Financial Education Programs Proliferating, According to Federal Reserve Bank of Cleveland Survey
The growing complexity of financial products and services, coupled with a vast array of service providers, have increased the need for financial education for all Americans. The Federal Reserve System considers financial education to be a critical factor in effective community development. To gain a better understanding of the financial education programs being offered in its region, the Federal Reserve Bank of Cleveland's Community Affairs Office recently surveyed local community development practitioners. Those practitioners included financial institutions, community development organizations, government agencies, and social service providers. Among the survey's findings, detailed in the Spring 2003 issue of the Bank's CR Report:
Most of the financial education programs represented in the survey are relatively new. Nearly half of the organizations surveyed administer programs that are five years old or less.
Financial education curricula vary widely, from one-on-one counseling with no formal materials to highly structured programs. Many organizations offer more than one format, depending on participants' needs.
The subjects covered by survey respondents' programs are basic to any financial curriculum: saving, budgeting, credit repair, home-buying, predatory lending, financing major purchases, and investing.
Most financial education programs are collaborative, relying on funded partnerships or in-kind sponsorship provided by banks, foundations, government entities, and other nonprofit organizations.
The great majority of programs offer incentives for completing a course. This is consistent with research findings that adults must have an incentive to enroll in and complete training. Incentives may include monetary stipends, reduced-rate financing, or pre-approval for buying a home.
Financial education programs most often target low- and moderate-income individuals, followed by first-time homebuyers and community groups.
Survey respondents use a number of mechanisms to market their programs, the most common being referrals from a broad range of sources, followed by brochures, newsletters, financial institutions, Web sites, and religious organizations.
Survey respondents highlighted topics they are not currently providing, but are needed by their clients; these topics include investing, child support assistance, home repair/maintenance, and reverse mortgages. Some respondents also noted that certain of their client groups lack basic financial education; these groups include residents of rural areas, non-English speakers, the elderly, and elementary and high school students.
Just over half of the respondents try to measure the impact of their financial education programs, most frequently by tabulating numbers of home and car purchases, bank accounts opened, businesses started, and jobs obtained by program graduates. Because many of the programs are new and modestly funded, other methods of evaluating impact and tracking graduates have not been formalized or implemented in most cases.
In its report, the Cleveland Reserve Bank notes that many challenges still lie ahead for all players involved in delivering successful financial education programs. The concepts of financial education are sometimes abstract and complicated. For successful outcomes, these concepts must be simplified, applied to real-life situations, and tied to a meaningful goal. To be effective, curricula may need to be tailored to each segment of the community.
As financial education programs grow in number and size, the report says that it will become more important to measure their impact and to gauge whether participants' behavior changed after training. Such measurements will help determine the effectiveness of financial education and will identify the training methods that have the greatest positive impact.
The Spring 2003 CR Report can be found at www.clevelandfed.org/CommAffairs/CR_Reports/CRreport.pdf.
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, supervises certain banks and all bank holding companies, and provides payment services to depository institutions and the U.S. government. Payment services include check clearing, electronic payments, and the distribution and processing of currency and coin.
The Federal Reserve Bank of Cleveland, including its branch offices in Cincinnati and Pittsburgh, serves the Fourth Federal Reserve District, which includes Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.