Transcript Document

Financial Literacy: Making the
Most of Teachable Moments
Amy Kerwin
Chief Guaranty Officer
Great Lakes Higher Education Guaranty Corporation
Dr. Michael S. Gutter
Asst. Professor, Dept of Consumer Science
University of Wisconsin-Madison
Financial education
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Effectiveness of financial education programs in general
is not well documented (Fox, Bartholomae, & Lee, 2005).
Lyons, Palmer, Jayaratne, & Scherpf, 2003
– Most financial education programs lack any evaluation, and few
had evaluation in mind when developing the program
– 3 reasons for the paucity of evaluation of financial education
programs
1. The program provider did not have a background or expertise in
evaluation
2. The provider failed to plan for evaluation during the development
stage
3. The provider did not define how success or outcomes should be
measured.
Three prong approach at UW
• Money Talk$ Financial Education Seminars
• Focus Peer Financial Counseling
• Personal Finance Course
– In class and online
What is Money Talk$?
• A peer education money management organization
providing educational services to college students,
community members, and high school students
and parents.
• A resume and skill enhancement opportunity for
college students.
• Created by Dr. Gutter and students in FOCU$
Name two things that hurt your
credit rating
• Late payments
• Too many cards
• Too much debt relative to income
Name one way to build credit
without using a credit card.
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Car loan
Small personal loan
Store credit (not card)
Education loans
Money Talk$
• Educate on four main areas:
– Credit Cards (Credit Report, FICO Score,
APR)
– Budgeting & Financial Services
– Scholarships, Financial Aid, Loans
– Renting & Tenant’s Rights
Money Talk$ II
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Investing for your future
Employee benefits and job searches
Credit
Financial planning for the lifetime
Peer-to-Peer Education
And it is fun
The Purpose
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To get students to
1. Think about their finances
2. Learn about the environment they live in
3. Take control of their finances
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Goal: Increase awareness about prudent
financial management
Good habits can last a lifetime
How do we do this?
• Peer-to-Peer Education
– Students helping other students to learn about
their money
• Written materials
• Website
• CD-Rom with basic budgeting spreadsheets
Why is it effective?
• Makes sessions more inviting to students than
if done by instructors or industry
– Less intimidating than being lectured to
– No one is selling them anything
• Excitement of talking with older students
• Facilitates discussion
– Sharing of relevant and timely anecdotes
Benefits of Peer-to-Peer
Education
• Builds confidence in peer educators
– Learning through service
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Facilitates the learning process
Resume builder for members
Good P.R. for sponsors
May facilitate relationships with other
organizations and departments
FOCU$ Peer Financial Counseling
• Partnership between
– Financial Occupations Club for University
Students
– Office of Student Financial Services
• Susan Fischer (cant say enough about her)
– Department of Consumer Science in the School
of Human Ecology
Mission Statement
“To use our knowledge, experience and
empathy to empower our fellow
students.”
Empowerment leads to Self-Efficacy;
Self-Efficacy leads to Success.
Why do we counsel students?
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Need for financial literacy
Need for credit management
Need for debt management
Need for education about money
management
Achieve Empowerment Through
Intervention and Education…
• Budgeting assistance
• Debt Counseling
• Personal Loans
• Some Home Ownership
Inquires
– Debt Repayment strategies
– Credit Card Debt
• Foreign Student
– Student Loans
Assistance
• Credit Knowledge
– How to obtain their FICO
score
– You can imagine the myths
they have heard they want
clarified
Who does the Counseling?
• Students in the Personal Finance
Program
• They do receive course credit for their
time
• 14-16 counselors per semester
What is a counselor’s
creditability?
• Must have taken an Introduction to
Personal Finance class
• Training - consisting of
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Legalities!!
Ethics
Professionalism
Confidentiality
Sensitivity (Situations & Ethnic)
Power Pay Program (Thank You UW Extension)
Spreadsheet for budgeting
Role Play
Measuring the Impact of
Financial Education
Assessing the impact of a semester
long 3 credit course
Overview of the Project
• Create a behavior driven curriculum
– Activities are the students own lives…
• Assess attitudes, personal psychology,
behavior, background,
• Assess behavior, etc. at semester end and
• Assess at one year post
At UW
• Spring 2006
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2 sections of the course being taught
Just over 300 enrolled (total)
We used
1 Professor
1 Lecturer
2 TAs
• Fall 2006
– 2 sections – will also be about 300
• In class
• On-line
Course logistics
• Typically meets twice per week
– One hour 15 minutes
– Professor or Lecturer (could be graduate student)
• Homework and activities due each week
– TAs are helpful here
– The online version will have more built-in grading features but
personal assignments always by hand (or email)
– Grading guides are available
• Even when in class, I essentially posted most materials so
they could print on demand except exams, surveys.
Overview of the Project
• Create a behavior-driven curriculum
– Activities are the students own lives…
• Assess attitudes, personal psychology,
behavior, financial socialization
• Measure baseline at the start of the semester
• Assess at the end of the semester
• Re-assess at one year post
A Model of Financial Security
Risk
Management
Preferences
Access
And Needs
e.g. Awareness
Financial
Security
Cash & Credit
Management
Wealth
Accumulation
Economic
Environment
Overview of the Course
Module 1: The Path to Financial Security
Module 2: Establishing Financial Position
Module 3: Compound Interest
Module 4: The Economy and Working with Financial Institutions
Module 5: Taxes
Module 6: Financial Aid and Education Planning
Module 7: Credit and Credit Reports
Module 8: Major Purchases: Cars and Housing
Module 9: Employee Benefits
Module 10: Investment Types
Module 11: Investment Principles and Strategies
Module 12: Risk Management Overview
Module 13: Risk Management: Picking Insurance
Module 14: Staying on the Path to Financial Security
Exams
Survey Instrument
Learning Objectives
• Learn about
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Financial aid, semester-based budgeting
Credit, credit scores, and credit reports
Savings and investing
Compound interest and the impact of interest rates
Basic investing principles such as diversification, asset
allocation, and risk vs. return
Employee benefits and career paths
Managing risk and choosing insurance policies
Needs-based retirement planning
Basic cash management
Learning Objectives
• Be able to
– construct basic personal financial statements and develop a recordkeeping system
– construct a spending plan that helps you reach your needed surplus
– read your own credit report and use credit strategically
– construct personal financial objectives
– strategically use financial aid and other forms of debt to achieve
goals
– formulate a plan for savings including timing, levels, vehicles, and
allocation choices
– value the full compensation of a job offer including benefits
packages
– create a financial vision and
– use financial services and other resources to get there
Activities
• Cash management
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Tracking their spending for a month
Build personal finance statements and interpret them
Problems and cases
Use excel
• Getting credit report
– www.annualcreditreport.com
• What could be improved?
• If they have no credit, what would be a prudent way to begin
building it?
• Podcasting
Activities
• Time Value of Money
– Lots of problems, cases, for practice
– Financial calculator
• Taxes
– Do their own taxes
• Employee benefits
– For a job they might really want, find the details about potential benefits
packages, what value can they assign to the benefits?
• Working with financial institutions
– Interview a financial advisor, see what they do, how they get paid, etc.
• The personal activities are done in both versions of the course
Rigor
• This course was originally simply the first
course in our Consumer Finance program ,
registered with the CFPTM Board of
Standards
• However, demand caused us to modify the
scope to be more focused on themselves
• As was taught Spring 2006, the course is a 3
credit course.
Working with your Goals
For each of your goals, you should determine how much you would need to save each year to achieve your goal. Create a chart
plotting how much you need to save each year to reach all of your goals. Clearly, you will need to save more in some years than
in others.
You should assume the following rates of return:
Less than 5 years – 4%
5-10 years – 5%
Greater than 10 years – 7%
Timeframe
Very Short
Term
( this semester)
Short-Term
(1-2 years)
Intermediate
Term
(3-7 years)
Longer Term
(7+ years)
Describe
Time
Horizon
Dollar
Amount needed
Amount needed to
save and frequency
(e.g. $50 per month,
$500 one time)
Plus
• Web-based version will be pilot-tested this
fall
• Designed so that it would be compatible
with multiple course management systems
– Desire 2 Learn
– Web CT
– BlackBoard
Lets look at the course website
Learn @ UW site
Walking the path
Overview of the course and how personal finance topics are interconnected
Basic money management
We will learn basics about creating spending plans, establishing financial position and budgeting
Compound interest
See how we actually make money work for us and how it could work against us
Credit
Learn the realities of credit management, credit reports, and credit scores
Taxes
We will learn how to minimize taxes by taking advantage of various tax breaks. We will also see how
taxes affect investing
Houses and cars
These two acquisitions are big events in the lives of many. We will discuss basic issues affecting both
decisions.
Paying for college
From grants to loans to savings plans, we will explore how financial aid is determined and what
strategies make the most sense for you.
Investing basics
We will cover basic investment principles
Vehicles and account
We will learn about stocks, bonds, funds, as well as different accounts like IRAs
Aa and retirement
We will explore the retirement planning universe with emphasis on saving and investing to build wealth
Access and benefits
Uncover the hidden value of your job offers, benefits may be as valuable as your pay.
Basic rm
An introduction to risk management and basics of insurance contracts.
Protect income
What risks to our income do we face? How do we manage these?
Protect wealth
How do we protect our wealth from various perils?
Staying on the path
Summary of key concepts in the course and how they will apply to life after college
Review of the Pilot
Pilot group
• Spring 2006
– From two sections
• Formative and summative evaluation
Formative
• Most students (95%)
were between 19 and
23 years old
• Roughly 2/3 female
• Most of the students in
the class were
Caucasian (88.8%).
– 3.95% were AfricanAmerican
– 1.7% were Latino
– 5.6% were Asian.
Class Rank Distribution
Class Rank
Percent
Freshman
15.1
Sophomore
35.2
Junior
26.8
Senior
20.7
Other/Graduat
e
Total
2.2
100.0
Formative Analysis
Rating of Various Course Elements
Mean
Std.
Deviation
Lectures
3.7571
1.12450
Readings
2.0565
1.51776
Class Activities
3.0621
1.53059
Podcasting
1.0000
1.59545
Homework
Problems
3.5198
1.13363
Perceived Usefulness of Course Activities
Mean
Std. Deviation
Financial Introspection
3.4802
1.39435
Personal Financial Goal
3.8983
1.03948
Spending Diary
4.0395
.97911
Spending Plan/Budget
3.9661
1.08134
Personal Balance Sheet
3.8136
1.15022
Personal Record Keeping System
3.7684
1.19541
Interviewing Personal Finance Professionals
2.8927
1.48278
Doing Your Own Taxes
4.0565
1.15659
Planning First Savings Vehicle
3.4350
1.33038
Car Buying Process
3.2768
1.35562
Renting Process
3.1243
1.50239
Exploring Benefits Package
3.4689
1.25245
Insurance
3.5706
1.27780
Initial Impact: Cash Management
• An overall increase from 37% to 42% in
students currently using a budget.
• No measurable change in actual usage of
spending diaries.
– But, there was a significant change in intention
to use such diaries; nearly doubled
Initial Impact: Consumer Credit
• Average number of cards held by students declined
• Frequency of use also declined during the semester
• It should be noted that balances were higher at the end of
the term, “some students maxed-out”
– Those who maxed our would have been some of those that
declined in frequency of use, but not all
• All students obtained a credit report for the class; followup surveys will indicate whether students obtain an
additional one voluntarily in the next year.
Initial Impact: Saving
• Pre to Post: reduction in the percent of students
who had no plan to save
• 7% to 4%
– Overall, 7% of the sample had positive savings
behavior related change.
• That is, students with no plan, created a plan; those with a plan,
began saving
– A similar pattern emerged with respect to retirement
account participation.
• Over 25% of students had a positive behavior change
• 19% no plan to having intent to open one at some point
• Nearly 6% no intention to actually opening an account
Initial Impact: Risk Management
• Significant increase in the proportion of students
who had or intended to get renter’s insurance
policy
• Increase in awareness of what they were exposed
to
– While there were changes in the proportions covered by
various policies, students also changed their selfreported behaviors
• Those that said they were driving, changed this on the post-test
Continuing Evaluation
• Follow-up study
– Think back to those measures of intent…
• Second semester
– Online versus in-class
• Grades
• Change in attitudes?
• Change in behavior?
Want to find out more?
• For a free copy of the initial report or to
review the modules, contact:
– Amy Kerwin
[email protected]
– Steve Schmidt
[email protected]