Understanding the Financial Literacy Research: What D o W e K now ?

1. Understanding the Financial Literacy Research: What Do We Know? Kim Davis, PhD, NCC, AFC Assistant Professor of Consumer Science Texas State University @ San Marcos

2. Stockholders? • Individuals and families • Banking and finance companies • Government agencies • Grass‐roots consumer and community interest groups • Universities and schools

3. Why the interest? • For consumers to effectively use the broad spectrum of financial products and tools to effectively manage personal finances • Cash flow management • Appropriate selection of financial products • Consumer protection • Pervasive and influences everyone—gender, race, age, socioeconomic lines

4. What are the challenges? • Defining what we are “all” talking about! • What is financial literacy? Financial education? • No national standard • Core content or competencies • Assessment of success or behavioral change • No standards for educators teaching personal finance (Hira & Schuchardt, 2008)

5. What are the challenges? • Defining what we are “all” talking about! • Numerous perspectives of personal finance • Economics • Sociology • Psychology • Adult learning

6. Where is the literature? • Family and Consumer Sciences Research Journal • Financial Services Review • Journal of Consumer Affairs • Journal of Family and Economic Issues • Journal of Financial Counseling and Planning Education • Journal of Financial Planning • Journal of Personal Finance

7. Use of methodology? • Social Exchange Theory (Homans, 1958) • Adult Learning Theory (Mezirow, 1981) • Human Ecological Model (Bronfrenbrenner, 1979) • Family Management System (Deacon & Firebaugh, 1988) • Lifecycle Hypothesis of Savings (Ando & Modigliani, 1963) • Behavioral Lifecycle Hypothesis Theory of Reasoned Action and Theory of Planned Behavior (Thaler & Shefrin, 1981) • Transtheoretical Model of Change (Nickols, 2008)

8. What are the researchers saying? • Effectiveness of Financial Education • Adults participating in education programs are more likely to use a formal spending plan. • Sample of U.S. military personnel • Participants in high school financial education are more likely to: • Have a savings account and save regularly, • Pay fewer bank fees • Read money management articles • Pay off credit card balances • Indicates positive behavioral change (Bell, Gorin & Hogarth, 2009)

9. What are the researchers saying? • Effectiveness of Financial Education (cont.) • Savings behaviors of people in states with a literacy mandate show no difference in savings rates from before the mandate to after. • U.S. Census data • Indicates positive behavioral change (Cole & Shastry, 2009)

10. What are the researchers saying? • Effectiveness of Financial Education (cont.) • States with high school financial education tend to see saves at higher rates. • Sample is unclear • Instrument designed by researchers for unrelated purpose • Indicates positive behavioral change (Bernheim, Garrett & Maki, 2001)

11. What are the researchers saying? • Effectiveness of Financial Education (cont.) • Studied impact of high school financial planning curriculum on behavior, knowledge, and self-efficacy • National sample of teens using the curriculum • Immediately prior and 3 months out from exposure • Significant changes in: • Behavior • Knowledge • Self-efficacy • Indicates positive behavioral change and knowledge (Danes, Huddleston-Casas, & Boyce, 1999)

12. What are the researchers saying? • Effectiveness of Financial Education (cont.) • Jump$tart Coalition for Personal Financial Literacy (Mandell & Klien, 2009)

13. What are the researchers saying? • College 2008 administration of the same instrument proved more promising • Average score was 62.2%, sample size of 1080 • Nearly 15 percentage points above the 48.3% average of high school seniors (Mandell & Klien, 2009)

14. What are the researchers saying? • Current thought and theory • Promise of Consumer Sovereignty • Welfare-enhancing choices can be taught (Willis, 2008) • Comparison • Sex education • Alcohol and drug prevention education • Health and wellness education

15. Future • Behavioral finance • Beginning Researchers • Amos Tversky (1937-1996) • Taught at Stanford University • Psychologist • Daniel Kahneman (1934) • Teaches at Princeton University • Psychologist • Richard H. Thaler (1945) • University of Chicago • Business Finance • Works attempt to explain irrational human economic choices.

16. Future • Behavioral finance • Every financial decision should result from a rational calculation of its effect on our overall wealth.

17. Future • Behavioral finance

18. Future • Behavioral finance

19. Future • Behavioral finance

20. Future • Behavioral finance

21. Future • Behavioral finance

22. Future • Behavioral finance

23. Future • Behavioral finance

24. Future • Behavioral finance

25. Future • Behavioral finance

26. Future • Behavioral finance

27. Future • Sound pedagogy in general • Self-Efficacy Theory • Belief that one is capable of performing in a certain manner to attain certain goals • Focusing on one's assessment of his/her abilities to perform specific tasks in relation to goals and standards rather than in comparison with others’ capabilities. Additionally, it builds on personal past experiences of mastery.

28. Future • Sound pedagogy in general • Social Learning Theory • Ecological model for behavior change • Focuses attention on both individual and social environmentalfactors as targets for interventions • Directed at changing … • interpersonal, • organizational, • community, and • public policy • The theory assumesthat appropriate changes in the social environment will producechanges in individuals • Support of individualsin the population is essential for implementing environmentalchanges

29. Future • Characteristics of the educator • Ability to connect to audience • Enthusiasm • Knowledge of content • Active teaching (demonstrates relevance) • Pace of instruction • Clear communication • Questions effectively • High expectations