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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

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.

goals
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?
what is financial education
What is financial education?
  • Knowledge
  • Motivation
  • Tools & skills (information search, decision making)
  • Equipped to change behavior
what do people know
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
what do people know5
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
what do people know6
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
what do people know7
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
how does knowing relate to doing behavior measures
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
behavior indexes
Behavior Indexes

Investment

Saving

Credit

Cash Flow

Low

Medium

High

what influences the index
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
what works and how do we know
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
what works and how do we know12
What works, and how do we know?
  • Money 2000
  • American Dream Demonstration (IDAs)
  • Money Smart
  • Employee Financial Education
  • Financial Security in Later Life
what works and how do we know13
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
what works and how do we know14
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)
what works and how do we know15
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
new evaluation initiatives
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
how do people want to learn
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
where do we go from here
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?