Financial Literacy: Making the Most of Teachable Moments

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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

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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 programs
• The program provider did not have a background or
  expertise in evaluation
• The provider failed to plan for evaluation during
  the development stage
• The provider did not define how success or
  outcomes should be measured.

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Three prong approach at UW

• Money Talk Financial Education Seminars
• Focus Peer Financial Counseling
• Personal Finance Course
• In class and online

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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

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Name two things that hurt your credit rating
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• Late payments
• Too many cards
• Too much debt relative to income

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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

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Money Talk

• Educate on four main areas
• Credit Cards (Credit Report, FICO Score, APR)
• Budgeting Financial Services
• Scholarships, Financial Aid, Loans
• Renting Tenants Rights

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Money Talk II

• Investing for your future
• Employee benefits and job searches
• Credit
• Financial planning for the lifetime

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Peer-to-Peer Education
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And it is fun
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The Purpose

• To get students to
• Think about their finances
• Learn about the environment they live in
• Take control of their finances
• Goal Increase awareness about prudent financial
  management
• Good habits can last a lifetime

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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

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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

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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

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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

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Mission Statement

• To use our knowledge, experience and empathy to
  empower our fellow students.
• Empowerment leads to Self-Efficacy
• Self-Efficacy leads to Success.

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Why do we counsel students?

• Need for financial literacy
• Need for credit management
• Need for debt management
• Need for education about money management

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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

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Who does the Counseling?

• Students in the Personal Finance Program
• They do receive course credit for their time
• 14-16 counselors per semester

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What is a counselors 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

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Measuring the Impact of Financial Education

• Assessing the impact of a semester long 3 credit
  course

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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

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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

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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.

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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

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A Model of Financial Security
Preferences And Needs
Access e.g. Awareness
Economic Environment
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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

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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

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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

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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

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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

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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.

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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
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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

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Lets look at the course website

• Learn _at_ UW site

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Review of the Pilot
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Pilot group

• Spring 2006
• From two sections
• Formative and summative evaluation

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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.

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Formative Analysis
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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

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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.

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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

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Initial Impact Risk Management

• Significant increase in the proportion of
  students who had or intended to get renters
  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

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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?

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Want to find out more?

• For a free copy of the initial report or to
  review the modules, contact
• Amy Kerwinakerwin_at_glhec.org
• Steve Schmidtsschmidt_at_glhec.org