Why is Financial Education/Literacy Important?

1. Why is Financial Education/Literacy Important? “FinancialEmpowerment” Presented By: Patrice B. Duncan, EVP & Anthony Harris, AVP D&E, The Power Group

2. What is Financial Empowerment? • Empowerment itself is the process of increasing the capacity of individuals or groups to make choices and to transform those choices into desired actions. • Financial empowerment therefore is the transfer of personal money power (financial independence) to an individual. • It is a process of moving from financial instability to a position of financial stability through investment.

3. What is Financial Literacy? • Financial literacy is the knowledge about personal finance that enables people to confidently manage their financial lives. • When it comes to managing your budget, paying bills, and knowing the right financial services for you, KNOWLEDGE IS POWER!

4. Case Study – Emily & Karen • Emily and Karen are friends who borrow about the same amount of money over their lifetimes: • Each gets $20,000 in private student loans to help pay for college.

5. Case Study – Emily & Karen • During college they get their first credit cards, and each carry an $8,000 balance, on average, over the years. • They buy new cars after graduation and replace them every seven years until they buy their last vehicles at age 70.

6. Case Study – Emily & Karen • Each buys her first home with a $300,000 mortgage at age 30 and then moves up to a larger house with a $400,000 mortgage after turning 40. • Each takes out a $50,000 home-improvement loan to remodel the second house.

7. Case Study – Emily & Karen • Emily has a FICO Score of 750, which is considered good to excellent. • Emily maintains her good credit scores by always paying her bills on time, applying for credit sparingly and never maxing out her credit cards. • Lenders respond by increasing her credit limits and giving her more offers of credit, allowing her to spread her balances across several cards and further protect her scores.

8. Case Study – Emily & Karen • Karen has a 650 FICO score, which is considered fair to average, even poor depending on the lender. • Karen, on the other hand, doesn't always pay on time and sometimes maxes out her cards, which makes lenders reluctant to extend more credit. • She tends to carry larger balances on fewer cards than Emily, which further hurts her scores, and Karen has less ability to negotiate lower interest rates.

9. Case StudyPrivate student loans: An $8,000 difference • Federal student loans don't take credit scores into account, but private student loans do, and the penalty for worse credit is significant. Interest rates vary by lender, but someone with a 750 score can expect rates that are around 5 to 6 percentage points cheaper than someone with a 650 score, said Mark Kantrowitz of FinAid.

10. Case Study – Emily & KarenPrivate Student Loans - $8,000 difference Emily – 750 FICO Score Karen – 650 FICO Score Interest Rate - 13.25% Monthly Payment - $302 Total interest paid (10 yrs) $16,189 Karen's Penalty $8,013 • Interest Rate - 7.25% • Monthly Payment - $234 • Total interest paid (10 yrs) • $8,176

11. Case StudyCredit Cards: $60 more a month • Credit card issuers have tightened their lending standards in the past couple of years, which means higher rates and stricter standards for just about everyone. • Whereas a 720 credit score used to get you the best rates and terms from many issuers, some now require 750. Even getting a card can be tough if your scores are below 675, according to Curtis Arnold of CardRatings.com. A few years ago, even those with "subprime" scores in the low 600’s had a slew of offers.

12. Case Study – Emily & KarenCredit Cards- $60 difference per mth. Emily - 750 FICO Score Karen – 650 FICO Score Interest Rate – 19.99% Annual Interest- $1,600 Lifetime interest $80,000 Karen's Penalty $36,000 • Interest Rate - 10.99% • Annual Interest- $880 • Lifetime interest $44,000

13. Case StudyAuto loans: $5,400 more per car • A few years ago, Karen would have paid about 3 percentage points more for a 60-month new-car loan. Today, that penalty is more than twice as high, according to myFICO.com, which tracks rates for auto and mortgage loans based on FICO credit scores. The difference significantly inflates the interest costs for every $25,000 vehicle she finances over a lifetime.

14. Case Study – Emily & Karen Auto loans: $5,400 more per car Emily - 750 FICO Score Karen – 650 FICO Score Interest Rate – 13.24% Monthly Payment - $572 Interest cost per car $9,310 Lifetime interest paid $74,480 Karen’s Penalty $43,712 • Interest Rate - 5.78% • Monthly Payment - $481 • Interest cost per car $3,843 • Lifetime interest paid -$30,768

15. The Role of Financial Education • Financial education plays a significant role in our society by empowering people with required knowledge and skills to make accurate consumer decisions, follow appropriate financial practices, and achieve economic well being.

16. The Role of Financial Education • However, some financial education programs narrowly focus only on changing people's financial knowledge and make the assumption that this leads automatically to changes in financial behavior.

17. The Role of Financial Education • This assumption may work at times; however, changing financial behavior (not just increasing financial knowledge) is essential for a person to reach financial goals and achieve financial well being.

18. Major Topics of Financial Education • Financial education is a very broad subject and typical topics covered include: • Budgeting • Cash-flow management • Credit • Banking • Savings and Investments.

19. Major Topics of Financial Education Other topics of discussion can encompass: • Goal Setting • Wise Consumer Practices • Consumer Laws & Rights • Retirement Planning • Life & Death Insurance

20. Major Topics of Financial Education • While the importance of some topics may change over time, other topics, such as • Decision-making • Cash-flow management • Savings • Credit, debt, housing, and planning for the future will always represent the core topic areas of financial education.

21. Educational Settings • Financial education is very similar to other educational programs. It takes place in formal, non-formal, and informal educational settings. • Formal settings include credit courses offered in high school and colleges.

22. Educational Settings • Non-formal settings include financial education training workshops and counseling programs provided by various organizations and individuals outside of formal educational institutions. i.e. non-profits

23. Educational Settings • Informal financial education comes from everyday interactions with people and mass media, i.e. news, work, internet, family etc.

24. Key Elements • Before the financial educator begins the program evaluation process, it is important to review the education program to make sure that it has all the key elements to function successfully.

25. Key Elements & Preparation Must haves……….. • Identified target participant group • Identified financial education needs • Program objectives designed to meet identified needs • Educational materials and lesson plans chosen to achieve learning objectives

26. Key Elements & Preparation • Delivery method chosen to facilitate participant access to educational materials, i.e. lecture, internet, group, individual etc. • Inclusion of evaluation plan and data-collecting instruments

27. Key Elements & Preparation • Trained and/or certified financial educator(s) to facilitate learning, i.e. NeighborWorks, HUD, etc. • Program monitoring plan to utilize evaluation data for building stronger programs and funding strategies

28. Target Audiences • Target audiences of financial education are very diverse. Participants' ages, levels of education, socio-economic backgrounds, and learning needs can vary greatly. For example, the ages of potential audiences can range from youth to older adult.

29. Target Audiences • The levels of education can range from elementary school to graduate school. • This variation underscores the educational diversity of potential audiences of financial education programs.

30. Target Audiences • Additionally, the need determines how to carefully select educational materials, delivery methods, and the evaluation approach based on the needs of each audience to achieve desired results.

31. Methods of Financial Education Delivery • Various methods are used to deliver financial education programs. These methods can be classified under three main categories: • Individual Methods • Group Methods • Mass Methods

32. Methods of Financial Education Delivery • Individual Methods • One-on-one counseling • Telephone advising • Computer/Internet Learning

33. Methods of Financial Education Delivery • Group Methods • Seminars/presentations • Training workshops • Workshop series • Credit courses offered through formal educational institutions

34. Methods of Financial Education Delivery • Mass Methods • Web-based programs • Interactive CD programs • TV programs • Newsletters/papers • Radio programs

35. Evaluation Tools • Evaluation is a key component of Financial Education Programs. There are many different types of evaluation tools depending on the object being evaluated and the purpose of the evaluation. Perhaps the most important basic distinction in evaluation types is that between formative and summative evaluation.

36. Evaluation Tools • Formative evaluations strengthen or improve the object being evaluated -- they help form it by examining the delivery of the program or technology, the quality of its implementation, and the assessment of the organizational context, personnel, procedures, inputs, and so on.

37. Evaluation Tools • Summative evaluations, in contrast, examine the effects or outcomes of some object -- they summarize it by describing what happens subsequent to delivery of the program or technology; assessing whether the object can be said to have caused the outcome;

38. Evaluation Tools • Determining the overall impact of the causal factor beyond only the immediate target outcomes; and, estimating the relative costs associated with the object.

39. Evaluation Tools • Formative evaluation includes several evaluation types: • Needs assessment determines who needs the program, how great the need is, and what might work to meet the need • Evaluability assessment determines whether an evaluation is feasible and how stakeholders can help shape its usefulness

40. Evaluation Tools • Formative evaluation includes several evaluation types: • Structured conceptualization helps stakeholders define the program or technology, the target population, and the possible outcomes • Implementation evaluation monitors the fidelity of the program or technology delivery

41. Evaluation Tools • Formative evaluation includes several evaluation types: • Process evaluation investigates the process of delivering the program or technology, including alternative delivery procedures

42. Financial Education Resources & Curriculums • FDIC Money Smart • Freddie Mac – Credit Smart • NEFE – National Endowment for Financial Education • Federal Reserve Bank – Guide to Financial Literacy Resources • Jump$tart Financial Literacy

43. Sample Presentation Goal Setting Budgeting Credit

44. Five Rules to Goal Setting Rule #1: Set Goals that Motivate You Making sure it is something that's important to you and there is value in achieving it.

45. Five Rules to Goal Setting Rule #2: Set SMART Goals -Specific -Measurable -Attainable -Relevant -Time Bound

46. Five Rules to Goal Setting Rule #3: Set Goals in Writing Put them on your walls, desk, computer monitor, bathroom mirror or refrigerator as a constant reminder.

47. Five Rules to Goal Setting Rule #4: Make an Action Plan Write out the individual steps, and then cross each one off as you complete it.

48. Five Rules to Goal Setting Rule #5: Stick With It! Remember to review your goals continuously.

49. How to Budget • Getting started with making a plan for your money • Planning how to spend your money • Developing a spending plan to meet your goals • Making your spending plan • The importance of saving • Getting help

50. Why Do You Need a Spending Plan? • To prepare for large expenses • To encourage savings • To prepare for surprise expenses • To identify wasteful spending • To accomplish goals