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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. - PowerPoint PPT Presentation
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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, 2012Vanguard 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.
<$30,000 $30,000–$49,999 $50,000–$74,999 $75,000–$99,999 $100,000+ 0
50
100
150
200
250
300
allmalefemale
Participation by income and gender, Vanguard Capital Management 2012
$0-29,999 $30,000-59,999 $60,000-89,999 $90,000-119,999 $120,000+ $0
$50,000
$100,000
$150,000
$200,000
$250,000
AFRICAN-AMERICAN ASIAN HISPANIC WHITE
Average Account Balance by Salary (2007
Source: The Ariel / Hewitt Fund
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?
• More savings• More investments• Less debt• Homeownership• Bank accounts• 401(k), pension• Higher credit
score
Pros Cons
• Less savings• Less investments• High debt• Low-income group• High prepaid cards
fees• Lack of 401(k),
pension• Lower credit score
Source: Lerman and Bell, 2006.
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).
▫Budgeting
▫Credit / Fico scores
▫Credit cards
▫Saving and investing
▫Student loan repayment
Components of financial literacy programs
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?
Source: Jump$tart Coalition
Effective programs need:
• Measurable goals
• Appropriate and realistic formatting
• Information
• Experience-based content
• Student involvement
• Financial literacy should be pervasive theme
Determining success
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
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
Does Financial Literacy Work?
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