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
all
150
male
female
100
50
0
<$30,000
$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
WHITE
$100,000
$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?”
 being knowledgeable, educated, and informed on the issues of
managing money and assets, banking, investments, credit,
insurance, and taxes
 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)
 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?
 Research shows that financial education does not necessarily lead to
behavioral changes in personal money management
 Skill-building and motivation are two other issues that must be considered
when providing financial education
 Automatic investment programs and governmental tax incentives also help
to provide motivation and to contribute to behavioral changes
 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 America
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.” JumpStart 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