PRESENTATION FINANCIAL LITERACY PROGRAMS and MINORITY INVOLVEMENT BY: TORELL T. PERNELL CHICAGO STATE UNIVERSITY

What Is a “Financially Educated” Person? Most common definitions: being knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes understanding the basic concepts underlying the management of money and assets (e.g., the time value of money in investments and the pooling of risks in insurance) using that knowledge and understanding to plan, implement, and evaluate financial decisions.

Designing Effective Financial Education Programs Incorporates at least four distinct elements: The topics - does the learner need information and education about general cash flow management, credit, saving, investment, retirement planning, estate planning, or some combination of those topics? The audience – is the program targeted to the general public, youth, low-income, first time home buyers, pre-retirees, employees of a particular firm, or someone else? Learning styles – is the program set up for various learners Behavior stage – what is the learner’s current stage of behavior change?

General research focuses on a few specific questions Why is financial education important? What is “financial education?” What financial education initiatives are underway? Are they working and how do we know?

Why is financial education important? More savings More investments Less debt Homeownership Bank accounts 401(k), pension Higher credit score Pros Cons Less savings Less investments High debt Low-income group High prepaid cards fees Lack of 401(k), pension Lower credit score

The need for more minority financial literacy Recent data from the 2011 Consumer Financial Literacy Survey:  African American adults were less likely than Caucasian adults to have learned personal finance information from school.  African American and Hispanic adults are significantly more likely than Caucasian adults to express concerns with assorted financial challenges  African American and Hispanic adults, significantly more than their white counterparts, strongly agree that they could use answers to everyday financial questions from a professional.

What is “financial education?” being knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes understanding the basic concepts underlying the management of money and assets (e.g., the time value of money in investments and the pooling of risks in insurance) using that knowledge and understanding to plan, implement, and evaluate financial decisions.

Are financial education programs working and how do we know? Some have shown positive results Some have shown minimal results Some have shown inconclusive results Assessment is based on: ▫Current and past financial education knowledge ▫Current and past behaviors in managing personal finances

Methodologies Included surveys, reports, and past research data ▫the concept of financial education was explored to try to establish a more definitive understanding and scope of what is being researched ▫ the design of financial education programs was analyzed to identify several key elements found critical to a successful financial education program ▫what financial education literacy initiatives were underway ▫ the effectiveness of such literacy initiatives were evaluated

Other metrics used: Knowledge Attitudes Behaviors and outcomes o how much money has been saved? o how much debt has been reduced? o how much money has been invested?

Data sources Consumer Financial Literacy Survey, 2011 JumpStart Survey of Financial Literacy Survey, 2012 U.S. Department of Labor Institute on Assets and Social Policy U.S. Census Bureau The Federal Reserve Board The Urban Institute

Financial Education Resources Governmental agencies ▫U.S. Federal Reserve Board ▫Federal Deposit Insurance Corporation ▫U.S. Treasury’s Office of Financial Education Private financial institutions ▫Visa ▫American Bankers Association ▫Ariel Mutual Fund ▫Hewitt and Associates

Looking Ahead Several other evaluations of financial education programs are will be conducted in the near future The goal is to know much more about the outcomes and impacts that financial education has on individuals and their communities The Federal Reserve Board is beginning a project that consists of a longitudinal evaluation of their financial education program More financial institutions will develop and support financial literacy initiatives

Key points:  Research shows that financial education does not necessarily lead to behavioral changes in personal money management  Skill-building and motivation are two other issues that must be considered when providing financial education  Automatic investment programs and governmental tax incentives also help to provide motivation and to contribute to behavioral changes  Cultural, economic, and environmental conditions play a significant role in shaping the everyday financial choices of individuals Financial literacy IMPLIES Good financial behavior is FALSE The relationship between information and behavior

Conclusion The goal of trying to determine clear and definitive links between financial literacy and resultant positive financial behaviors is one worthy of pursuit. When one considers the overwhelming need in this day and age for financial literacy, it is clear that more must be done to understand relationship between “knowing and doing.” There are ample resources such as websites and informational brochures readily available to individuals. However, these forms of contact and outreach must be more tailored and designed to target and meet the needs of certain groups of individuals. The way individuals spend money is a personal matter and it is based on several different reasons. Therefore, we need a clearer understanding of why so many individuals with financial knowledge often times fail to act on the information that they have already obtained.