financial literacy: making the most of teachable moments amy kerwin chief guaranty officer great...
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Financial Literacy: Making the Most of Teachable Moments
Amy KerwinChief Guaranty Officer
Great Lakes Higher Education Guaranty Corporation
Dr. Michael S. GutterAsst. Professor, Dept of Consumer Science
University of Wisconsin-Madison
Financial education
• 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
programs1. The program provider did not have a background or expertise in
evaluation2. The provider failed to plan for evaluation during the development
stage3. 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.
• 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
• 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
• To get students to1. Think about their finances2. Learn about the environment they live in3. Take control of their finances
• 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
• 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?
• 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– Debt Repayment strategies
– Credit Card Debt
– Student Loans
• Credit Knowledge– How to obtain their FICO
score
– You can imagine the myths they have heard they want clarified
• Personal Loans
• Some Home Ownership Inquires
• Foreign Student Assistance
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– 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– 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 SecurityRisk
Management
Wealth Accumulation
Cash & CreditManagement
Financial Security
Economic
Environment
Preferences
And NeedsAccess
e.g. Awareness
Overview of the Course
Module 1: The Path to Financial SecurityModule 2: Establishing Financial PositionModule 3: Compound InterestModule 4: The Economy and Working with Financial InstitutionsModule 5: TaxesModule 6: Financial Aid and Education PlanningModule 7: Credit and Credit ReportsModule 8: Major Purchases: Cars and HousingModule 9: Employee BenefitsModule 10: Investment TypesModule 11: Investment Principles and StrategiesModule 12: Risk Management OverviewModule 13: Risk Management: Picking InsuranceModule 14: Staying on the Path to Financial SecurityExamsSurvey Instrument
Learning Objectives
• Learn about– 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 record-
keeping 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– 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 GoalsFor 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 Describe TimeHorizon
Dollar Amount needed
Amount needed to save and frequency (e.g. $50 per month, $500 one time)
Very Short Term( this semester)
Short-Term (1-2 years)
IntermediateTerm (3-7 years)
Longer Term (7+ years)
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 African-
American– 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/Graduate
2.2
Total 100.0
Formative Analysis
Rating of Various Course Elements
MeanStd.
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; follow-up 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 self-reported 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