Effective Financial EducationModerator: Carl Perry, Progressive Financial Services, Inc.

Presenters: Dubis Correal, Consumer Financial Protection Bureau

Daniel Zapp, EverFi

2016 Knowledge SymposiumNovember 7 – 9, Sheraton Downtown, Nashville, TN

Financial Well-Being:

The goal of financial education

NCHER Knowledge Symposium

November 8, 2016

Dubis Correal, Senior Program and Policy Advisor, Office of Financial Education

This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the Bureau. It does not constitute legal interpretation, guidance or advice of the Consumer Financial Protection Bureau. Any opinions or views stated by the presenter are the presenter’s own and may not represent the Bureau’s views.

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Consumer Financial Protection Bureau

The CFPB helps consumer finance markets work by making rules more effective, by

consistently and fairly enforcing those rules, and by empowering consumers to take more

control over their economic lives.

EducateAn informed consumer is the first line of defense against abusive practices.

EnforceWe supervise banks, credit unions, and other financial companies, and we enforce federal consumer financial laws.

StudyWe gather and analyze available information to better understand consumers, financial services providers, and consumer financial markets.

Consumer Education and Engagement Division

Consumer Education & Engagement

Consumer Engagement

Financial Education

Financial Empowerment

Older Americans

Servicemember Affairs

Students

Create opportunities for

people to make better

choices about money to

reach their own life goals.

.

Financial education that supports

financial well-being

Growing consensus that financial well-being is the ultimate goal of financial literacy/capability

“Financial capability empowers individuals to … improve their present and long-term

financial well-being.”

- Executive Order, President’s Advisory Council on Financial Capability (2010)

“Vision: Sustained financial well-being for all individuals and families in the United

States.”

-U.S. National Strategy for Financial Literacy (2011)

“Financial literacy is a combination of awareness, knowledge, skill, attitude and behaviour

necessary to make sound financial decisions and ultimately achieve individual financial

well-being.”

- OECD International Network for Financial Education (2012)

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What financial well-being is

A state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.

Elements of financial well-being:

Having control over day-to-day, month-to-month finances

Having the capability to absorb a financial shock

Being on track to meet financial goals, and

Having the financial freedom to make choices that allow one to enjoy life

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What influences financial well-being

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Social and

economic

environment

What surrounds

you in your family

and community.

Personality

and attitudes

How you tend to

think, feel, and act.

Decision context

How a particular

decision is

presented.

Knowledge

and skills

What you know,

and what you know

how to do.

Personal

financial well-

being

How satisfied you

are with your

financial situation.

Behavior

What you

actually do.

Available opportunities

What options are open to you.

How financial education programs can support financial well-being

1. Know the individuals and families to be served

Start with learning their challenges, goals, and situation and tailor support accordingly.

2. Provide timely, relevant and actionable information

3. Improve key financial skills

By supporting individuals in learning the “how to” of effective personal financial management applied to their own situation.

4. Build on motivation

Help people clarify motivations and connect desired behaviors and action steps to desired outcomes.

Support development of financial self-efficacy.

5. Make it easy to make good decisions and follow through

Help create a context for people where they are more likely to take desired actions.

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Model of financial action: From research to practice

Know-how

Opportunity

MotivationAction

Knowledg

e

Skills

Principle # 3: Improve key financial skills

Examples: Coaching & financial shortcuts or

“rules of thumb”

Financial coaching study

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Urban Institute* randomized control trial of two

financial coaching programs:

Branches

faith-based nonprofit organization that provides financial services, child care, and other services in Miami, Florida

recruited coaching clients who were municipal government agency employees

The Financial Clinic

nonprofit organization in New York City offering financial coaching, income tax preparation and legal support for working poor families

recruited coaching clients from income tax filing assistance programs and from credit, debt, and budgeting workshops offered in the community

*The research described in this report was funded by the Consumer Financial Protection Bureau (CFPB) under a competitive award, contract number CFP-12-Z-00006. The views, findings and conclusions in this report are those of the authors, and do not necessarily reflect those of the Consumer Financial Protection Bureau.

Impact on money management behavior

Generally, people offered access to coaching:*

Were more likely to pay bills on time

Had an increased frequency of savings deposits

The Financial Clinic coaching clients:

32% more deposits into savings

36 % more likely to use a financial spending plan or budget

16% more likely to pay bills on time

Branches coaching clients :

19% more deposits into savings

60% more likely to have set aside emergency funds

20% less likely to borrow from family and friends

*All results reported are the impact on participants offered coaching compared to members of the control group.

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Impact on savings, debt, and credit scores

The Financial Clinic coaching clients:

Increased savings by $1,187 (per person)

Increased credit scores by 21 points (per person)

amount of past-due debt in collections decreased by $633 (per

person)

Branches coaching clients:

Reduced debt by $10,644 (per person)

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Financial shortcuts or “rules of thumb”

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Consumers face many complicated

decisions in managing their

financial lives

Financial educators have been

exploring approaches that attempt

to make the decision-making

process easier for consumers

Find it at consumerfinance.gov/adult-financial-education

Financial shortcuts or “rules of thumb”

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Many consumers know about common financial rules

of thumb.

Many are frustrated by what they see as unrealistic

goals stated in common rules, as they struggle with

competing priorities across their financial lives.

There is a sense that financial rules cannot be applied

equally to all people in all circumstances.

Many commonly held rules are too broad or ill-defined

to offer clear guidance to everyone.

A promising strategy is to help consumers develop

their own financial rules of thumb customized to their

personal situation -- “financial rules to live by.”

Find it at consumerfinance.gov/adult-financial-education

Financial shortcuts or “rules of thumb”

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One example: emphasizing financial shortcuts –

sometimes called “rules of thumb”

Specific, actionable guidelines consumers can apply to

their decisions.

There is some research evidence that providing financial

rules of thumb to consumers can work better than more

detailed and complex financial education in some

situations

We wanted to explore this strategy by asking consumers

what they think

Measuring financial well-being

The CFPB Financial Well-Being Scale

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QuestionsResponse

Options

How well does this statement describe you or your situation?

1. I could handle a major unexpected expense

2. I am securing my financial future

3. Because of my money situation, I feel like I will never have the

things I want in life

4. I can enjoy life because of the way I’m managing my money

5. I am just getting by financially

6. I am concerned that the money I have or will save won’t last

Completely

Very well

Somewhat

Very little

Not at all

How often does this statement apply to you?

1. Giving a gift for a wedding, birthday or other occasion would put a

strain on my finances for the month

2. I have money left over at the end of the month

3. I am behind with my finances

4. My finances control my life

Always

Often

Sometimes

Rarely

Never

Available at www.consumerfinance.gov/financial-well-being

Developmental building blocks of

financial capability for children and

youth

Building blocks of financial capability

Executive

function

Financial habits and

norms

Financial knowledge &

decision-making skills

What it is Self-control, working

memory, problem-solving

Healthy money habits,

norms, rules of thumb

Factual knowledge,

research and analysis

skills

What it supports

in adulthood

Future orientation,

perseverance, planning

and goal setting, general

cognitive flexibility

Decision shortcuts for

navigating day-to-day

financial life and effective

routine money

management

Deliberate financial

decision-making

strategies, like financial

planning, research, and

intentional decisions

Examples

of financial

application

Saving, setting financial

goals, developing and

executing budgets

Having a system to pay

bills on time

Effective comparison

shopping

Development is a continuous process

How financial education programs for youth can build the foundations for adult financial well-being

1. For children in early childhood, focus on developing executive function

2. Help parents and caregivers to more actively shape their child’s financial socialization

3. Provide children and youth with experiential learning opportunities

4. Teach youth financial research skills

Reports and resources

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www.consumerfinance.gov/youth-financial-education

www.consumerfinance.gov/financial-well-being

Thank You

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Way’s Ecological Model

“Financial behavior is not just a function of factual knowledge and skills, but also a complex array of other personal, interpersonal and

environmental factors.” (Way, 2014)

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Financial Behaviors

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Methodology and Demographics

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Methodology and Demographics

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Healthy Planned Behaviors

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Financial Attitudes

Researchers conducted a factor analysis of the 37 attitudinal items that have remained fairly consistent across the four years of this research endeavor

These factors were found to be significant predictors of financial behaviors

From 2012 to present, healthy financial attitudes were found to increase with student’so ageo year in schoolo parental education levelo financial educationo financial experience

Derived Factors

Cautious Financial Attitudes

Indulgence for Status and Social Gain

Utilitarian Financial Behavior

Debt as a Necessity

Possessions Providing Happiness

Spending Compulsion

Aversion to Debt

Financial Contentment

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Comparative Behaviors

Students from community and technical colleges reported engaging in more fiscally responsible behaviors than their four-year peers, especially in regards to monitoring their finances

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Variations Across the Semester

Financial Behaviors Financial Plans

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Variations Across the First Year

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Variations Across the First Year

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Variations with Age

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Variations with Age

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Practice Implications

• More collaboration between K-12 and higher education to help them make better college choices and prepare them for realities of money management

• Develop a clear definition of what it means to be a financially capable college student

• Financial literacy programming should:– Include more opportunities for students to gain real-life experiences

– Recognize early risk factors – including early attitudes and behavior

– Address the complexity of financial development, including stress mitigation strategies

– Incorporate technologies/social media channels used by young adults to increase actual engagement

– Provide more proactive interaction and communication throughout students’ college experience

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Research Implications

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So Now What?

Financial education targeting two-year and four-year students should be tailored to their specific strengths and needs.

For two-year students:• Cater toward young adults with financial experience but limited resources

• Focus more on credit card behavior and less on student loans

• Provide tangible strategies for managing resources and planning for the future

For four-year students:• Focus on attitudinal components of financial wellness to improve students’ general perspective towards money management

• Consider attitudinal and behavioral shifts that often occur in a student’s first-year experience

• Help students to distinguish between their true financial need and the loans available to them

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Questions?

2016 Knowledge SymposiumNovember 7 – 9, Sheraton Downtown, Nashville, TN