jeanne m. hogarth federal reserve board marianne hilgert in the division of consumer & community...

Jeanne M. HogarthFederal Reserve Board

Marianne Hilgert in the Division of Consumer & Community Affairs, assisted with preparation for this presentation. The analysis, comments and conclusions set forth in this presentation

represent the work of the author and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff.

Does Education Work? How Do We

Know?

Research on What Works

NEFE High School Financial Planning Program Increased knowledge, skills, and confidence http://www.nefe.org/pages/hsfppevaluation.html

Financial/consumer education in high school Financial education in high school associated

with higher savings and net worth as an adult Bernheim, Garrett, & Maki, Journal of Public

Economics, June 2001, 435-465

Research on What Works

Credit counseling Improved credit scores, better credit

management, lower delinquency http://www.federalreserve.gov/communityaffairs/

national/CA_Conf_SusCommDev/pdf/statenmichael.pdf Homeownership counseling

Lowered 90-day delinquency rates http://www.federalreserve.gov/communityaffairs/national/

CA_Conf_SusCommDev/pdf/zornpeter.pdf

Research on What Works

Retirement planning Save More Tomorrow

Increased participation in 401k, increased rates of contribution, high retention after 3 years

http://gsbwww.uchicago.edu/fac/richard.thaler/research/SMarT14.pdf

Members of TIAA-CREF Revised retirement savings goals, plan to modify

saving & investment http://www.federalreserve.gov/communityaffairs/

national/CA_Conf_SusCommDev/pdf/clarkrobert.pdf

Research on What Works

Money 2000 Increased savings, decreased debts http://www.rce.rutgers.edu/money2000/research.asp http://www.rce.rutgers.edu/money/pdfs/

handlemoney.pdf American Dream Demonstration (IDAs)

Financial education increases savings (maxes out at 8-10 hours)

http://gwbweb.wustl.edu/csd/Publications/2002/ADDreport2002.pdf

Research on What Works

Employee Financial Education Increased 401k participation & improved other

financial behaviors Kim, Kratzer, & Leech, Proceedings of AFCPE Conference,

2001. Garman, Kim, Kratzer, Brunson, & Joo, (1999). Financial

Counseling and Planning,1999, 10(1), 79-88.

A word of caution – most studies based on self-selection

What would effects be if people were randomly assigned to an educational program or not?

Connecting Knowledge & Behavior

What do they know? Vs What do they do? (www.federalreserve.gov/pubs/bulletin/

2003/0703lead.pdf) Cash flow Saving Credit Credit reports Retirement saving Investments

Cash Flow

Connection: Your bank doesn’t call to warn you if you

write a check that overdraws your account.62%

Reconcile checkbook every month 75 Making late payments can make it hard to

get a loan 94 Pay bills on time 88

Disconnect Use a spending plan or budget 46

Saving

Connection: You should have an emergency fund that covers

two to six months of your expenses. 94% Have savings account 80

Disconnect Have emergency fund 63

Partly connected? With compound interest, you earn interest on your

interest, as well as on your principal

72

Credit

Connection The APR is the most important thing to look at when

comparing credit card offers if you expect to carry a balance . 84%

Pay credit cards in full each month 61 Compare offers before applying for a card 35

Partly connected? Know about $50 liability limit if credit card is lost or

stolen 50 Disconnect

Misperception about how credit counseling agencies work

78

Do people shop?

No. of financial institutions shopped

Mortgage refis

Other mortgage

Credit card applicants

1 13.8% 22.8% 20.0%

2 to 3 44.8 32.3 28.9

4 or more 51.4 44.9 51.1

Protect your credit rating

Disconnect Your credit report includes employment

data, your payment history, any inquiries made by creditors, and any public record information.

81% Review credit reports 58

Retirement Saving

“Don’t leave money on the table” Partly Connected

The earlier you start saving for retirement, the more money you will have. 92% Have any retirement plan/account 63

Disconnected Have 401(k) or company pension plan 45 Participate in employer’s 401(k) plan 37

Investments

Connection Over the long-term, stocks have the highest rate of

return on money invested. 56 Have any investment accounts 52

Mutual funds do not pay a guaranteed rate of return. 52

Have mutual fund 46

Concern Investment products bought at your bank are not

covered by FDIC insurance. 33

The Good, the Bad, and the Ugly

Low Medium High

Cash Flow

Saving

Investment

Credit

How do people learn?

“A lot” Most important

Experience 68% 48%

Friends & fam. 42 21

Media 36 11

Employer 21 5

H.S. course 19 5

Other course 17 5

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

What we didn’t ask:

Learning from peers Employer-based programs Counseling & coaching Planning ahead -- wills & advance

directives How people sort through sources of info

“Unbiased” vs commercial information on fill in the blank

How will we know if we’re making a difference?

Information is not education Need to change behaviors

Credit scores go up Savings rates go up Bankruptcies go down Self-anchoring measures

Subjective Measures of Making a Difference

Satisfaction with life and lifestyle Attitudes -- feel confident Feel prepared for events -- getting

married, home buying, having kids, taking vacations, college education, home repairs, car buying, retirement

Resources

www.federalreserveeducation.org www.federalreserveeducation.org/

fined/index.cfm www.chicagofed.org/cedric/

financial_education_research_center.cfm http://www.frbatlanta.org/consumer.cfm