Financial Literacy: Making the Most of Teachable Moments

1. Financial Literacy: Making the Most of Teachable Moments Amy Kerwin Chief Guaranty Officer Great Lakes Higher Education Guaranty Corporation Dr. Michael S. Gutter Asst. Professor, Dept of Consumer Science University of Wisconsin-Madison

2. 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 programs • The program provider did not have a background or expertise in evaluation • The provider failed to plan for evaluation during the development stage • The provider did not define how success or outcomes should be measured.

3. Three prong approach at UW • Money Talk$ Financial Education Seminars • Focus Peer Financial Counseling • Personal Finance Course • In class and online

4. What is Money Talk$? • A peer education money management organization providing educational services to college students, community members, and high school students and parents. • A resume and skill enhancement opportunity for college students. • Created by Dr. Gutter and students in FOCU$

5. Name two things that hurt your credit rating

6. Late payments • Too many cards • Too much debt relative to income

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

8. Car loan • Small personal loan • Store credit (not card) • Education loans

9. 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

10. Money Talk$ II • Investing for your future • Employee benefits and job searches • Credit • Financial planning for the lifetime

11. Peer-to-Peer Education

12. And it is fun

13. The Purpose • To get students to • Think about their finances • Learn about the environment they live in • Take control of their finances • Goal: Increase awareness about prudent financial management • Good habits can last a lifetime

14. 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

15. 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

16. 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

17. 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

18. Mission Statement “To use our knowledge, experience and empathy to empower our fellow students.” Empowerment leads to Self-Efficacy; Self-Efficacy leads to Success.

19. Why do we counsel students? • Need for financial literacy • Need for credit management • Need for debt management • Need for education about money management

20. 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 Achieve EmpowermentThrough Intervention and Education…

21. Who does the Counseling? • Students in the Personal Finance Program • They do receive course credit for their time • 14-16 counselors per semester

22. 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

23. Measuring the Impact of Financial Education Assessing the impact of a semester long 3 credit course

24. 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

25. 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

26. 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.

27. 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

28. A Model of Financial Security Preferences And Needs Access e.g. Awareness Economic Environment

29. Overview of the Course Module 1: The Path to Financial Security Module 2: Establishing Financial Position Module 3: Compound Interest Module 4: The Economy and Working with Financial Institutions Module 5: Taxes Module 6: Financial Aid and Education Planning Module 7: Credit and Credit Reports Module 8: Major Purchases: Cars and Housing Module 9: Employee Benefits Module 10: Investment Types Module 11: Investment Principles and Strategies Module 12: Risk Management Overview Module 13: Risk Management: Picking Insurance Module 14: Staying on the Path to Financial Security Exams Survey Instrument

30. 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

31. 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

32. 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

33. 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

34. 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.

35. 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%

36. 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

37. Lets look at the course website Learn @ UW site

39. Review of the Pilot

40. Pilot group • Spring 2006 • From two sections • Formative and summative evaluation

41. 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.

42. Formative Analysis

44. 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

45. 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.

46. 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

47. 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

48. 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?

49. Want to find out more? • For a free copy of the initial report or to review the modules, contact: • Amy Kerwinakerwin@glhec.org • Steve Schmidtsschmidt@glhec.org