Jeanne M. Hogarth Federal Reserve Board
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Jeanne M. Hogarth Federal Reserve Board Marianne Hilgert in the Division of Consumer & Community Affairs, assisted with preparation for this presentation. The analysis, comments and conclusions set forth in this presentation represent the work of the author and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff. Does Education Work? How Do We Know?
Transcript of Jeanne M. Hogarth Federal Reserve Board
Jeanne M. HogarthFederal Reserve Board
Marianne Hilgert in the Division of Consumer & Community Affairs, assisted with preparation for this presentation. The analysis, comments and conclusions set forth in this presentation
represent the work of the author and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff.
Does Education Work? How Do We
Know?
Research on What Works
NEFE High School Financial Planning Program Increased knowledge, skills, and confidence http://www.nefe.org/pages/hsfppevaluation.html
Financial/consumer education in high school Financial education in high school associated
with higher savings and net worth as an adult Bernheim, Garrett, & Maki, Journal of Public
Economics, June 2001, 435-465
Research on What Works
Credit counseling Improved credit scores, better credit
management, lower delinquency http://www.federalreserve.gov/communityaffairs/
national/CA_Conf_SusCommDev/pdf/statenmichael.pdf Homeownership counseling
Lowered 90-day delinquency rates http://www.federalreserve.gov/communityaffairs/national/
CA_Conf_SusCommDev/pdf/zornpeter.pdf
Research on What Works
Retirement planning Save More Tomorrow
Increased participation in 401k, increased rates of contribution, high retention after 3 years
http://gsbwww.uchicago.edu/fac/richard.thaler/research/SMarT14.pdf
Members of TIAA-CREF Revised retirement savings goals, plan to modify
saving & investment http://www.federalreserve.gov/communityaffairs/
national/CA_Conf_SusCommDev/pdf/clarkrobert.pdf
Research on What Works
Money 2000 Increased savings, decreased debts http://www.rce.rutgers.edu/money2000/research.asp http://www.rce.rutgers.edu/money/pdfs/
handlemoney.pdf American Dream Demonstration (IDAs)
Financial education increases savings (maxes out at 8-10 hours)
http://gwbweb.wustl.edu/csd/Publications/2002/ADDreport2002.pdf
Research on What Works
Employee Financial Education Increased 401k participation & improved other
financial behaviors Kim, Kratzer, & Leech, Proceedings of AFCPE Conference,
2001. Garman, Kim, Kratzer, Brunson, & Joo, (1999). Financial
Counseling and Planning,1999, 10(1), 79-88.
A word of caution – most studies based on self-selection
What would effects be if people were randomly assigned to an educational program or not?
Connecting Knowledge & Behavior
What do they know? Vs What do they do? (www.federalreserve.gov/pubs/bulletin/
2003/0703lead.pdf) Cash flow Saving Credit Credit reports Retirement saving Investments
Cash Flow
Connection: Your bank doesn’t call to warn you if you
write a check that overdraws your account.62%
Reconcile checkbook every month 75 Making late payments can make it hard to
get a loan 94 Pay bills on time 88
Disconnect Use a spending plan or budget 46
Saving
Connection: You should have an emergency fund that covers
two to six months of your expenses. 94% Have savings account 80
Disconnect Have emergency fund 63
Partly connected? With compound interest, you earn interest on your
interest, as well as on your principal
72
Credit
Connection The APR is the most important thing to look at when
comparing credit card offers if you expect to carry a balance . 84%
Pay credit cards in full each month 61 Compare offers before applying for a card 35
Partly connected? Know about $50 liability limit if credit card is lost or
stolen 50 Disconnect
Misperception about how credit counseling agencies work
78
Do people shop?
No. of financial institutions shopped
Mortgage refis
Other mortgage
Credit card applicants
1 13.8% 22.8% 20.0%
2 to 3 44.8 32.3 28.9
4 or more 51.4 44.9 51.1
Protect your credit rating
Disconnect Your credit report includes employment
data, your payment history, any inquiries made by creditors, and any public record information.
81% Review credit reports 58
Retirement Saving
“Don’t leave money on the table” Partly Connected
The earlier you start saving for retirement, the more money you will have. 92% Have any retirement plan/account 63
Disconnected Have 401(k) or company pension plan 45 Participate in employer’s 401(k) plan 37
Investments
Connection Over the long-term, stocks have the highest rate of
return on money invested. 56 Have any investment accounts 52
Mutual funds do not pay a guaranteed rate of return. 52
Have mutual fund 46
Concern Investment products bought at your bank are not
covered by FDIC insurance. 33
The Good, the Bad, and the Ugly
Low Medium High
Cash Flow
Saving
Investment
Credit
How do people learn?
“A lot” Most important
Experience 68% 48%
Friends & fam. 42 21
Media 36 11
Employer 21 5
H.S. course 19 5
Other course 17 5
How do people want to learn?
Media (TV/radio, magazines, newspapers) 71% Brochures/print materials 66 Video 64 Internet 56 School 53 Community courses 53
What we didn’t ask:
Learning from peers Employer-based programs Counseling & coaching Planning ahead -- wills & advance
directives How people sort through sources of info
“Unbiased” vs commercial information on fill in the blank
How will we know if we’re making a difference?
Information is not education Need to change behaviors
Credit scores go up Savings rates go up Bankruptcies go down Self-anchoring measures
Subjective Measures of Making a Difference
Satisfaction with life and lifestyle Attitudes -- feel confident Feel prepared for events -- getting
married, home buying, having kids, taking vacations, college education, home repairs, car buying, retirement
Resources
www.federalreserveeducation.org www.federalreserveeducation.org/
fined/index.cfm www.chicagofed.org/cedric/
financial_education_research_center.cfm http://www.frbatlanta.org/consumer.cfm
