio and P Value Significance Difference by Income on Four Items Reducing Checking Account Fees F=3.38 (p=.004) Lowering Monthly Credit Payments F=2.32 (p=.036) Saving for Future Needs F=2.24 (p=.042) Understanding Credit Reports F=2.20 (p=.046)

15. Discussion • Little is known about credit counseling clients • The financial education needs of credit counseling clients may or may not be similar to a more normal population of credit users, because of the generally high levels of financial illiteracy in the American population

16. Discussion continued • In three previous studies of financial education (Anderson, Kerbel, and Xiao, 1997; Joo and Garman, 1998; Kim, Bagwell, and Garman, 1998) determined that the majority of individuals wanted additional financial education • In those studies, a variety of additional financial education topics were desired ranging from the basics of budgeting to investing and estate planning

17. Educational Topics Desired in the Three Other Studies • Retirement and investment education were always rated first, and then followed by credit and budgeting issues. • Other topics, such as tax planning, funding college education for children, selecting life and health insurance, and related topics, tended to be rated third

18. Two Important Differences Between Studies • Credit counseling clients wanted basic knowledge first, followed by a desire for additional education on retirement and investment planning • Previous studies had the reverse order • There was a high rejection rate for additional financial education by debt counseling clients—about 25% said “no“ to desiring any additional education • Previous studies had fewer than 10% say “no” to desiring additional education

19. Recommendations • These findings support the need for more basic financial education for credit counseling clients. • Research should be conducted to find out the delivery mechanisms most desired by different types of people. • Adult educators are encouraged to create and deliver basic financial education programs on credit and money management.

20. Recommendations • Programs should be marketed so that those with household incomes below the national median become aware of and use the educational opportunities. • Research should determine if financial education changes personal financial behaviors and personal financial well-being. • Schools and employers need to get the message about the need for basic financial education, and change, so people, employers, institutions, and society as a whole can reap the benefits of a financially literate population.