Financial Literacy Programs and Minority Participation Presented by
Financial Literacy Programs and Minority Participation Presented by: Torell T. Pernell Chicago State University
Minorities and Money • Minorities do not bank, buy insurance or invest in stocks in the same way as white Americans. • Less than half of all Hispanics have credit cards compared to 80 percent of the population. • Only 57 percent of middle-class African Americans have money invested in the stock market as opposed to 81 percent of whites. • About 58 percent of Hispanic households had savings or checking accounts compared with 71 percent of black families and 93 percent of white households. • Women continue to have less income in retirement than men do. Source: M. Lee, MBA , National Economic Council
The need for more minority financial literacy � African American adults were less likely than Caucasian adults to have learned personal finance information from school. � African American and Hispanic adults are significantly more likely than Caucasian adults to express concerns with assorted financial challenges � African American and Hispanic adults, significantly more than their white counterparts, strongly agree that they could use answers to everyday financial questions from a professional. Source: Consumer Financial Literacy Survey (2011).
Participation by income and gender, 2012 Vanguard defined contribution plans permitting employee-elective deferrals. Annual Income Female Male All <$30, 000 51% 43% 46% $30, 000–$49, 999 70 58 63 $50, 000–$74, 999 78 62 67 $75, 000–$99, 999 85 74 77 $100, 000+ 87 88 87 Source: Vanguard Capital, 2013.
Participation by income and gender, Vanguard Capital Management 2012 300 250 200 female 150 male all 100 50 0 <$30, 000–$49, 999 $50, 000–$74, 999 $75, 000–$99, 999 $100, 000+
Average Account Balance by Salary (2007 Source: The Ariel / Hewitt Fund $250 000 $200 000 $150 000 AFRICAN-AMERICAN ASIAN HISPANIC $100 000 WHITE $50 000 $0 $0 -29, 999 $30, 000 -59, 999 $60, 000 -89, 999 $90, 000 -119, 999 $120, 000+
Research objectives ▫ Understand the concepts of financial education ▫ Analyze the design of financial education programs ▫ Discover current financial education initiatives ▫ Analyze the effect and progress of such initiatives
• Why is financial education important? • What is “financial education? ” • What financial education initiatives are underway? • Are they working and how do we know?
Why is financial education important? Pros • • More savings More investments Less debt Homeownership Bank accounts 401(k), pension Higher credit score Source: Lerman and Bell, 2006. Cons • • Less savings Less investments High debt Low-income group High prepaid cards fees Lack of 401(k), pension Lower credit score
What is “financial education? ” Ø being knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes Ø understanding the basic concepts underlying the management of money and assets (e. g. , the time value of money in investments and the pooling of risks in insurance) Ø using that knowledge and understanding to plan, implement, and evaluate financial decisions. Source: J. Hogarth, Federal Reserve (2006).
What are financial literacy programs? • Intended to increase financial awareness and improve financial behaviors • Provides individuals with the knowledge, aptitude, and skills necessary to become questioning and informed consumers of financial services
Designing Effective Financial Literacy Programs • The topics • The audience • Learning styles • Behavior stage Source: J. Hogarth, Federal Reserve (2006).
Components of financial literacy programs ▫ Budgeting ▫ Credit / Fico scores ▫ Credit cards ▫ Saving and investing ▫ Student loan repayment Source: Nelnet Loan Servicing
Are financial education programs working and how do we know? • Some have shown positive results • Some have shown minimal results • Some have shown no results • Evaluations are based on: ▫ Current and past financial education knowledge ▫ Current and past behaviors in managing personal finances ▫ Knowledge and attitudes ▫ Behaviors and outcomes o how much money has been saved? o how much debt has been reduced? o how much money has been invested?
Determining success Effective programs need: • Measurable goals • Appropriate and realistic formatting • Information • Experience-based content • Student involvement • Financial literacy should be pervasive theme Source: Nelnet Loan Servicing
Potential contributors to financial education • Non-profits • Credit counseling services • Centers for economic and financial education • Local foundations • Financial services sector • Local/state/national government agencies • US Treasury
Does Financial Literacy Work? Ø Research shows that financial education does not necessarily lead to behavioral changes in personal money management Ø Skill-building and motivation are two other issues that must be considered when providing financial education Ø Automatic investment programs and governmental tax incentives also help to provide motivation and to contribute to behavioral changes Ø Cultural, economic, and environmental conditions play a significant role in shaping the everyday financial choices of individuals Source: Journal of Financial Counseling and Planning, 2009.
Financial Education Resources • Governmental agencies ▫ ▫ ▫ U. S. Federal Reserve Board Illinois Department of Labor U. S. Treasury’s Office of Financial Education U. S. Census Bureau U. S. Department of Labor • Private financial institutions ▫ ▫ ▫ Bank of American Bankers Association Ariel Mutual Fund The Institute on Assets and Social Policy The Urban Institute
Looking Ahead • Our goal is to learn much more about the outcomes and impacts that financial education has on individuals and their communities • The Federal Reserve Board is beginning a project that consists of a longitudinal evaluation of their own financial education program • More financial institutions will develop and support financial literacy initiatives.
Existing programs • University of North Texas - Student Money Management Center ▫ Web site, resources for students and parents ▫ www. moneymanagement. unt. edu • Kansas State University - Power Cat Financial Counseling ▫ Recognized by the White House as a model program ▫ www. k-state. edu/pfc, https: //www. facebook. com/kstatepfc • University of Texas - Bevonomics ▫ short courses are conducted ▫ www. bevonomics. org
References • Braunstein, Sandra and Welch, Carolyn. “Financial Literacy: An Overview of Practice, Research, and Policy. ” Federal Reserve Bulletin, Nov 2006. • Gale, William G. , Harris, Benjamin H. , and Levine, Ruth. “Raising Household Saving. ” Social Security Bulletin, Vol. 72, No. 2, 2012. • Harnisch, Thomas L. “Boosting Financial Literacy in America. ” Perspectives, Fall 2010. • Hogarth, Jeanne M. “Financial Education and Economic Development. “ Federal Reserve Board, Nov 2006. • Lee, Michael D. “Minorities and Money. ” • Lerman, Robert I. and Bell, Elizabeth. “Can Financial Literacy Enhance Asset Building? ” The Urban Institute, Sep 2005. • Lerman, Robert I. and Bell, Elizabeth. “Financial Literacy Strategies: Where Do We Go From Here? ” The Urban Institute, Aug 2006. • Lusardi, Annamaria. “Financial Education and the Saving Behavior of African-American and Hispanic Households. ” Dartmouth College, Department of Economics, Sep 2005. • Mandell, Lewis Ph. D. “The Financial Literacy of Young Adults. ” Jump. Start Coalition, 2008. • Mandell, Lewis and Klein, Schmid Klein, Linda. “The Impact of Financial Literacy Education on Subsequent Financial Behavior. ” Journal of Financial Counseling and Planning, Volume 20, Issue 1, 2009. • National Strategy 2011. “Promoting Financial Success in the United States. ” Financial Literacy and Education Commission, 2011.
Thank you! Torell T. Pernell Chicago State University
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