1. 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.

2. 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?

3. What is financial education? Knowledge Motivation Tools & skills (information search, decision making) Equipped to change behavior

4. 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

5. 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

6. 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

7. 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

8. 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

9. Behavior Indexes LowMediumHigh Cash Flow Saving Investment Credit

10. 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

11. 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

12. What works, and how do we know? Money 2000 American Dream Demonstration (IDAs) Money Smart Employee Financial Education Financial Security in Later Life

13. 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

14. 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)

15. 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

16. 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

17. Where can we tease out improvements? How did you learn? “A lot”Most important Experience68%48% Friends & fam. 4221 Media3611 Employer215 H.S. course195 Other course 175

18. 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

19. 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?