President’s Advisory Council on Financial Capability webcast July 12, 2011 – 2:30 p.m. – 4:00 p.m. (EST)
Welcome & Meeting Overview • Josh Wright (Moderator) • Acting Director • Office of Financial Education and Financial Access • U.S. Department of the Treasury
Subcommittee Updates Arty Arteaga, Financial Access Subcommittee Chair • Council Overview • John W. Rogers, Jr. • Chairman, CEO and Chief Investment Officer Ariel Investments • Chair of the President’s Advisory Council on Financial Capability
Principles for Recommendations • Be focused, impactful, executable and have measureable outcomes. • Align with, consolidate and boost, rather than supplant, existing efforts of the private, non-profit, and governmental sector. • Be consistent with the latest findings in behavioral economics. • Address issues related to the entire population, and where appropriate, take into account the particular needs of traditionally underserved populations (e.g., women, minorities, , low and moderate income consumers, and the elderly). • Leverage the use of technology to engage, inform, and impact behavior.
Key Themes • Theme I. Financial education should take its rightful place in American schools. • Theme II. We should build a financially capable workforce and retiree community, which is necessary for a stable and globally competitive economy. • Theme III. Americans should also learn the core concepts of personal finance at the heart of their lives— in their families and in their communities.
Subcommittee Updates • Arty Arteaga • Financial Access Subcommittee Chair
Financial Access Subcommittee Report • Updates: • PACFC Meeting…April 2011 • FA Subcommittee recommends “Mobile Application Challenge” --- Treasury to challenge the private sector to create apps for mobile devices that promote fin access & capability to the unbanked or underbanked • Status: PACFC approved; Treasury generally supportive; Treasury in-process of investigating the authorities to hold competition…and the way ahead
Financial Access Subcommittee Report • Actions to Date • Post April PACFC meeting…researching, examining, and identifying products, services, programs that could benefit 30 million unbanked/underbanked U.S. households. • Indianapolis Campaign for Financial Fitness (ICFF)…reaching the unbanked/underbanked • Texas Credit Union League’s JuntosAvanzamos … providing Hispanics access to affordable fin products/services • FDIC’s Advisory Council on Economic Inclusion….developing/piloting programs to improve access • Center for Financial Services Innovation (CFSI)… programs, activities, and recommendations addressing the underbanked • Operation Hope...efforts to financially empower/educate at the community level • Mission Asset Fund (MAF) …model transitioning low income and immigrants into the financial mainstream
Financial Access Subcommittee Report • Actions to Date • Post April PACFC meeting… • Cities for Financial Empowerment (CFE)…developing strategies/programs to improving financial capability and stability • Lifetime Savings Accounts (LSA)…potential for LMI to build assets and gain access to mainstream Financial Institutions • Mission SF…peer-to-peer financial education/incentivized savings • Summary • FA Subcommittee is engaged • Technology…public-private partnerships…community support/involvement;….financial education are key and essential to addressing the unbanked/underbanked issue
Subcommittee Updates • Amy Rosen • Youth Subcommittee Chair
Youth Subcommittee Report • Recommendation: • Programme for International Student Assessment (PISA) financial literacy add-on • Updates: • Money Milestones • Listening Tour
Youth Subcommittee Recommendation • PACFC Youth Subcommittee members support the United States’ participation in the 2012 PISA financial literacy assessment as we believe the results would provide educators, curriculum and resource developers, researchers, policymakers and others with: • information about gaps in financial knowledge among young people that can inform the development of more targeted programs and policies; • an indication of the extent to which existing financial education in schools, where provided, is improving levels of financial literacy; and • a means of comparing levels of financial literacy across countries.
Youth Subcommittee Report • Money Milestones • The Money Milestones concept would distill the multitude of financial guidelines that currently exist for children into essential, age-appropriate lessons. • Written in clear, accessible language, the Milestones will help families by providing parents with the financial knowledge children should be expected to master as they grow. • The Money Milestones Initiative would be a multi-platform public awareness campaign, similar to the President’s Challenge fitness program of the President’s Council on Fitness, Sports, and Nutrition. • The Milestones are culled from extensive secondary research and expert feedback, and will, whenever feasible, be monitored for effectiveness through measurable benchmarks and behavioral changes. • Listening Tour • Listening sessions from coast to coast would provide an opportunity for educators, families, community leaders, and researchers to join in our discussion of how to create a stronger national culture around financial capability and access • Each listening session would focus on the challenges and opportunities relevant to a specific youth demographic
Subcommittee Updates • Ted Beck • Research & Evaluation • Subcommittee Chair
Research and Evaluation Subcommittee Report • Financial Literacy Research Priorities Guidance • Developing a shared national research agenda • Assess progress on FLEC’s 10 recommendations from 2008 • Collaborative opportunities with SSA Centers, CFPB, others • New searchable research database: flresearch.org
Research and Evaluation Subcommittee Report • Research and Evaluation Standards Guidance • Three distinct separate standards that need universally-accepted processes • Financial education program ratingsfor content and delivery attributes • Financial education program evaluation standards for feasibility, utility, accuracy • Financial education research standards for methodology, variable control and validity
Research and EvaluationSubcommittee Report • Central Repository • Consider a “Doing What Works” website for standards, ratings, tools and resources. Aimed at researchers, practitioners, policy makers. Department of Education website model (dww.ed.gov). • Data Access and Analysis • Update FINRA Foundation’s National Financial Capability Study in 2012 • Analyze existing National Assessment of Educational Progress (NAEP) data • Educational Standards • Explore how personal finance can be addressed by the new Common Core State Standards • Recommendation:R&E joins Youth in PISA recommendation to full Council
Research and Evaluation Subcommittee Recommendation • The research and evaluation subcommittee joins the youth subcommittee in recommending that U.S. students participate in the financial literacy add-on developed for the 2012 Programme for International Student Assessment (PISA)
Subcommittee Updates • Carrie Schwab-Pomerantz • Partnerships Subcommittee Chair
Partnerships Subcommittee Report The Partnerships Subcommittee continues to develop recommendations for building partnerships between the private and public sectors that can strengthen financial capability for individuals and families, with a focus on the workplace: • Workplace Leaders in Financial Education Awards: • PACFC approved a recommendation encouraging the Treasury to support the new Workplace Leaders in Financial Education (WLIFE) Awards, administered by the Society for Human Resources Management (SHRM) and the American Institute of Certified Public Accountants (AICPA). • Creation of and support for state and local financial literacy councils: • Working to build a network of state and local Financial Literacy Councils, modeled on the PACFC, that can help implement on the community level the recommendations of the PACFC. Councils have been created or are in the process of being created in Fulton County, Georgia; Miami, Florida; and in several other locales.
Partnerships Subcommittee Report • Encouraging the federal government to be a role model in providing financial education to its employees • Partnership Subcommittee members have been meeting with officials at the Office of Personnel Management (OPM) and other federal agencies to explore recommendations to create a pilot program that will encourage agencies to provide financial education to their employees. The concept may include creation of a cross-government “speakers bureau,” listing experts who can present to employees different aspects of financial literacy, and a database of “best practices” to help agencies understand the financial capability of their employees. • Expanding workplace financial education in the private sector • Looking at a variety of innovative private-sector programs that could be used to expand the availability of financial education in workplaces around the country, with the hope of identifying model programs. We are also examining whether there are any regulatory barriers that need to be addressed to make these programs easier for employers to offer.
Evaluation of Youth Financial Education Programs Prof. Michael Staten Director, Take Charge America Institute Norton School of Family and Consumer Sciences President’s Advisory Council on Financial Capability Webcast July 12, 2011
Possible Target Audiences for Financial Education Adults Employees saving (or not) for retirement Consumers preparing to make large purchase decisions (home, auto, education financing) Consumers who want to create a comprehensive financial plan Underbanked/underserved consumers Consumers in financial distress Youth and Emerging Adults Will eventually end up in one or more of the adult categories, but, for many, the product lessons and experiences are still years ahead of them. Financial education is designed to shape behavior, not change it
Youth Financial Capabilities Can Be Developed in Multiple Venues…. But, Classrooms Present a Compelling Opportunity Offer an extended opportunity for learning over time, and a captive audience Can shape attitudes, habits and an analytical way of thinking beginning at early ages Repeated exposure and reinforcement through the grade levels
Classrooms Present an Underutilized Opportunity for Developing Skills to Handle Personal Finances Offer an extended opportunity for learning over time with a captive audience When done well, the subject matter lends itself to integration across multiple academic subjects, lifting the joint appeal Consumer finance topics can provide “real world” applications to motivate learning, especially in abstract subjects (e.g., math)
And, Classroom Financial Education Can Substitute for Parental and Home-Based Role Modeling University of Arizona study (Shim et al, 2009, 2010) has documented the power of pre-college parental influence in shaping college student financial attitudes and behaviors But, many young people lack strong financial role models at home, and many more lack a dialogue with their parents about financial issues. Classroom exposure can help to close the gap
The Issue of Effectiveness of School-based Financial Education Has Become More Important Over the Past Decade Public policy has promoted financial education in the classroom Standards Mandated coursework Mandated testing Donors who support financial education programs (inside or outside of schools) are increasingly shifting to results-based giving Both policymakers and donors are looking for evidence of positive return on their investment Consequently, school-based financial education is under pressure to show positive impact
State Financial Education Requirements, 2010(source: Jump$tart Coalition)
But, Evidence of Return on a National Investment in Personal Finance Coursework is Mixed Tennyson and Nguyen (2001) positively link high school student scores on a broad-based financial test to states requiring financial coursework Studies by Walstad (2009), Danes (various years for NEFE), Lyons (various years) show effectiveness of particular programs on knowledge and attitudes. Bernheim, Garrett and Maki (2001) linked mandatory personal finance education in high school to higher levels of saving in later life But….. Cole and Shastri (2009) could not replicate Bernheim results using more robust data, and Six national surveys of high school seniors since 1997 by the Jump$tart Coalition failed to show overall score improvement on a broad-based test of financial competence, and students who take a semester-long course in personal finance don’t score any higher on the exam than those who don’t take a course (Mandell, 2008)
Thinking Again About Desired Outcomes, If Classroom-based Financial Education Works…. Especially on the scale at which some states are investing in standards and even mandated courses …. then at some future point we ought to observe movement in some key financial metrics for those treated. But which ones? Higher credit scores for young people who grew up in such states? Larger/faster accumulation of retirement savings? Lower Bankruptcy rates? Lower delinquency rates? Lower credit card utilization? Higher college attendance rates (investment in their human capital)? As yet, nobody has convincingly demonstrated any of these on a wide-spread basis, linked back to mandatory exposure to youth financial ed programs.
So, Why Don’t We Know More Than We Do About What Works? Good Studies Are Difficult. Challenges: • Knowledge standards are generally accepted (e.g., Jump$tart), but no widely accepted barometer of financial knowledge/capability for high school or college-aged youth • Press releases tried to position the Jump$tart exam this way, and may do so again when the new Exam rolls out later this year; but no positive results to show, yet. • Treasury’s Financial Capability Challenge exam is a competing instrument, but was not designed to measure comprehensive capability. • And, even with these exams, we still lack widely accepted behavioral metrics • Subject group (especially Grade 12 and lower) is cloaked in privacy restrictions and hard to track, contact and measure • Subject group (especially Grade 12 and lower) has limited opportunity to experience financial products and decisions => less behavior to measure in the near term
And, Good Studies Account for the Following Influences on Knowledge and Behavior Outcomes Student outcomes are a joint product of several factors: • Teacher skills and confidence with the subject matter • Studies have shown that teachers often lack confidence and skills in this subject area, and what they teach is affected by their own personal financial experiences and attitudes
What Do Teachers Think About Financial Education in the Schools? • 89% agree or strongly agree that students should take a financial literacy course or pass a test for high school graduation • 64% feel unqualified to tackle their state’s financial literacy standards in the classroom • Only 29.7% are teaching financial education in any way – either existing classes or special classes on finance topics • Only 37% of K-12 teachers have taken a college course in personal finance • Only 11.6% have taken a workshop on teaching personal finance • Less than 20% reported feeling very competent to teach any of six core financial topics surveyed Source: Wendy Way and Karen Holden, University of Wisconsin, “Teachers Background Capacity to Teach Personal Finance,” 2009 (Available through NEFE)
And, Good Studies Account for the Following Influences on Knowledge and Behavior Outcomes Student outcomes are a joint product of several factors: • Teacher skills and confidence with the subject matter • Studies have shown that teachers often lack confidence and skills in this subject area, and what they teach is affected by their own personal financial experiences and attitudes • Curriculum (including delivery channels) • Competing Approaches: Information transfer vs. experiential learning and practice making decisions • Competing Assessment Tools: Pencil/paper exams vs. project-based learning/evaluation • Student motivation, numeracy skills, aptitude • Randomized treatment experiments with control groups can be very helpful here, but add complexity to an evaluation
A Final Thought on Evaluating Financial Education Programs in Terms of Longer-term Behavior Metrics We know from adult financial education that failure to find more powerful behavioral effects of programs may not stem from a failure to convey the concept to the student. There’s many a slip “twixt” cup and lip, especially with financial decisions: Consumer self control issues Cognitive biases associated with evaluating options Peer influences/socialization Individual time preferences (“relative impatience”) vary, and matter Numeracy skills vary So, the desired outcomes may not materialize. And, for a research study, data on these factors are really tough to gather. For youth, the behavioral outcomes themselves are hard enough to track, let alone these control factors.
Good News: Today’s Technology Can Operationalize Insights from Learning Theory, and Transform Youth Financial Education • Provide information on demand • Promote Interactive learning (constructivist theory of learning) • Allow student to be a producer not just a consumer of information • Instant gratification and feedback • Linked to incentives/sticks • Provide motivation, big driving factor in engagement and learning and behavior change • Easier Visualization • Fun, easy to see connections • Allow student to take risks • Failure is not a bad thing • Connect individual behavior to social norms • Social network, forging connections with others around topic • Peer-to-peer-learning • Peer pressure and peer reinforcement
Open Research Questions That Could Inform Further Investment in Youth Financial Education When programs are found to lift student capability, we usually don’t know why (i.e, dimensions of the program or delivery that drive the outcomes). Program features probably matter: which ones matter most? Even across widely accepted programs, comparative program evaluation is virtually non-existent. Need to compare different approaches to see what works and why. Experiential learning Decision-making exercises, aided by online games/simulations Project-based evaluation Role of enhanced teacher training on content, pedagogy, or both What is the combined impact of education and access/experience with financial products: is there extra lift from integrating product use into the ed program?
Today’s Youth Have a Different View • For today’s consumers under the age of 25 – the landscape is different from a generation ago • The financial services industry is fragmented: Far more complex array of financial products and channels • A bank is not necessarily top-of-mind when young adults think of financial services • Growth of non-bank providers and channels • They have less exposure to traditional financial institution branches because their parents use them less • Much more comfortable with alternate technologies for delivery
Alternative Providers & Channels • Prepaid debit cards • Reloadable general purpose cards (e.g. Wal-Mart’s Money Card) • Campus cards (issued by most state 2- and 4-year colleges) • Payroll cards (18 – 24 year-olds twice as likely to use these)
Alternative Providers & Channels • Money services offerings at mainstream retailers • “Which location do you prefer most for making financial transactions?” --(CFSI Underbanked Survey) • 18 – 2425+ years • Bank or credit union branch* 27.1% 36.6% • Supermarket, Club, or Superstore 43.3 19.8 Source: CFSI Underbanked Consumer Survey, 2008 *Combined answers for stand-alone and in-store branches
Today’s Circumstances: Conclusion • Young people expect less and get less from retail financial institutions • They have far more products and channels to pick from and they choose them a la carte • They expect to have multiple relationships for payments, cash management, credit, savings… and not necessarily with banks • Their relationships have become more transient, technology-driven and more dependent on where they.. • Go to school • Work • Shop • Which phone they use
Open Research Questions, continued Online education programs (especially those that include graphic simulations) are increasingly popular and creating a buzz: but we need evidence on effectiveness. And, when it works, what features are driving the result? Examine the effectiveness of peer-to-peer learning (and dialogue) for shaping attitudes and behaviors, especially through online social media and networking
Open Research Questions, continued How soon should we start educating? How important is exposure in the primary grades? Are youth financial education programs more effective when they also find ways to engage parents?
Thank You Prof. Michael Staten Director, Take Charge America Institute Norton School of Family and Consumer Sciences firstname.lastname@example.org 520-621-9482 www.tcainstitute.org