Presidents Advisory Council on Financial Capability W E

President’s Advisory Council on Financial Capability W E B C A S T July 12, 2011 – 2: 30 p. m. – 4: 00 p. m. (EST)

Welcome & Meeting Overview Josh Wright (Moderator) Acting Director Office of Financial Education and Financial Access U. S. Department of the Treasury 2

Subcommittee Updates Arty Arteaga, Financial Access Subcommittee Chair Council Overview John W. Rogers, Jr. Chairman, CEO and Chief Investment Officer Ariel Investments Chair of the President’s Advisory Council on Financial Capability 3

Principles for Recommendations v. Be focused, impactful, executable and have measureable outcomes. v. Align with, consolidate and boost, rather than supplant, existing efforts of the private, non-profit, and governmental sector. v. Be consistent with the latest findings in behavioral economics. v. Address issues related to the entire population, and where appropriate, take into account the particular needs of traditionally underserved populations (e. g. , women, minorities, , low and moderate income consumers, and the elderly). v. Leverage 4 the use of technology to engage, inform, and impact behavior.

Key Themes • 5 v Theme I. Financial education should take its rightful place in American schools. v Theme II. We should build a financially capable workforce and retiree community, which is necessary for a stable and globally competitive economy. v Theme III. Americans should also learn the core concepts of personal finance at the heart of their lives — in their families and in their communities.

Subcommittee Updates Arty Arteaga Financial Access Subcommittee Chair 6

Financial Access Subcommittee Report v Updates: v PACFC Meeting…April 2011 v FA Subcommittee recommends “Mobile Application Challenge” --Treasury to challenge the private sector to create apps for mobile devices that promote fin access & capability to the unbanked or underbanked v 7 Status: PACFC approved; Treasury generally supportive; Treasury in-process of investigating the authorities to hold competition…and the way ahead

Financial Access Subcommittee Report v. Actions to Date Post April PACFC meeting…researching, examining, and identifying products, services, programs that could benefit 30 million unbanked/underbanked U. S. households. v Indianapolis Campaign for Financial Fitness (ICFF)…reaching the unbanked/underbanked v Texas Credit Union League’s Juntos Avanzamos … providing Hispanics access to affordable fin products/services v FDIC’s Advisory Council on Economic Inclusion…. developing/piloting programs to improve access v Center for Financial Services Innovation (CFSI)… programs, activities, and recommendations addressing the underbanked v v Operation Hope. . . efforts to financially empower/educate at the community level Mission Asset Fund (MAF) …model transitioning low income and immigrants into the financial mainstream v 8

Financial Access Subcommittee Report Actions to Date v Post April PACFC meeting… v Cities for Financial Empowerment (CFE)…developing strategies/programs to improving financial capability and stability v Lifetime Savings Accounts (LSA)…potential for LMI to build assets and gain access to mainstream Financial Institutions v Mission SF…peer-to-peer financial education/incentivized savings Summary v v 9 FA Subcommittee is engaged Technology…public-private partnerships…community support/involvement; …. financial education are key and essential to addressing the unbanked/underbanked issue

Subcommittee Updates Amy Rosen Youth Subcommittee Chair 10

Youth Subcommittee Report Recommendation: v Programme for International Student Assessment (PISA) financial literacy add-on Updates: 11 v Money Milestones v Listening Tour

Youth Subcommittee Recommendation PACFC Youth Subcommittee members support the United States’ participation in the 2012 PISA financial literacy assessment as we believe the results would provide educators, curriculum and resource developers, researchers, policymakers and others with: 12 v information about gaps in financial knowledge among young people that can inform the development of more targeted programs and policies; v an indication of the extent to which existing financial education in schools, where provided, is improving levels of financial literacy; and v a means of comparing levels of financial literacy across countries.

Youth Subcommittee Report MONEY MILESTONES v The Money Milestones concept would distill the multitude of financial guidelines that currently exist for children into essential, age-appropriate lessons. v Written in clear, accessible language, the Milestones will help families by providing parents with the financial knowledge children should be expected to master as they grow. v The Money Milestones Initiative would be a multi-platform public awareness campaign, similar to the President’s Challenge fitness program of the President’s Council on Fitness, Sports, and Nutrition. v The Milestones are culled from extensive secondary research and expert feedback, and will, whenever feasible, be monitored for effectiveness through measurable benchmarks and behavioral changes. LISTENING TOUR 13 v Listening sessions from coast to coast would provide an opportunity for educators, families, community leaders, and researchers to join in our discussion of how to create a stronger national culture around financial capability and access v Each listening session would focus on the challenges and opportunities relevant to a specific youth demographic

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Subcommittee Updates Ted Beck Research & Evaluation Subcommittee Chair 17

Research and Evaluation Subcommittee Report Financial Literacy Research Priorities Guidance 18 v Developing a shared national research agenda v Assess progress on FLEC’s 10 recommendations from 2008 v Collaborative opportunities with SSA Centers, CFPB, others v New searchable research database: flresearch. org

Research and Evaluation Subcommittee Report Research and Evaluation Standards Guidance Three distinct separate standards that need universally-accepted processes 19 1. Financial education program ratings for content and delivery attributes 2. Financial education program evaluation standards for feasibility, utility, accuracy 3. Financial education research standards for methodology, variable control and validity

Research and Evaluation Subcommittee Report Central Repository v Consider a “Doing What Works” website for standards, ratings, tools and resources. Aimed at researchers, practitioners, policy makers. Department of Education website model (dww. ed. gov). Data Access and Analysis v Update FINRA Foundation’s National Financial Capability Study in 2012 v Analyze existing National Assessment of Educational Progress (NAEP) data Educational Standards v Explore how personal finance can be addressed by the new Common Core State Standards Recommendation: Council 20 R&E joins Youth in PISA recommendation to full

Research and Evaluation Subcommittee Recommendation The research and evaluation subcommittee joins the youth subcommittee in recommending that U. S. students participate in the financial literacy add-on developed for the 2012 Programme for International Student Assessment (PISA) 21

Subcommittee Updates Carrie Schwab-Pomerantz Partnerships Subcommittee Chair 22

Partnerships Subcommittee Report The Partnerships Subcommittee continues to develop recommendations for building partnerships between the private and public sectors that can strengthen financial capability for individuals and families, with a focus on the workplace: v Workplace Leaders in Financial Education Awards: v v Creation of and support for state and local financial literacy councils: v 23 PACFC approved a recommendation encouraging the Treasury to support the new Workplace Leaders in Financial Education (WLIFE) Awards, administered by the Society for Human Resources Management (SHRM) and the American Institute of Certified Public Accountants (AICPA). Working to build a network of state and local Financial Literacy Councils, modeled on the PACFC, that can help implement on the community level the recommendations of the PACFC. Councils have been created or are in the process of being created in Fulton County, Georgia; Miami, Florida; and in several other locales.

Partnerships Subcommittee Report v Encouraging the federal government to be a role model in providing financial education to its employees v v Expanding workplace financial education in the private sector v 24 Partnership Subcommittee members have been meeting with officials at the Office of Personnel Management (OPM) and other federal agencies to explore recommendations to create a pilot program that will encourage agencies to provide financial education to their employees. The concept may include creation of a crossgovernment “speakers bureau, ” listing experts who can present to employees different aspects of financial literacy, and a database of “best practices” to help agencies understand the financial capability of their employees. Looking at a variety of innovative private-sector programs that could be used to expand the availability of financial education in workplaces around the country, with the hope of identifying model programs. We are also examining whethere any regulatory barriers that need to be addressed to make these programs easier for employers to offer.

President’s Advisory Council on Financial Capability W E B C A S T

Evaluation of Youth Financial Education Programs Prof. Michael Staten Director, Take Charge America Institute Norton School of Family and Consumer Sciences President’s Advisory Council on Financial Capability Webcast July 12, 2011 26

Possible Target Audiences for Financial Education Adults • Employees saving (or not) for retirement • Consumers preparing to make large purchase decisions (home, auto, education financing) • Consumers who want to create a comprehensive financial plan • Underbanked/underserved consumers • Consumers in financial distress Youth and Emerging Adults • Will eventually end up in one or more of the adult categories, but, for many, the product lessons and experiences are still years ahead of them. • Financial education is designed to shape behavior, not change it 27

Youth Financial Capabilities Can Be Developed in Multiple Venues…. But, Classrooms Present a Compelling Opportunity • Offer an extended opportunity for learning over time, and a captive audience – Can shape attitudes, habits and an analytical way of thinking beginning at early ages – Repeated exposure and reinforcement through the grade levels 28

Classrooms Present an Underutilized Opportunity for Developing Skills to Handle Personal Finances • Offer an extended opportunity for learning over time with a captive audience • When done well, the subject matter lends itself to integration across multiple academic subjects, lifting the joint appeal – Consumer finance topics can provide “real world” applications to motivate learning, especially in abstract subjects (e. g. , math) 29

And, Classroom Financial Education Can Substitute for Parental and Home-Based Role Modeling • University of Arizona study (Shim et al, 2009, 2010) has documented the power of pre-college parental influence in shaping college student financial attitudes and behaviors • But, many young people lack strong financial role models at home, and many more lack a dialogue with their parents about financial issues. • Classroom exposure can help to close the gap 30

The Issue of Effectiveness of School-based Financial Education Has Become More Important Over the Past Decade • Public policy has promoted financial education in the classroom – Standards – Mandated coursework – Mandated testing • Donors who support financial education programs (inside or outside of schools) are increasingly shifting to results-based giving • Both policymakers and donors are looking for evidence of positive return on their investment • Consequently, school-based financial education is under pressure to show positive impact 31

State Financial Education Requirements, 2010 (source: Jump$tart Coalition) 32

But, Evidence of Return on a National Investment in Personal Finance Coursework is Mixed • Tennyson and Nguyen (2001) positively link high school student scores on a broad-based financial test to states requiring financial coursework • Studies by Walstad (2009), Danes (various years for NEFE), Lyons (various years) show effectiveness of particular programs on knowledge and attitudes. Bernheim, Garrett and Maki (2001) linked mandatory personal finance education in high school to higher levels of saving in later life • But…. . • • Cole and Shastri (2009) could not replicate Bernheim results using more robust data, and Six national surveys of high school seniors since 1997 by the Jump$tart Coalition failed to show overall score improvement on a broad-based test of financial competence, and students who take a semester-long course in personal finance don’t score any higher on the exam than those who don’t take a course (Mandell, 2008) 33

Thinking Again About Desired Outcomes, If Classroom-based Financial Education Works…. Especially on the scale at which some states are investing in standards and even mandated courses …. then at some future point we ought to observe movement in some key financial metrics for those treated. But which ones? – – – Higher credit scores for young people who grew up in such states? Larger/faster accumulation of retirement savings? Lower Bankruptcy rates? Lower delinquency rates? Lower credit card utilization? Higher college attendance rates (investment in their human capital)? As yet, nobody has convincingly demonstrated any of these on a wide-spread basis, linked back to mandatory exposure to youth financial ed programs. 34

So, Why Don’t We Know More Than We Do About What Works? Good Studies Are Difficult. Challenges: • Knowledge standards are generally accepted (e. g. , Jump$tart), but no widely accepted barometer of financial knowledge/capability for high school or college-aged youth – – – Press releases tried to position the Jump$tart exam this way, and may do so again when the new Exam rolls out later this year; but no positive results to show, yet. Treasury’s Financial Capability Challenge exam is a competing instrument, but was not designed to measure comprehensive capability. And, even with these exams, we still lack widely accepted behavioral metrics • Subject group (especially Grade 12 and lower) is cloaked in privacy restrictions and hard to track, contact and measure • Subject group (especially Grade 12 and lower) has limited opportunity to experience financial products and decisions => less behavior to measure in the near term 35

And, Good Studies Account for the Following Influences on Knowledge and Behavior Outcomes Student outcomes are a joint product of several factors: • Teacher skills and confidence with the subject matter § Studies have shown that teachers often lack confidence and skills in this subject area, and what they teach is affected by their own personal financial experiences and attitudes 36

What Do Teachers Think About Financial Education in the Schools? • 89% agree or strongly agree that students should take a financial literacy course or pass a test for high school graduation • 64% feel unqualified to tackle their state’s financial literacy standards in the classroom • Only 29. 7% are teaching financial education in any way – either existing classes or special classes on finance topics • Only 37% of K-12 teachers have taken a college course in personal finance • Only 11. 6% have taken a workshop on teaching personal finance • Less than 20% reported feeling very competent to teach any of six core financial topics surveyed Source: Wendy Way and Karen Holden, University of Wisconsin, “Teachers Background Capacity to Teach Personal Finance, ” 2009 (Available through NEFE) 37

And, Good Studies Account for the Following Influences on Knowledge and Behavior Outcomes Student outcomes are a joint product of several factors: • Teacher skills and confidence with the subject matter § • Curriculum (including delivery channels) § § • Studies have shown that teachers often lack confidence and skills in this subject area, and what they teach is affected by their own personal financial experiences and attitudes Competing Approaches: Information transfer vs. experiential learning and practice making decisions Competing Assessment Tools: Pencil/paper exams vs. project-based learning/evaluation Student motivation, numeracy skills, aptitude § Randomized treatment experiments with control groups can be very helpful here, but add complexity to an evaluation 38

A Final Thought on Evaluating Financial Education Programs in Terms of Longer-term Behavior Metrics We know from adult financial education that failure to find more powerful behavioral effects of programs may not stem from a failure to convey the concept to the student. There’s many a slip “twixt” cup and lip, especially with financial decisions: • • • Consumer self control issues Cognitive biases associated with evaluating options Peer influences/socialization Individual time preferences (“relative impatience”) vary, and matter Numeracy skills vary So, the desired outcomes may not materialize. And, for a research study, data on these factors are really tough to gather. For youth, the behavioral outcomes themselves are hard enough to track, let alone these control factors. 39

Good News: Today’s Technology Can Operationalize Insights from Learning Theory, and Transform Youth Financial Education • Provide information on demand • Promote Interactive learning (constructivist theory of learning) – Allow student to be a producer not just a consumer of information – Instant gratification and feedback • Linked to incentives/sticks – Provide motivation, big driving factor in engagement and learning and behavior change • Easier Visualization – Fun, easy to see connections • Allow student to take risks – Failure is not a bad thing • Connect individual behavior to social norms – Social network, forging connections with others around topic – Peer-to-peer-learning – Peer pressure and peer reinforcement 40

Brave New World For Learning 41

Open Research Questions That Could Inform Further Investment in Youth Financial Education • When programs are found to lift student capability, we usually don’t know why (i. e, dimensions of the program or delivery that drive the outcomes). – Program features probably matter: which ones matter most? – Even across widely accepted programs, comparative program evaluation is virtually non-existent. Need to compare different approaches to see what works and why. • Experiential learning • Decision-making exercises, aided by online games/simulations • Project-based evaluation • Role of enhanced teacher training on content, pedagogy, or both • What is the combined impact of education and access/experience with financial products: is there extra lift from integrating product use into the ed program? 42

Today’s Youth Have a Different View • For today’s consumers under the age of 25 – the landscape is different from a generation ago • The financial services industry is fragmented: Far more complex array of financial products and channels • A bank is not necessarily top-of-mind when young adults think of financial services – Growth of non-bank providers and channels • They have less exposure to traditional financial institution branches because their parents use them less • Much more comfortable with alternate technologies for delivery 43

Alternative Providers & Channels • Prepaid debit cards • Reloadable general purpose cards (e. g. Wal-Mart’s Money Card) • Campus cards (issued by most state 2 - and 4 -year colleges) • Payroll cards (18 – 24 year-olds twice as likely to use these) 44

Alternative Providers & Channels • Money services offerings at mainstream retailers • “Which location do you prefer most for making financial transactions? ” --(CFSI Underbanked Survey) • 18 – 24 – Bank or credit union branch* – Supermarket, Club, or Superstore 25+ years 27. 1% 43. 3 36. 6% 19. 8 Source: CFSI Underbanked Consumer Survey, 2008 *Combined answers for stand-alone and in-store branches 45

Today’s Circumstances: Conclusion • Young people expect less and get less from retail financial institutions • They have far more products and channels to pick from and they choose them a la carte – They expect to have multiple relationships for payments, cash management, credit, savings… and not necessarily with banks • Their relationships have become more transient, technology-driven and more dependent on where they. . – – Go to school Work Shop Which phone they use 46

Open Research Questions, continued • Online education programs (especially those that include graphic simulations) are increasingly popular and creating a buzz: but we need evidence on effectiveness. And, when it works, what features are driving the result? • Examine the effectiveness of peer-to-peer learning (and dialogue) for shaping attitudes and behaviors, especially through online social media and networking 47

Prevalence of Social Media in Teens’ Lives 48

Open Research Questions, continued • How soon should we start educating? How important is exposure in the primary grades? • Are youth financial education programs more effective when they also find ways to engage parents? 49

Thank You Prof. Michael Staten Director, Take Charge America Institute Norton School of Family and Consumer Sciences statenm@email. arizona. edu 520 -621 -9482 www. tcainstitute. org 50

President’s Advisory Council on Financial Capability W E B C A S T 51

Presentation to the President’s Council on Financial Capability WORKPLACE FINANCIAL CAPABILITY Annamaria Lusardi (George Washington School of Business) Punam Anand Keller (Tuck School of Business at Dartmouth) 52

Research Support The research described in this presentation was supported by the NYSE Foundation and the National Endowment for Financial Education (NEFE). This research is part of the work of the Financial Literacy Center. 53

III II WORKPLACE FINANCIAL CAPABILITY SUPPLY III Employer Customization Tool: Employee Financial Fitness I DEMAND I II III Employee Customization Tool: Take it in your hands 54

Motivation ØShift from Defined Benefit to Defined Contribution pensions ØEmployees are in charge of their financial security after retirement ØWidespread lack of financial capability among the population ØMore severe among the young, women, and those with low levels of education ØWorkplace is ideal to promote financial capability ØPeople are at work ØEmployees have to make decisions about pensions and other benefits 55

Business Case: Why Employers Should Care About Employees’ Financial Capability ØReduced absenteeism to take care of personal problems and reduced HR costs to deal with employees’ financial crises ØReduced turnover by attracting and retaining qualified employees ØIncreased employee productivity ØReduced stress related to financial problems and reduced stress related illnesses ØIncreased employee loyalty and satisfaction because employer cares about their financial well-being 56

Some considerations ØOne size does not fit all ØEmployees differ widely in needs, preferences, and financial status ØCannot focus on retirement savings only ØEmployees make many financial decisions and these decisions are interrelated ØIn addition to assets or asset building, debt and debt management are also important ØCannot focus on the single employee ØMany financial decisions are made at the household level 57

Cost effectiveness: Some recommendations from field work ØUse “teachable moments” to reach employees ØFor example orientation, promotion, tax-time ØExploit the power of peers to enhance financial fitness ØEmployees learns from colleagues and friends ØSimplify enrollment process as much as possible ØStep by step planning aids have proven to help new hires ØProvide information and communicate effectively ØAvoid complex jargon and numbers; use social media 58

Making it easier for the employer ØMany large firms have introduced financial programs in their firms ØUseful to share experience about what works ØUseful to provide a toolkit or set of programs that every employer could use 59

A financial fitness toolkit ØDifferent levels of employers’ involvement III ØAdvanced II ØIntermediate ØBasic. I I ØA toolkit must provide motivation (why to do it) and implementation steps (how to do it) ØTo be effective, programs need to fit workers’ needs 60

Employer Toolkit: Basic Level (Motivation) Automatic Enrollment Automatic Escalation Lifecycle Asset Allocation 1. Expert allocation 1. Higher enrollment 2. Overcome employee inertia 3. Standard contribution rate 4. Commitment 5. Increased contribution 1. Increases contribution 2. Overcome initial low contribution rate 3. Overcome lack of knowledge 4. Overcome temptation to spend income increases 5. Opt-out option STAGE I 2. Overcome inertia to change allocation 3. Lack of financial literacy 4. Long-term investment focus 5. Focus on retirement 61

Employer Toolkit: Intermediate Level (Motivation) Federally Insured Direct Deposit Financial Planning Tax Preparation Credit Scores 1. Financial crisis 2. Insurance 1. Competitive advantage 1. Promotion decisions 2. Culture of caring 2. Empower employees 3. Mandatory banking 3. Increase awareness of company benefits 4. Financial stress reduction 3. Fewer company loans 4. Less pressure for raises 5. Lower administration costs 4. Cheaper 5. Added benefits from financial institution 5. Business expense deductions STAGE II 62

Employer Toolkit: Advanced Level (Motivation) Debt Management Physical Health and Financial Assessment 1. Employee performance 2. Employee absenteeism 3. Workplace safety 4. Customize retirement contribution 5. Decrease health costs 1. Prevention orientation 2. Evidence-based plan 3. Wellbeing 360 ° 4. Revise asset allocation 5. Inform timing of retirement STAGE III Customized Financial Planning 1. Employer ratings 2. Attract and retain employees 3. Greater appreciation of company benefits 4. Smoother career stage transitions 5. Higher employee participation 63

III II WORKPLACE FINANCIAL CAPABILITY SUPPLY III Employer Customization Tool: Employee Financial Fitness I DEMAND I II III Employee Customization Tool: Take it in your hands 64

Key differences between social marketing and education • In social marketing the focus is on behavior not knowledge. • Social marketers do not assume the advocated behaviors are inherently desirable. • Social marketers know employees may not plan even if they have the best of intentions. • In the social marketing world, everyone is rational, albeit with a different utility function! 65

Implications for changing employee financial behaviors • Fewer recommended behaviors. • Prioritize recommended behaviors. • Provide motivation for why it is worth incurring the cost to change behavior as recommended. • Peer-to-peer is an effective motivation source. • Provide a plan to facilitate behavior change implementation. • Key metrics for success revolve around sustained behavior change. 66

Dartmouth employee intervention and results Motivation Employee Enrollment in Supplementary Retirement Accounts 35% Implementation 1. Select a 30 minute time slot right now to complete the online contribution to your Supplemental Retirement Account (SRA) during the next week. 2. 3 minutes. Check to see if you have the following materials: a) worksheet in your benefits packet _√_, and b) the name and social security number of a beneficiary _√_. 3. Select the amount you want to invest for 2006 (minimum: $16/month, maximum: $1, 666. 67/ month), even if you don’t know your take- home pay in your first month. If you want, you can change this amount at a later date. This voluntary contribution is tax-deferred, you will not pay taxes on it until you withdraw the funds. 4. 5 minutes. Select a carrier. if you do not select a carrier, Dartmouth will invest the non-voluntary portion of your college funds in a Fidelity Freedom Fund, a fund that automatically changes asset allocation as people age. 5 minutes. Now you are ready to complete your worksheet. Complete the worksheet even though you may be unsure of some options. You can change the options in the future. 6. Take your completed worksheet to a computer that is available for 20 minutes. If you like, you can use the one in the Human Resources office at 7 Lebanon Street, Suite 203. 7. 15 -20 minutes. Log on to Flex Online and complete your online SRA registration within the 20 assigned minutes. Be sure to click on the investment company (TIAACREF, Fidelity, or Calvert) to complete the application. You need to set up your account – otherwise your savings will not reach the carrier. 30% 25% 20% 15% 10% 5% 0% Control Customization Tool 67

III Employee financial fitness checklist II I Stage 1: Basic 1. I participate in the company retirement program. O Yes O No 2. I participate in the company auto escalation retirement program. O Yes O No 3. I have a federally insured account in a financial institution. O Yes O No Stage 2: Intermediate 4. I have or can get $2000 for emergencies. O Yes O No 5. I am trying to improve my credit score. O Yes O No 6. I have a traditional or Roth IRA or participate in the company supplementary retirement accounts. O Yes O No 7. I take advantage of all the benefits offered by my employer, including tax deductions. O Yes O No Stage 3: Advanced 8. I review my investment allocations annually and whenever there is a major change in my life plan. O Yes O No 9. I have taken a health and financial fitness assessment. O Yes O No 10. I have taken steps to protect my wealth. O Yes O No 68

Company Retirement Program WHY? • • HOW? Boost your retirement saving by taking advantage of the tax benefit or the company match Young employees will benefit most by starting to save early Your taxable income is reduced You can afford a comfortable retirement 69 Back to financial Fitness Checklist

How: We have outlined a few things to keep in mind as you think about participating in your 401 k 1. A 401 k plan is tied to your employer. If you leave your job, you'll have to either cash out your 401 k plan (which is subject to penalties and taxes) or you'll have to roll it over into a traditional IRA. 2. Some programs have a waiting period. You may not be eligible to contribute to the plan for up to a year. You should open a traditional or Roth IRA in the mean time. 3. Your employer's contributions may be subject to "vesting. " This means that you don't actually own the contributions unless you remain at your job for a certain amount of time. 4. In some cases, the matched funds vest over time. Each year, you own a greater portion of the matched funds. After a certain number of years you own 100% of the funds. In other cases you never have partial ownership of the funds. You own nothing until the term is up - then you get full ownership of the matched funds. 5. If your plan vests over time, you should contribute to it even if you think you'll leave your employer within a few years. It may be less free money, but it's still money. If you need to put in a full five years before you own any of it and you think you'll leave before that, pass up the 401 k and head for an IRA. 6. IRA 401(K) Keep in mind you can decide not to participate in the company 401 k plan after you have been automatically enrolled. 70

Company Auto-Escalation Program WHY? HOW? 1. When you join an automatic escalation plan you will automatically increase the proportion saved from annual salary increments and/or promotions. 2. Automatic escalation is a good complement to automatic enrollment since it compensates for the initial low contribution rate in the automatic enrollment program. 3. Automatic escalation overcomes inertia and lack of selfcontrol. 4. You do not have to decide how much to contribute because automatic escalation contains a default or standard contribution escalation rate. 5. Automatic escalation gives you (employees) the chance to ‘opt-out’. Most employees stay enrolled in the plan. 71 Back to financial Fitness Checklist

Federally Insured Account in a Financial Institution WHY? HOW? 72 Back to financial Fitness Checklist

Emergency Fund WHY? HOW? 73 Back to financial Fitness Checklist

Credit Score Check WHY? HOW? 74 Back to financial Fitness Checklist

Additional Retirement Accounts WHY? Goals Motivation Implementation HOW? • Planning for the future • My wishes to be independent • Parent role models • Early start • Emergency fund • How I started • Saving methods 75 Back to financial Fitness Checklist

Tax Deductions and Company Benefits WHY? HOW? 76 Back to financial Fitness Checklist

Review Investment Allocations WHY? HOW? 77 Back to financial Fitness Checklist

Health and Financial Fitness Assessment WHY? HOW? 78 Back to financial Fitness Checklist

Protect Your Wealth WHY? 1. 2. 3. 4. HOW? Confidence and success do not ensure financial protection Financial scams are difficult to detect because they come in many seemingly genuine shapes and forms. Financial scammers target the elderly and people who have a lot of debt Victims of financial fraud rarely discuss the incident with colleagues, family, and friends. 79 Back to financial Fitness Checklist

III II WORKPLACE FINANCIAL CAPABILITY SUPPLY III Employer Customization Tool: Employee Financial Fitness I DEMAND I II III Employee Customization Tool: Take it in your hands 80

Concluding Remarks Ø Workplace financial capability has the potential to reach millions of workers Ø It is important to find ways to make it easy for employers to provide programs aimed to improve financial capability Ø To be effective, program design needs to be flexible to address different needs of workers and employers Ø Further research is needed to demonstrate the importance of promoting financial capability for employers and to encourage employers to take action 81

Conclusion John W. Rogers, Jr. Chairman, CEO and Chief Investment Officer Ariel Investments Chair of the President’s Advisory Council on Financial Capability Josh Wright Acting Director Office of Financial Education and Financial Access U. S. Department of the Treasury 82