ISFS - Personal Finance and the Rush to Competence

Personal Finance and the Rush to Competence:
Financial Literacy Education in the U.S.

Lois A. Vitt, Project Director
Carol Anderson, Jamie Kent, Deanna M. Lyter, Jurg K. Siegenthaler, Jeremy Ward

E X E C U T I V E S U M M A R Y

Since the mid-1990s, an increasing number of public and private sector organizations have begun helping Americans enhance their financial preparedness for life events, most notably retirement. National campaigns that call on Americans to increase personal savings, self-directed pension programs, welfare-to-work mandates, spreading computer literacy, and growing media interest in personal finance have all contributed to a "money aware" public. Most people are getting the idea that they must take more responsibility for their present and future financial well-being. This report is about the educational resources that exist to help them.

STUDY PURPOSE AND METHODS

The Fannie Mae Foundation commissioned this study of the current state of financial literacy education to inform its philanthropic efforts. The research was designed to ascertain major trends in financial literacy education, to learn what challenges are being faced by program managers and educators, and to identify the strategies and practices in use that are particularly effective. We are pleased that the Foundation has chosen to share these findings broadly, and we hope that as a result many more organizations will become interested in sponsoring programs to help Americans achieve competence in personal finance.The information contained in this study came from the following sources: (1) literature; (2) telephone, in-person and faxed interviews with program directors of a sample of 90 personal financial education programs; (3) site visits; (4) focus group or individual interviews with 78 participants who attended courses or seminars at the sites visited; and (5) interviews with industry leaders. The study is a process evaluation that employed benchmarking tools to learn the breadth and depth of financial education programs nationwide and to identify "effective strategies" of those that excel in one or more area. We used a stage model of organizational development derived from Ronald Manheimer's planning phases of educational programs. We used a modified version of this model to examine the steps that organizations take as they plan, assess the need for, implement and evaluate financial education programs. Details of the study methods can be found in the full report.

BACKGROUND AND TRENDS

Financial literacy education is increasing in all U.S. sectors largely in response to public initiatives that call upon Americans to save and invest for long-term financial independence. Concerns about the adequacy of Social Security, and shifts in responsibility from government to citizens and from employers to employees are drivers alerting individuals and families to bleak future prospects without an accumulation of adequate monetary resources for later life.

Campaigns to Save, Invest and Learn

The American Savings Education Council (ASEC), a coalition of private and public sector institutions, was organized in July 1995 to raise public awareness about the need for increased personal savings. ASEC's goal is to make saving and planning a vital concern of Americans and in the economic interests of employers. The Jump$tart Coalition for Personal Financial Literacy also started in 1995 to promote personal finance in schools and improve the financial knowledge and abilities of children and young adults. In 1998, the Securities and Exchange Commission (SEC) launched the "Get the Facts on Saving and Investing Campaign" to further help Americans increase savings and invest wisely. In April 2000, Treasury Secretary Lawrence Summers formed the National Partners for Financial Empowerment (NPFE), a public-private partnership to promote the development of personal financial skills for all Americans.

Financial Literacy

Personal financial literacy is the ability to read, analyze, manage and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy.In the "Financial Literacy 2000" project, a national effort was made to assess public patterns of financial knowledge and consumer confidence. A sample of 1000 adults was surveyed for the purpose of providing financial literacy profiles of the U.S. population for a subsequent responsive educational campaign to improve financial literacy. Cutler and Devlin conceived of financial literacy as comprising both a knowledge and a confidence dimension. Devlin implied that financial literacy is a function of the financial information to which one has access:

".the key to getting people to improve their financial behavior is to first give them the information which they can then use to confidently engage in the desired behavior."

Financial information, however, is now widely available through financial services providers, educational resources, and an increased focus on money and investing in books, articles, Internet sites and television. As SEC Chairman, Arthur Levitt observes:

"Today there is a glut of information. But the irony is: Do people have the foundation in the financial basics that will allow them to use that information?"

Rep. Harris Fawell, R-Ill., author of the Savings Are Vital to Everyone's Retirement Act of 1997 (SAVER Act), warns that America faces "a ticking demographic time bomb that requires increased retirement savings." Educating the public, Fawell urges, is the first step in defusing this time bomb.

Financial Literacy Education

General education determines occupation and income, which in turn, influences place of residence, social contacts, consumer choices, and activities. Financial literacy education shapes the life course in other, extended ways by enhancing access to investment income, asset accumulation and asset protection. When education about personal finance reflects socio-cultural sensitivity, moreover, the confidence dimension that Cutler and Devlin conceptualized as a requirement for achieving financial literacy is far more likely to be realized. Confidence in one's ability to do a thing successfully increases the likelihood of undertaking it and the probability of success. In the personal finance classroom, seminar or counseling program, the following factors build or enhance a participant's confidence:

The opportunity to undertake a specific action that challenges one's sense of self-sufficiency without overwhelming it;
The presence of supportive and reassuring others; and
The experience of succeeding at something, with confirming feedback from others.

STUDY FINDINGS

Characteristics of Organizations that Sponsor Financial Education

The 90 programs in our sample are remarkably diverse. They included: (1) eighteen workplace financial education programs; (2) twenty-four Cooperative Extension Service (CES) programs; (3) four U.S. Military programs the U.S. Army, U.S. Air Force, the U.S. Marine Corps and the U.S. Navy; (4) eight faith-based programs; (5) seven community college programs; (6) twenty-nine community programs. In addition, we looked at over 150 Internet sites.

We surveyed workplace programs that target employees facing retirement. We reviewed programs now mandated by the U.S. Military for all incoming enlisted personnel. Twelve programs in four categories of education providers specialize in helping women. Some community programs we investigated have been organized to help immigrant populations understand basic banking services, budgeting and the personal credit system in America. We talked to sponsors of programs that specialize in preparing renting populations to become future homeowners. Other community-based and faith-based programs use financial literacy training to help participants find jobs, finish high school education, apply to college, or start small businesses. Our interviews included programs that help participants from low-income African American, Latino, Disabled and New American populations. We spoke with young, first-time homebuyers and persons in transition through various life disruptions. We talked with grandmothers struggling to raise their children's children, and we learned about elderly populations in need of personal financial education that covers health care financing, sustainable homeownership and reverse mortgages, among other topics.Our report includes six case studies of programs run by the organizations named below. These organizations employ educational and operating strategies that, we believe, optimize the effectiveness of their offerings for participants:

Weyerhaeuser & Co.
United Parcel Service
Rutgers Cooperative Extension
Mississippi Housing Initiative
International Institute of Boston
MidAmerica Leadership Foundation

Selected Financial Education Program Characteristics

Reasons given by organizations for sponsoring a financial education program fall into one or more of four categories: (1) empower participants to take charge of their financial lives; (2) help participants get out of or avoid financial problems; (3) comply with regulations or requirements imposed by an outside authority; and (4) meet an organizational goal (e.g. military readiness, increased stewardship, increased employee satisfaction or productivity).The following summarizes responses to selected questions. Full survey results are summarized in Chapter Two of the report and detailed by program sector in Chapters Four through Nine.

Sixty-five percent of programs began in the 1990s. Seventy-five percent of these started in the late 1990s or 2000.
Only 22% of program organizers conducted a formal needs assessment. The "need was obvious" was the reason given for not conducting an assessment of need.
Sixty-two percent of programs operate under a written mission statement.
Eighty-nine percent of educators use participant evaluation forms to assess program success. Sixty-four percent follow-up to learn how participants are applying the skills and knowledge received.
Length of program offerings range from one hour to 120 hours.
Frequency of program delivery range from once a year to "ongoing," "continuous," or "unlimited."
Thirty-four percent of programs incorporate computer technology to enhance or more broadly deliver financial education.

Program Challenges

We asked program leaders and managers to identify challenges they faced during the design, implementation and operations stages of their programs. Challenges reported fell into one or more of three categories: (1) having inadequate resources to design, evaluate, revise, or expand programs; (2) inexperience in socio-cultural aspects of program design, marketing and evaluation; and (3) the need to attract or expand programs to reach many more participants than they presently do. What emerged from our analyses were solutions found by other program managers to many of these challenges. We chose our case studies to highlight programs that had succeeded in solving problems using strategies we think are particularly effective. Building on the literature and on our analyses of responses from program managers and participants, we offer what we believe constitute the most effective strategies and practices in personal financial education today.

SEVEN DIMENSIONS OF EFFECTIVE
PERSONAL FINANCIAL EDUCATION PROGRAMS

1. Unambiguous Mission and Purpose

A mission shapes an organization's identity, gives it direction and serves as a unifying force. For successful financial literacy education programs, a clearly articulated mission defines the program's scope of operations, reflects its values, priorities and goals. With a program mission "to rebuild Chicago communities through the ministry of asset-building," MidAmerica Leadership Foundation was quick to recognize that if personal asset building is to occur, financial literacy education must become a priority. As a consequence of its commitment to financial education, MidAmerica not only created value for program participants but also significantly increased it's understanding of both the people and the communities served by the organization.

2. Targeted Outreach

Organizations using creative recruitment techniques are flexible, market driven and know their target audience. Since the need for financial literacy training is ubiquitous in many under-served settings, formal needs assessments are often not conducted, but the characteristics of the target population must be well known in order for the education to be effective. The International Institute of Boston (IIB) employs bi-lingual Vietnamese, Haitian-Creole, Cape Verdean Creole, Portuguese, and Chinese instructors, who are from the populations served by this organization.The success of the IIB program can be attributed to these instructors who not only teach, but also recruit within their respective communities. They identify which newspapers reach the most people, when radio is an effective tool, or if posting notices in housing units is an appropriate way to find participants.

3. Adequate Resources

Organizations have the best chance for achieving program success when they can commit the necessary resources to their programs. United Parcel Service (UPS) has committed the resources required to reach 42,000 of its employees with information that integrates company benefits with personal financial instruction and allows participants to attend workshops on company time. UPS partnered with PricewaterhouseCoopers to design the program, develop the materials, and train the instructors. Consequently, UPS is able to offer workshops frequently enough to meet demand. Some UPS participants benefited so much from the program that they believe it "should become mandatory."

4. Successful Evaluation and Follow-up

Having evaluation tools is important and necessary, but using them to improve and upgrade course offerings is vital to program success. Effective programs are flexible enough to change direction, even curricula, when evaluations deem such changes will improve the course or program. Successful programs contain two participant-centered evaluation components, both of which must be voluntarily offered by participants:

Immediate Program Response Measures to learn participants' satisfaction with the education, and
Follow Up Action Measures to ascertain participants' application of what has been taught.

When business-centered results of courses are needed to demonstrate links between increased participant well being and positive organizational impact, additional components must be designed that include pre- and post-education measures. Rutgers Cooperative Extension assesses the monetary impact of its Money2000 Program at the county, state, and national levels using both participant-centered and business-centered evaluation components. Measures are used that explore participant satisfaction with courses and actions taken by participants six months after instruction. Periodic dollar amounts of savings and debt reduction are obtained from participants, and the Extension is thus provided with data on behavioral changes as well as information that can be used to tabulate the cumulative monetary impact of the education.

5. Program Accessibility

Decisions regarding the scale of a program relate directly to time frame, scope of curriculum, geographic, workplace or community delivery locations, and program duration. Effective programs take all of this into consideration when scheduling courses or counseling sessions. Weyerhaeuser permits its employees to attend personal financial education courses, of up to two-and-one-half days, during working hours. In most cases, employees report that supervisors are very supportive of allowing time off to attend programs. Employees expressed appreciation for Weyerhaeuser's program accessibility and the ease of participation that is encouraged within this workplace employee education setting.

6. Relevant Curriculum

Effective programs use carefully crafted, or adapted, Participant Texts, Workbooks and other written materials, and we found many examples in use too many to address in this study. (An on-line resource for reviewing financial literacy education materials is available at www.nefe.org.) A curriculum must meet the needs of learners. It must be geared to their level of general literacy, written in understandable even native language, when appropriate or necessary responsive to their present socio-economic situation and sensitive to their cultural background. The International Institute of Boston (IIB) translated the city's documents on homebuying into five languages, which makes homeownership more accessible and demystifies the homebuying process. The use of native language instructors allows materials to be shaped to fit the specific needs and socio-cultural issues that exist for participants and fosters heightened communication, interaction and learning in the classroom.

7. Dynamic Partnering

Effective programs don't hesitate to enlist the help of partners to accomplish whatever is required. Dynamic partnering refers to the practice of two-way service and sharing. For example, a commercial bank or mortgage banker can be a good community partner, provide help with curriculum design, supply committed teachers, and help post notices of financial literacy course offerings. In return, course participants may look to the bank or mortgage banker to provide banking or mortgage financing services upon completion, or as a result of having participated in financial literacy educational offerings. The Mississippi Housing Initiative (MHI) succeeded in creating a single, statewide homebuyer education program by building a fairly extensive system of networks. MHI has relied on networking on multiple levels and at various stages of development and implementation, from the initial formation of MHI to the connection with agencies that provide the education, to grassroots recruiting techniques. County networking is particularly important in rural areas where potential participants are more difficult to target, reach and attract.

ISSUES AND RECOMMENDATIONS

Workplace financial education is the venue for reaching most people. Rewards can be numerous and mutually beneficial for both employer and employee. We urge many more employers to offer personal finance courses in workplace settings, and we support public policy initiatives that offer incentives to those employers who do.
While workplace financial education can reach the most people, we saw clear evidence that faith-based and other community-based organizations provide the most comfortable setting for many people. More importantly, in under-served populations, these organizations offer hope, motivation and emotional support, which are necessary in our view for learning that leads to feelings of increased opportunity and personal efficacy. We recommend that public and philanthropic resources increasingly support these critically important community efforts.
We recommended that socio-culturally sensitive teaching methods be incorporated into financial literacy education curricula. Language, family and community process issues, anxieties and fears, lifestyle issues and other human concerns must be approached more openly by educators within the context of financial decision-making.
Topics, terminology and teaching materials need to be developed that emphasize financial "discovery," the learning process that many participants actually experience. In addition, "coping skills" and "recovery methods" must be formulated, taught and encouraged for periods of financial adversity. Labels such as "bad" credit risk must be rethought corporations and municipalities seeking credit are graded AA, A, B. We recommend non-pejorative terminology for humans too.
Life planning approaches should increasingly be built into curricula in order to help pre-retirement populations learn proactive ways to think about the future. We recommend that reactive "retirement planning" approaches be expanded beyond the financial to include life-style choices and other so-called "soft" course topics and materials that are so meaningful to seminar participants when they are included.
Financial literacy education is lifelong learning and educators should make this very clear to participants, emphasizing courses that teach resourcefulness where and how to find information, how to find and when to use financial consultants, what financial designations mean, how to use print media and the Internet to assist in financial planning.
We recommend that financial education for older Americans become a national priority, since we believe the need may be particularly acute in this population. Financial resource management can help older adults avoid scams and other forms of financial abuse, budget, plan, choose or find alternative sources for healthcare, homecare, medication, and daily money management assistance. In addition, older adults need help in understanding the availability and terms of equity conversion vehicles if they are homeowners, and with budgeting the proceeds of reverse mortgages or other lump sum payments when they are received.
Technological teaching methods must be employed to reduce the cost and widely increase the availability of personal financial education, but these must be combined with human teaching contact in supportive learning environments. Investment is needed in intelligent tutoring models that are designed to include interaction and encourage innovation in teaching materials to make financial learning more accessible, attractive and successful.
Finally, financial literacy is two-dimensional. While personal financial education at every societal level is one part of the challenge, there must also be a willingness on the part of the financial services industry to meet the document literacy needs of the American public by producing clear, plain English contracts and other documents. We see this as a marketing opportunity for savvy companies who want to become lifestyle allies in the escalating competition to provide financial services to financially literate consumers.