Financial Education What We Know & What Next!

Financial Education What We Know & What Next! Tahira K. Hira, Professor Iowa State University www.eng.iastate.edu/tkhira

Presentation Outline • What do we know about • Financial education • Financial behavior • Financial well being • Our challenge • Why, what, who & how of financial education • Is it working • Can we prove it

What Do We Know about Financial Education?

We Know a Lot! • The key content areas • Providers of financial education • Role of the family • Relationship between knowledge, practices & outcomes • Factors that influence financial behavior • How to measure financial well being • Factors that influence financial well being • And much more ……

Conclusions Family’s Role in Fin.Edu • Transferring money and life values & beliefs • Teaching sense of financial responsibility • Modeling financial behaviors • Spending, borrowing, giving • Saving, investing • Communicating about money (infernally, externally) • Financial decision making • And much more ….

Correlates of Fin. Success • Personality • Independent, high self concept, internal locus of control • Planners and managers, future oriented • Responsible, grounded in reality, knowledgeable • Practices • Efficient allocation of resources (money, time, energy) • Planners and managers • Family • Open family communications, healthy families, good role models

Correlates of Fin. Failures • Lack of healthy role models • Lack of planning • Need for instant gratification • Lack of sense of responsibility • Feelings of no control over financial situation • Low self-esteem • Unhealthy relationships • History of failures (school, work, relationships) • Compulsive & excessive behaviors (fin & non fin)

Our challenge!

Clarifying Our Focus • Increase knowledge • Financial education, financial literacy • Change behavior • Financial practices, financial capability • Improve outcomes • Emergency fund, retirement savings debt, credit card debt, mortgages • Family financial well being

Financial Literacy: Ability To .. • Understand and addresseventsin the economy that effect personal financial situations • Respondcompetentlyto life events that effect finances • Discuss financial choices and money issues without discomfort • Planfor a financially sustainable future

Behavior Leading to Sustainable Future

Factors Influencing Fin. Behavior • Personal: gender, age, education, knowledge, experiences, capacity to learn & change • Social: parents, family, peers, schools • Economic: income, net worth • Psychological: emotions, personality • Market environment: aggressive, producing mindless-thoughtless behavior, turning wants to needs • Credit Environment: easy but costly access to funds, lines are facing between cash & credit

Behavior is 95% unconscious 5% conscious

So Our Challenge Is.. • Increase knowledge level • Create financially sustainable behavior • Produce desired outcome (improved credit score, increased savings, reduced debt) • Provide hard evidence for the actual change

Educate Differently • Start early, very early • Involve parents • Focus on everyday context • Realize present day constitutes the future • Focus on non financial aspects of financial behavior (values, beliefs) • Focus on routine actions to build habits • Incorporate financial communication • Train personal finance educators

Documentation of Outcomes • Gain in knowledge • Change in behavior • Measurable outcomes • long term financial sustainability/self sufficiency • self reported vs. documented • Short term vs. long run

From Live Green Initiative • To change people we must change environment • Infrastructure, organizational structure • Individual systems • What helped change behavior • Peer to peer learning • Visual prompts • Sustainability pledges • Incentives • Competitions

Thanks for the Opportunity! Your questions or comments

Financial Education What We Know & What Next!