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Increasing the Efficacy of Financial Education: Knowledge of Basic Economics

Increasing the Efficacy of Financial Education: Knowledge of Basic Economics . Jeanne M. Hogarth Federal Reserve Board

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Increasing the Efficacy of Financial Education: Knowledge of Basic Economics

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  1. Increasing the Efficacy of Financial Education: Knowledge of Basic Economics Jeanne M. Hogarth Federal Reserve Board With contributions from Marianne Hilgert (FRB) and Jane Kolodinsky (UVM). The analysis, comments 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.

  2. Goals • What is financial education? • What do people “know?” • How does “knowing” relate to “doing?” • What works, and how do we know? • Where can we tease out improvements?

  3. What is financial education? • Knowledge • Motivation • Tools & skills (information search, decision making) • Equipped to change behavior

  4. What do people know? Not much! • CFA/American Express studies w/ high school, college, adults • EBRI – RCS, 1997 • CFA/CES 1998 consumer survey • ASEC 1999 student survey • NCEE’s 2005 survey • Jump$tart’s bi-annual surveys

  5. What do people know? • University of Michigan’s Surveys of Consumers (Nov. & Dec. 2001) • 1,004 respondents interviewed • Additional questions • true/false financial knowledge quiz • financial management practices • financial product ownership • learning experiences and preferences

  6. What do people know? • Average score= 67% • Lowest item – only 18% understood “cooling off” law • Highest items – 94% know about emergency funds and the effects of late payments on your credit score

  7. What do people know? • Most knowledgeable about mortgages • Average score = 81% • Less knowledgeable about credit and investments • Average scores = 62-63% • Scores were related to income, education, age, race/ethnicity, marital status & gender

  8. How does knowing relate to doing? Behavior Measures • Combined financial management practices & product ownership • Low, medium, and high levels of • Cash flow management • Savings • Credit • Investment

  9. Behavior Indexes Investment Saving Credit Cash Flow Low Medium High

  10. What influences “the index?” • Knowledge • The more you know, the more you do • Experience • The more you’ve done, the more you do • Other influences were not consistent across all behaviors • Income, marital status/gender, race, household size, education, home ownership, economic stability, motivation

  11. What works, and how do we know? • NEFE High School Financial Planning Program • Financial/consumer education in high school • Credit counseling • Homeownership counseling • Members of TIAA-CREF • Save More Tomorrow

  12. What works, and how do we know? • Money 2000 • American Dream Demonstration (IDAs) • Money Smart • Employee Financial Education • Financial Security in Later Life

  13. What works and how do we know? Opportunities Community Dev. CU • First level benefits • Manage money, on track, paying off debts • Second level benefits • Expand goals, save more, more assets, income increased, job opp. improved, housing opp. improved • Third level benefits • Self confident, quality of life improved, hopeful, more involved in neighborhood/community

  14. What works and how do we know? • Those who feel education is important report positive outcomes at all 3 levels • Those who feel education is important are “high touch” and like to stay in touch (newsletter)

  15. What works and how do we know? • 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 • People come to recognize & appreciate benefits over time

  16. New evaluation initiatives • CFA evaluating multi-level impacts of Cleveland Saves • CFA/AmEx/CRC evaluating the efficacy of credit counseling • Philadelphia FRB – home ownership counseling programs • FRB & DoD – longitudinal study on the effects of financial education on soldiers

  17. Where can we tease out improvements?

  18. How do people want to learn? • Media (TV/radio, magazines, newspapers) 71% • Brochures/print materials 66 • Video 64 • Internet 56 • School 53 • Community courses 53

  19. Where do we go from here? • Are behaviors the right outcome measure? • Should we worry about satisfaction? • How do we link knowledge and experiences to behaviors? • Do we work to increase knowledge in the hopes of improving behaviors? • Do we try to provide better (successful?) “experiences” in the hopes of improving behaviors?

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