TTakakinging OwnershipOwnership ofof thethe FutureFuture
The National Strategy for Financial Literacy 2006
Taking Ownership of the Future
The National Strategy for Financial Literacy 2006
Members
Department of Agriculture
Department of Defense
Department of Education
Department of Health and Human Services
Department of Housing and Urban Development
Department of Labor
Department of the Treasury
Department of Veterans Affairs
Commodity Futures Trading Commission
Federal Deposit Insurance Corporation
Federal Reserve Board
Federal Trade Commission
General Services Administration
National Credit Union Administration
Office of the Comptroller of the Currency
Office of Personnel Management
Office of Thrift Supervision
Securities and Exchange Commission
Small Business Administration
Social Security Administration
Taking Ownership of the Future The National Strategy for Financial Literacy
Table of Contents Foreword, Part I: Taking Ownership of the Future...... v Foreword, Part II: Illustrative Programs ...... xiii Chapter One: General Saving ...... 1 1 . Shifting Public Discussion from Consumption to Saving through Public Awareness Campaigns...... 2 2 . Using Existing Tax Incentives to Make Saving More Convenient and Affordable...... 4 3 . Tailoring Communications to Make Saving Relevant to Everyone...... 5 Chapter Two: Homeownership...... 9 1 . Using Grassroots Approaches to Deliver Counseling and Training Programs ...... 10 2 . Highlighting Success through Quality Education and Public Awareness...... 13 3 . Community Collaboration Can Be Invaluable in Developing and Distributing Programs...... 15 Chapter Three: Retirement Saving...... 19 1 . Educating Workers on All Retirement Saving Opportunities...... 21 2 . Encouraging Retirement Saving for Employees of Large Firms...... 24 3 . Retirement Saving Options for Employees of Small Businesses...... 27 4 . Taking Advantage of Tax-Preferred Individual Retirement Saving Products . . .28 Chapter Four: Credit ...... 31 1 . Increasing Public Understanding of Credit, Credit Reports, and Credit Scores . . . . .33 2 . Using Reputable Credit Counseling Services...... 35 Chapter Five: Consumer Protection ...... 41 1 . Educating Consumers about Reducing their Risk of Identity Theft ...... 42 2 . Guarding against Fraudulent Business Opportunities ...... 45 3 . Safeguarding Senior Citizens from Targeted Consumer Threats...... 46
TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Chapter Six: Taxpayer Rights ...... 49 1 . Helping Individuals to Identify and Utilize Available Programs and Services . . .50 2 . Education and Outreach to Individuals and Employers...... 53 3 . Reducing Taxpayer Risks and Costs by Encouraging Direct Deposit ...... 55 4 . Taking Advantage of Important, New Benefits to Realize Financial Saving. . . .56 Chapter Seven: Investor Protection ...... 59 1 . Equipping Consumers with Unbiased, Neutral Investment Information. . . . .60 2 . Encouraging Greater Understanding of Investment Characteristics, Particularly Fees...... 63 3 . Protecting Investors from Fraud through Increased Education Efforts . . . . .64 Chapter Eight: The Unbanked ...... 67 1 . Using Banking Industry-Driven Products and Services to Increase Understanding and Utilization ...... 68 2 . Encouraging Collaboration and Use of Existing Relationships to Increase Familiarity with Financial System...... 70 Chapter Nine: Multilingual Multicultural Populations ...... 75 1 . Promoting Participation in the Financial Services Process through Increased Understanding of the System ...... 76 2 . Changing Perceptions about the Accessibility of Homeownership ...... 78 3 . Improving Access to Financial Services...... 79 Chapter Ten: Kindergarten – Postsecondary Financial Education ...... 83 1 . Finding Room for Financial Education in K-12 Curricula through Integration...... 84 2 . Providing Teachers with Training and Support to Effectively Teach Financial Education Topics...... 88 3 . Providing Teachers with Effective Financial Literacy Materials, Curricula, and Resources...... 89 4 . Increasing Financial Literacy by Reaching Youth in Non-Traditional Educational Venues ...... 90 5 . Increasing the Financial Skills of Postsecondary Students ...... 93 Chapter Eleven: Academic Research and Program Evaluation ...... 97 1 . Encouraging Academic Research...... 98 2 . Program Evaluation Utilizing Proven Quantitative Analysis...... 100 3 . Program Evaluation Utilizing Qualitative Evaluation...... 102
ii Table of Contents Chapter Twelve: Coordination Efforts ...... 107 1 . Coordination of Federal Information on Financial Literacy ...... 108 2 . Assessing Federal Resources and Avoiding Duplication and Redundancy. . . .109 Chapter Thirteen: International Perspective ...... 113 1 . Approaches within Other Nations and Cross-Border Efforts...... 114 2 . Encouraging Global Partnerships ...... 118 Acronyms ...... 121 Appendix A: Meeting Summaries ...... 125 Appendix B: Federal Register Notice...... 139
iii iv TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Foreword, Part I Taking Ownership of the Future The Financial Literacy and Education Commission
Today’s increasingly complex financial In 2003, Congress established the Financial services market offers consumers a vast Literacy and Education Commission array of products, services, and providers (the Commission) through passage of to choose from to meet their financial the Financial Literacy and Education needs . While this degree of choice Improvement Act under Title V of the Fair provides consumers with a great number and Accurate Credit Transactions (FACT) of options, it also requires that they be Act of 2003 (P L. . 108-159) . Congress equipped with the information, knowledge, designated the Treasury Department’s and skills to evaluate their options and Office of Financial Education to lend its identify those that best suit their needs expertise and provide primary support to and circumstances . This is especially the the Commission, which is chaired by the case for populations that have traditionally Secretary of the Treasury . In addition to been underserved by our financial system . the Treasury Department, the following Federal agencies are represented on Financial education also is essential to help the Commission: The Federal banking consumers understand how to prevent agencies (as defined in Section 3 of the becoming involved in transactions that Federal Deposit Insurance Act)—the are financially destructive, how to avoid Office of the Comptroller of the Currency becoming victims of fraud, and how (OCC), the Board of Governors of the to exercise their consumer protection Federal Reserve System (FRB), the Federal rights . Financial literacy can empower Deposit Insurance Corporation (FDIC), consumers to be better shoppers, and the Office of Thrift Supervision allowing them to obtain goods and (OTS)—the National Credit Union services at lower cost . This optimizes Administration (NCUA), the Securities their household budgets, providing and Exchange Commission (SEC), more opportunity to consume and save each of the Departments of Education, or invest . In addition, comprehensive Agriculture (USDA), Defense (DOD), education can help provide individuals Health and Human Services (HHS), with the financial knowledge necessary Housing and Urban Development (HUD), to create household budgets, initiate Labor (DOL), and Veteran Affairs (VA), savings plans, manage debt, and make the Federal Trade Commission (FTC), strategic investment decisions for their the General Services Administration retirement or their children’s education . (GSA), the Small Business Administration Having these basic financial planning (SBA), the Social Security Administration skills can help families to meet their (SSA), the Commodity Futures Trading near-term obligations and to maximize Commission (CFTC), and the Office their longer-term financial well being . of Personnel Management (OPM) .
Foreword, Part I: Taking Ownership of the Future TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Congress charged the Commission comments to present more information . to “improve the financial literacy and Many used their own resources to education of persons in the United States travel to Washington, D C. . to attend through development of a national these meetings and others were able to strategy to promote financial literacy and participate by telephone . The Commission education ”. The statute also provides for is grateful to the participants for their a yearly re-examination of the progress of thoughtful comments and willingness to that strategy . This document represents share knowledge and opinions . Both the the first step in the evolutionary process Federal Register notice and the summaries of crafting and refining a framework of these meetings are included in the for a national strategy for improving Appendices to the Strategy . Many of the the financial literacy and education of elements in this Strategy document were Americans . Under the terms of the statute, contributed by meeting attendees . the Commission will annually review the It is clear that there is a myriad of ongoing National Strategy and make changes and financial education efforts within the recommendations as it deems necessary . United States, targeting a wide variety Title V, Section 514 of the FACT Act of topics and audiences and employing states, in part, that the strategy “shall various strategies to deliver financial provide for participation by state and local education . Some of the efforts that governments and private, nonprofit, and the Commission identified represent public institutions in the creation and background research that was instrumental implementation of such strategy ”. This in developing a framework for the mandate recognizes that both the private National Strategy. Sponsored by Federal, sector and the public sector are essential state, and local government agencies, to improving financial literacy in America . private entities, nonprofit organizations, In adherence to this mandate, the and institutions of higher learning, these Commission sought input from financial and many other programs respond to education providers and examined the financial literacy and education resources of the Federal, state, and local needs of many different segments of our governments, nonprofit organizations, population . One fundamental challenge academia, and the private sector . to improving financial education centers on reaching those who lack the awareness The Commission has met as a body every of the availability of such resources, four months since it was established in who may not have the time to improve January 2004, inviting representatives from their level of financial education, or for an array of financial education sources whom existing information resources are to present information on particular inaccessible or inadequate . Americans may programs to inform the Commission be unable to take advantage of existing membership . The Commission also called educational resources for a variety of for public comment on August 26, 2004, reasons, including lack of Internet access, and in response, over 150 individuals language barriers, or because they are and organizations replied . In an effort not the targets of traditional methods to obtain more information and detail of dissemination . One major and over- from these respondents, the Commission arching goal of the National Strategy, then, held six sector-specific public meetings, must be to make it easier to access and use inviting those who had submitted written
vi Foreword, Part I: Taking Ownership of the Future TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy helpful, appropriate, and timely financial choose reliable products and services . education information, in a format Given the important role of financial most useful to the intended recipient . education in promoting financial Another challenge that represents an well-being, there is a long-standing opportunity for the Commission is helping commitment to financial education Americans discern the difference between from government, private industry, and financial education and marketing . nonprofit organizations . Marshaling that Occasionally, a company may try to commitment and organizing efforts to deliver financial education in marketing produce the best possible result is the materials for financial products or services . greatest challenge of all, and one that can This may blur the distinction between be addressed through a national strategy . the sales information and the important The Commission has concluded that an financial literacy points . That blurring effective national strategy must encompass may make it more difficult for consumers four crucial areas, set forth below . Future to evaluate products and determine if evaluations of this strategy will focus upon the information is accurate and complete reviewing progress in and refining the or whether the provider is unbiased or articulation of these major strategic areas . whether the information provided is clouded by potential financial gain . 1. Building Public Awareness of Available This is not a simple task . Personal financial Resources management is an extremely complex matter that requires significant resources Improved financial literacy among all and commitment by consumers to Americans requires an increased public understand and evaluate the multitude awareness of the issues, as well as the of products available in the broad many state, local, and national resources financial services market . In addition, that are available for financial education . the marketplace is constantly changing, One theme that emerged from the with new products, services, and providers Commission’s sector-specific meetings emerging to meet consumer demand . As was the realization that the Federal a result, the range of topics and issues that government must make its financial literacy consumers must evaluate is vast and ever- resources more easily available . This is growing . Financial education efforts should important in order to better leverage aim at helping consumers understand and existing financial education resources select the products and services that best and avoid overlap or duplication . suit their needs, goals, and circumstances . The Commission has established an Providing effective financial education information distribution infrastructure presents great challenges not only because which will help increase public awareness of the complexity of the issues surrounding of the resources available within the the need for financial education, but also Federal government by establishing the individualistic nature of the approach MyMoney gov,. a clearinghouse for necessary to address those issues . As a financial literacy materials . This Web site result, another goal of the National Strategy contains links to free financial literacy is to help consumers identify reliable and educational materials produced by and unbiased sources of information Commission members . MyMoney gov. and equip them with the skills needed to
Foreword, Part I: Taking Ownership of the Future vii TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy also provides links to selected edu. sites Web site, with materials arranged by maintained by publicly funded colleges subject matter instead of by Commission and universities affiliated with the USDA member, will greatly facilitate coordination Cooperative State Research, Education, of efforts to promote financial literacy . and Extension Service (CSREES), as well as Creation of the Commission has brought org. sites affiliated with government entities into focus the fact that financial literacy such as the Federal Reserve Banks, to involves a multiplicity of issues that ensure that valuable financial information must be addressed . The Commission and learning tools are available from sites meetings, public comments, and sector- beyond Federal government agencies . specific gatherings have highlighted the The goal of the MyMoney gov. Web site range of issues that are involved . Each is to provide a convenient and accessible Commission member has unique areas source for credible and free resources . The of expertise and will promote the various Web site now contains useful information facets of financial literacy that fall within for individuals who are facing an array the expertise that resides in each agency . of financial needs, such as balancing As additional materials are developed a checking account, shopping for a and linked to from MyMoney gov,. each mortgage or auto loan, researching ways Commission member can learn from and to pay for a college education, reviewing build upon the shared expertise of others . credit card statements, putting money away The Commission also has established for retirement, understanding a credit a toll-free number, 1-888-MyMoney, to report, or simply deciding whether to pay disseminate a variety of educational cash or to charge a purchase . It contains materials found on the Web site to information on how to understand, those who are unable or unwilling to evaluate, and compare financial use the Internet . By establishing one products, services, and opportunities central source for all of these financial and assists investors in understanding literacy and education materials, the how to proceed when they encounter Federal government can ensure that difficulties with market intermediaries . consumers and educators alike have Although the Web site is arranged to be easy access to accurate, up-to-date, accessible and helpful to consumers, it and easy-to-find information and also will make it easier for community resources on financial matters . educators and nonprofit organizations to find and use those same resources, Congress has charged the Secretary of the reducing costs of needless duplication . Treasury with developing, implementing, and conducting a pilot national public An immediate byproduct of the service multimedia campaign to enhance establishment of MyMoney gov. has been the state of financial literacy and education to more clearly identify the financial in the United States . This multimedia literacy resources that are currently campaign will be an integral part of the available from Commission members . strategy for raising public awareness of the This important step will facilitate each importance of the issue and for informing Commission member’s analysis of whether Americans about where they can obtain there are areas of needless overlap and high-quality, timely information on a wide duplication within this body of financial variety of financial issues . This campaign education materials . Existence of the will be an effective tool to actively market
viii Foreword, Part I: Taking Ownership of the Future TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy the MyMoney gov. Web site and the 1-888- resources are important to reach key MyMoney toll-free number . By using direct demographics, including unbanked and creative messaging, an effective media populations, multicultural and multilingual campaign can help establish MyMoney . communities, geographically remote gov and 1-888-MyMoney as the primary communities, and consumers with special portals to which consumers can turn when needs . It is important to appreciate that they need to easily find financial education dissemination channels differ widely materials on a wide range of important according to the message and intended financial topics . Using this multimedia recipient, and what may appear to be strategy, we can begin to build national duplication of effort is often necessary in awareness of the many valuable, free order to reach different target audiences . resources that are available to all citizens . Needless duplication occurs only when educators and others are unaware of the existence of useable information . 2. Developing Tailored, Targeted Developing a wide variety of effective Materials and Dissemination Strategies channels is an important facet of the Fortunately, a large variety of excellent financial literacy challenge . Information financial education materials exists . The can be disseminated in many settings, MyMoney gov. Web site catalogs a great deal including the workplace, schools, media, of neutral, unbiased information aimed and through community organizations . at educating consumers, enabling them Each venue offers valuable outlets for to obtain materials that can assist them reaching different demographic sectors . in making informed financial decisions . Rather than creating new teaching A challenge to financial education materials, these existing materials and efforts is understanding that access to resources can be tailored for particular information and programs does not always audiences and distributed through result in positive consumer behavior . those organizations and dissemination For example, the workplace can be an channels that are most trusted within important channel in dissemination of individual communities . A single-source effective financial information . Access to Web site, like MyMoney gov,. can help an employer-based retirement plan offers educators maximize their use of free an essential mechanism to facilitating financial education resources and structured savings . However, the availability eliminate needless duplication of effort . of such a plan does not correlate to high participation in such plans . In 2004, only Improving the financial literacy of 53 4. per cent of all full-time employees Americans is not an action that occurs participated in an employer-sponsored through a one-size-fits-all approach . retirement plan . In recognition of this, People learn in many different ways, and in 2006, the Treasury Department and many of us benefit from hearing and DOL will co-host a roundtable with large seeing educational messages repeated employers on retirement saving . Topics will in many different ways on different include successful strategies in integrating occasions . Effective financial literacy and the delivery of financial education into the educational efforts require materials that workplace and other options for increasing reach and are clearly understood by the participation and contributions in private intended audience . Tailored, targeted pensions, such as automatic enrollment . In
Foreword, Part I: Taking Ownership of the Future ix TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy addition, the SBA, DOL, and the Treasury of interest . In some communities, such Department are committed to conducting as Native American reservations and outreach to small businesses, and will ethnically concentrated neighborhoods, continue to offer valuable resources on there may not be an abundance of retirement options to small firms . The SBA financial institutions . These communities will make available specific information seek specific strategies to help them for small businesses on general retirement better secure the financial services issues by providing and online training resources, while gaining the products, link that will be available on MyMoney . underwriting, and delivery mechanisms gov by the second quarter of 2006 . that are culturally compatible . Another key component of the financial Community organizations can play an literacy challenge is to integrate financial important role in efforts to enhance the education into established curricula delivery of financial education information . for elementary, secondary, and post- For example, technology and innovation secondary learning institutions . Identifying have resulted in the creation of a plethora opportunities to incorporate financial of mortgage loan products that are education in this manner can help young complex and possess features that may be Americans grow into financially educated inappropriate, very risky, and financially adults who are astute consumers and detrimental for some consumers, such as who, in turn, impart this knowledge to adjustable rate mortgages and interest-only their children . This kind of financial loans where payment levels can change education can result in better household dramatically over the term of the loan . budgeting and other critical life skills . In addition, as the mortgage lending To help educators convey financial market has become more competitive and education concepts as part of core subjects prolific, the emergence of unscrupulous such as math and reading, the Treasury lenders has created concern regarding Department and the Department of predatory lending practices . While some Education will partner to host a summit regulatory and legislative interventions focused on financial education integration, have been undertaken to thwart predatory teacher training, and related topics . lending, financial education is a critical component of protecting homeowner Financial issues and education vary across equity . Community-based programs cultures, and acquiring an understanding can be effective in both promoting of these differences is critical to and preserving homeownership . Local increasing the role of minority markets homeownership initiatives can raise in areas such as transaction accounts awareness and move many individuals and homeownership . For some, there is and families closer to making the dream a lack of trust of banks and government of homeownership a reality . Similarly, agencies . Others have varying attitudes intervention at a community level for toward spending and saving, and may homeowners in financial difficulty can use intra-cultural financial mechanisms help mitigate the effect of predatory such as peer lending and investing groups lending for consumers and communities . within their communities . Still others may adhere to religious restrictions, such as the Islamic prohibition on the payment
Foreword, Part I: Taking Ownership of the Future TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
3. Tapping into Public-Private and Private- banking of the unbanked . The conferences Private Partnerships will take place between the second quarter of 2006 and the third quarter of 2007 Improving the nation’s financial literacy and will bring together community-based is not a task that can be undertaken organizations, financial service providers, solely by the Federal government . To and Federal, state, and local regulators to the contrary, the majority of financial broker partnerships and discuss the latest education and skills-building activities developments and strategies in bringing are those currently led by private-sector people into the financial mainstream . organizations . Community involvement can greatly enhance the effectiveness of Partnerships have also been effective at collaborative resource development and encouraging wealth building . Several dissemination efforts . Public-private and Commission members are among multiple private-private partnerships therefore nonprofit groups, employers, financial play an important role in equipping institutions, and government agencies who consumers with needed financial skills . are working in cooperative partnerships Successful partnerships can efficiently at the local, state, or national levels reach key audiences with high-quality, to encourage saving among low- and unbiased information . These partnerships moderate-income individuals . Government can highlight the local successes of participants include the FRB, OCC, SEC, financial literacy efforts and boost local DOL, and CSREES, the Federal partner enrollment in and access to education in the Cooperative Extension System . programs . Partnerships are valuable components to any public awareness effort initiated by the Commission, and 4. Research and Evaluation of Financial collaboration is a key part of the National Education Programs Strategy to improve financial literacy . While many excellent financial education The area of homeownership is just efforts are ongoing throughout the one of many in which public-private nation, a theme repeatedly sounded in partnerships can be particularly effective . public comment letters and during the Between the second quarter of 2006 Commission’s sector-specific meetings is and the first quarter of 2007, HUD will that a systematic method of evaluation join with the Treasury Department to of financial literacy programs does not host a series of meetings highlighting exist . Additionally, there is little research the work of successful partnerships on successful methods for financial that have advanced homeownership . education . A broad and deep base of research on financial education will Partnerships within communities can be assist policymakers, as well as public effective at addressing the issues involved and private sector providers of financial with the many individuals in this country education, to improve the effectiveness who do not maintain traditional bank of their work on financial literacy . While transaction, credit, savings, or investment some good research has been conducted, accounts . The Treasury Department, more can be done . From research comes along with the FDIC, the NCUA, and the a shared body of knowledge on how OCC, will host a series of four regional to best inform and educate different conferences to share best practices on and varied constituencies on financial
Foreword, Part I: Taking Ownership of the Future xi TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy education topics . Such research is essential educational needs of its citizens . Virtually in developing and replicating programs every other nation faces the same challenge that are proven to achieve results and to to increase the financial knowledge and ensure the efficient use of resources . skill set of citizens to enable them to make better financial decisions and avoid fraud . Ideally, financial education programs As the process of developing National would strive to incorporate findings Strategy continues, it will be important to from academic research that utilize both continue a dialogue with other nations qualitative and quantitative measures in an effort to learn from their efforts . to assess the effectiveness of financial education programs . For consumers, these Reaching the goal of a financially data will offer confidence about programs educated population will take time, that work; for educators, the data will but the Commission is encouraged offer guidelines for developing evidence- by the many excellent programs and based, quality materials; and for funders partnerships currently working to of financial education, research provides improve American financial literacy assurance of the optimization of resources . levels . Part II of this Foreword contains descriptions of representative programs To raise awareness of existing academic now in place across America . Of necessity, research and to define what still needs this National Strategy contains merely study, the Treasury Department, along a small sampling of the many fine with the USDA and CSREES, will programs in existence today . Yet each convene a symposium of researchers of the programs described illustrates who specialize in financial education . the multitude of smaller efforts that The symposium will result in a working represent opportunities for learning and paper which will survey current financial partnership in contributing to the larger education research and also will identify national mosaic that comprises America’s areas of potential future research . financial literacy and education effort .
Conclusion The United States is not the only country in the world to be engaged in a serious analysis of the financial literacy and
xii Foreword, Part I: Taking Ownership of the Future TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Foreword Part II Illustrative Programs The Financial Literacy and Education Commission
Established to improve financial literacy Programs Discussed in this Report and education among all Americans, In each of the 13 chapters included in the Commission was created when the National Strategy, the Commission the Financial Literacy and Education delved into issues, many identified Improvement Act under Title V of by Congress, pertinent to financial the FACT Act (P L. . 108-159) was education . Each chapter describes signed into law by President George various financial education programs W . Bush on December 4, 2003 . developed and managed by nonprofit The Commission was charged by the organizations, academia, the Federal, state, U S. . Congress to “improve the financial and local governments, and the private literacy and education of persons in the sector . The “Calls to Action” identified United States through the development at the end of each chapter represent of a national strategy to promote opportunities for improving financial financial literacy and education ”. literacy and education in that particular area . Appendix A represents some of the The principal duties of the Commission’s background research into Commission include: opportunities and challenges surrounding 1 . Encouraging government financial education that formed the and private sector efforts to development of the National Strategy . promote financial literacy; The Commission took great efforts to 2 . Coordinating financial education include all points of view in the deliberative efforts of the Federal government; process, including the following: 3 . Developing a national strategy • First, on August 26, 2004, the to promote financial literacy and Commission issued a notice in the education among all Americans; Federal Register with a request for 4 . Establishing a national financial comments on the National Strategy . education Web site to provide In response to that notice, more a coordinated point of entry than 150 comments were received for information about federal from private citizens, nonprofit financial literacy, education organizations, academia, Federal, programs, and grants; and state, and local agencies, and others . 5 . Establishing a toll-free hotline • Second, the Commission conducted available to the public seeking six sector-specific public meetings materials on issues pertaining to to gather more information from financial literacy and education . respondents to the August Federal Register notice . These meetings
Foreword Part II: Illustrative Programs xiii TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
were held in various locations in closed October 31, 2004 . Or, Washington, D C. ,. between February b . The programs were recommended 25th and March 17th, 2005 . Both by organizations in response the Federal Register notice and to outreach by the Treasury the summaries from the sector- Department to promote a specific meetings are contained in broad sampling of programs . the appendices of the Strategy . The non-Federal government programs • Finally, the Commission convened that are discussed in the report were found a working group of 13 Commission by the Treasury Department to contain agencies to provide significant at least six out of the following eight input into the Strategy, drafted elements, which were developed by the by the Treasury Department . Treasury Department's Office of Financial Working group representatives Education in 2003, in which the program: met on eleven separate occasions between June of 2004 and June of 1 . content focuses on basic 2005 at the Treasury Department savings, credit management, to discuss timelines, structure, homeownership and/or and content of the document . retirement planning . Title V, Section 514 of the FACT Act 2 . content is tailored to its states, in part, that the Strategy “shall target audience, taking into provide for participation by state and account its language, culture, local governments and private, nonprofit, age, and experience . and public institutions in the creation 3 . is offered through a local and implementation of such strategy ”. distribution channel that makes This mandate recognizes that both the effective use of community private sector and the public sector are resources and contacts . essential in improving financial literacy in America . In adherence to this mandate, 4 . follows up with participants the Strategy examines and discusses to reinforce the message and financial education resources from the ensure that participants are Federal, state, and local governments, able to apply the skills taught . and from private sector providers . 5 . establishes specific goals and The Treasury Department considered a uses performance measures variety of the non-Federal government to track progress toward programs that it learned about meeting those goals . in one of the following ways: 6 . demonstrates a positive impact a . The programs were cited by on participants’ attitudes, a respondent to the Federal knowledge, or behavior Register notice on August 26, through testing, surveys, or 2004, which requested public other objective evaluation . comment on financial education 7 . can be easily replicated on a resources for the National local, regional, or national Strategy . The comment period basis so as to have broad
xiv Foreword Part II: Illustrative Programs TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
impact and sustainability . Commission or any of its member agencies, nor does it certify or indicate that non- 8 . is built to last as evidenced Federal governmental agencies mentioned by factors such as continuing in this report—or any of their services, financial support, legislative advice or products—are in compliance backing, or integration into an with or satisfy requirements of, applicable established course of instruction . laws or regulations . With regard to the Web The purpose of including these non- site addresses that appear in this report Federal governmental programs was that are created and maintained by non- to give specific, concrete examples of Federal governmental entities, the United financial education efforts that specifically States Government, including the Financial illustrate the issues discussed in each Literacy and Education Commission and chapter . The United States Government, its member agencies, does not endorse, including the Financial Literacy and approve, certify, or control those external Education Commission and its member sites and does not guarantee the accuracy, agencies, does not endorse the non-Federal completeness, efficacy, or timeliness of governmental entities referenced in this the information contained on these sites . report, nor does it guarantee in any way Moreover, the programs described the services, advice or products provided in the Strategy are, by no means, an by non-Federal governmental entities exhaustive list of programs that have a mentioned in this report . Reference in this positive impact on financial literacy, and report to any specific financial institution, are intended to be used for illustrative commercial product, process, or service purposes within the topical chapters . does not constitute an endorsement, approval, or recommendation by the United States Government, including the Financial Literacy and Education
Foreword Part II: Illustrative Programs xv
Chapter 1 General Saving
Overview Savings provide the ability to reach of personal saving: “A key component important life goals such as financing of domestic saving in the United States homeownership and a college education, in future decades will be the path of the coping with unexpected events, and personal savings rate . That rate will depend preparing for retirement . Even a on a number of factors, especially the small amount of savings can grow and behavior of the members of the baby-boom compound over time, contributing to cohort during their retirement years ”. 3 the financial security we all seek . As a nation we have seen a marked decline in personal savings . Thirty-five years ago, Challenges 9 4. percent of disposable income was set While many reasons account for the 1 aside for savings . In 2004, the comparable United States’ current personal saving 2 figure was 1 3. percent . Alan Greenspan, situation, it is clear that, for many former Chairman of the Board of Americans, this is a complex issue that Governors of the Federal Reserve System, requires deep understanding of individual said the following about the importance situations and decision-making . For some,
TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy the challenge is about the value of personal encourage them to spend their money . saving early in life . For others, it requires By comparison, families may receive careful planning . And for still others, it little information and encouragement demands a better understanding of the about saving . Knowing the “how” and skills and mechanisms needed to save . “why” of saving can equip Americans with the tools to make wise choices when Moreover, it is important that Americans allocating what often are limited have the information, discretionary resources . knowledge, and skills to identify their saving goals Part of building savings is (e g. ,. saving for future protecting those savings through education expenses, a the use of insurance . When down payment on a home, planning their saving and other retirement, etc ). and then financial matters, individuals select the instruments and should budget funds to insure products they can use to their health, home, auto, and help them attain those life . In this way, Americans goals . With increased can reduce the likelihood that education on the benefits one catastrophic event will of saving, Americans wipe out a lifetime of saving . can achieve a greater Through integrated mass- understanding of the media public awareness efforts, importance and benefits of Americans can learn more saving, as well as the strategies that support about the benefits of saving . The issue of systematic saving and wealth accumulation . saving is a crucial one for all Americans, and public service announcement (PSA) campaigns can help many Issues in General Saving understand the importance of saving . 1. Shifting Public Discussion from By communicating directly with people, Consumption to Saving through Public using communication channels that have Awareness Campaigns earned their trust and with which they There is a great deal of competition for are familiar, and by developing messages a modern family’s income . Each month, that in form, format, and function they the average family writes checks for rent are comfortable with, PSA campaigns or mortgage, childcare, and utilities . can educate the nation on the benefits Couple those monthly expenses with of personal saving and the specific outlays for transportation, food, clothing, steps each individual and family can tuition bills for children, student loan and should consider taking . Such PSAs payments, and expenses for the care might involve short segments on radio of aging parents, and families are left and television, distributing materials with limited discretionary income . via the Web and community-based locations, or hosting other educational When deciding how to allocate activities . These campaigns should be discretionary income, families are faced ongoing, providing the public with with strong and persuasive messages that information and follow-up over time .
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Across the nation, there are a national audience and includes more individual programs, both private than 50 local and national initiatives of and public, using PSA campaigns for-profit, nonprofit, and government focused on the topic of saving . organizations that target specific groups, such as African Americans, Hispanic Americans, military personnel, faith- National PSA Multi-Media Campaign based groups, and young Americans . One national PSA campaign uses the Not only does the campaign feature full spectrum of media across the public service announcements, but it nation — including television, radio, also delivers information and services to print, the Web, transit rail and bus encourage people to enroll as “savers ”. ads, conferences, and more to carry Each saver must commit to working toward the message of saving . The campaign a monetary goal with a specific plan that is designed to focus public attention includes monthly deposits in a specified on what is needed to achieve financial account . In return, savers receive free security and promotes the idea that information about saving strategies and saving today is vital to a secure financial accounts, a quarterly newsletter, and access tomorrow . Since 1997, the campaign has to advice from certified financial planners . secured more than $20 million worth of donated airtime to broadcast the PSAs . These saving public awareness programs are offered and supported by more than The program is just one part of this 1,000 organizations, including more organization’s efforts to raise public than 100 financial institutions which awareness on the actions individuals are offering no- or low- balance savings need to take to facilitate their long-term accounts to those registered savers . As a personal financial independence . This result of their efforts, more than 30,000 not-for-profit national coalition of public- Americans have enrolled as savers, and and private-sector institutions works hundreds of thousands have sought through its partners to educate Americans savings information from the program . on all aspects of personal finance and wealth development, including credit management, college saving, home Public Awareness Week on purchases, and retirement planning . Importance of Insurance Greater public awareness about the importance of insurance can reduce the Local/National PSA Campaign likelihood that one catastrophic event will and Saving Program wipe out a lifetime of savings . This national While traditionally PSA campaigns provide association promotes its annual public information to the public, some PSA awareness week which focuses on how to campaigns prompt individuals to take help consumers avoid fraud in purchasing action and get involved . For instance, in insurance, review insurance coverage 2001 the citizens of an Ohio city were levels, utilize their state’s insurance initially targeted by a local public awareness departments, and talk to their insurance campaign that encouraged and assisted providers about possible discounts . In less affluent Americans to save and build 2004, 45 states and the District of Columbia wealth . Now the saving campaign reaches participated in this public awareness
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy campaign delivered through television of achieving — or preparing for — a and radio, as well as through dedicated better future or paving the way to handle phone banks where consumers could unexpected crises or emergencies . ask questions and voice concerns . To build wealth, simple lessons about In a recent survey, 72 percent of Americans saving are the most important to convey . indicated that they have the right amount Even a small amount of savings today of insurance coverage, but only 32 percent can compound into resources for indicated that they understood the tomorrow . Such resources can provide the details of those policies “very well ”. 4 financial security and flexibility to handle unexpected events, while simultaneously Thus, the public awareness campaign offering the means for meeting future focuses on meeting this need financial needs and planning . by giving consumers important information about insurance . In their efforts to save more, Americans should use the full spectrum of available savings products and tools . Saving Summary tools are broader than just passbooks PSA campaigns represent one method and piggy banks . As the public and of raising public awareness in ways that private sectors continue to innovate to help Americans to develop and maintain meet the growing and diverse financial a saving mindset . Through carefully needs of the nation, saving can be planned and executed PSA campaigns, both convenient and affordable . the American public can gain a better Such innovation touches all corners of understanding of the value of saving, our day-to-day lives . For instance, Health the specific steps to take in order to Savings Accounts (HSAs) and Coverdell achieve personal saving goals, and the Education Savings Accounts (ESAs) benefits that come from a lifetime of empower families to plan and manage their reasonable saving . Public awareness savings for specific health and education campaigns also can bring together a expenses anticipated in their future . variety of organizations that target specific groups and offer concrete opportunities for individuals to become savers . Health Savings Accounts For some consumers, HSAs are innovative programs to encourage personal savings 2. Using Existing Tax Incentives to and planning for future healthcare Make Saving More Convenient expenses . Modeled after Archer Medical and Affordable Savings Accounts, HSAs are essentially In decades past, passbooks and piggy savings plans to pay for health care costs . banks represented saving plans . Saving These accounts enable tax-free payment for money is an activity that requires current health expenses while also allowing forethought, planning, specific activities, those enrolled to save for future qualified and responsibility, and is often undertaken medical and retiree health expenses . without a known, specific “pay off” in As an Individual Retirement Account the end . While spending is often seen as (IRA) encourages retirement savings, an convenient and affordable, is an exercise HSA encourages health care savings . in patience and tenacity with a view Any adult who is covered by a high-
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy deductible health plan (and has no other modified adjusted gross income is higher . first-dollar coverage) may establish an Distributions are tax-free as long as HSA 5. To encourage saving for health funds are used for qualified education expenses after retirement, individuals expenses, such as tuition, books, fees, etc ,. age 55 and older are allowed to make at an eligible educational institution . An additional catch-up contributions to their eligible educational institution includes HSAs until they enroll in Medicare . any public, private or religious school that provides elementary or secondary The money in an HSA is owned and education as determined under state law . controlled by the individual, and spending decisions do not require the involvement of a health insurer or any Summary other third party . HSA holders decide what types of investments to make with These examples are just two of the their money, thereby controlling the many mechanisms within the tax code growth in their HSA accounts . While that provide incentives for saving some companies may establish HSAs for for specific future needs . Americans their employees, individuals can sign should carefully evaluate these and the up for this type of account with banks, multitude of other saving opportunities credit unions, insurance companies, to determine how best to meet their and other approved companies . current and future financial needs .
Coverdell Education Savings Accounts 3. Tailoring Communications to ESAs provide another example of an Make Saving Relevant to Everyone innovative savings product that was In addition to the broader efforts launched created as an incentive to help parents by widely distributed PSA campaigns, and students save for education expenses . there are significant opportunities to Parents of students under the age of 18 utilize targeted programs that address may contribute up to $2,000 per child per individual audiences or groups of year . The student will not owe tax on the people . By making messages as relevant distributions if, for a year, the distributions as possible to the individual, organizers from an account are not more than a can boost the effectiveness of programs . beneficiary’s qualified education expenses at an eligible education institution . This To accomplish this, program designers benefit applies to higher education must first determine, through market expenses as well as to elementary and research, audience financial interests and secondary education expenses . expectations . From this data, program organizers can begin identifying the Generally, any individual (including appropriate classes, materials, and the beneficiary) can contribute to knowledgeable experts (e g. ,. financial a Coverdell ESA if the individual’s planners, bankers, etc ). to deliver modified adjusted gross income is less information on saving to the specific than $110,000 ($220,000 if the individual audience . Program designers also should is filing a joint return) . The $2,000 use this process to ensure that particular maximum contribution per beneficiary financial needs and demands are is gradually reduced if the contributor’s
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy addressed, while maintaining to ensure that their actions sensitivity to issues such are on track to achieve as native language, their financial goals . Internet access, and other As of January 2005, 24 states communications challenges . reported 36,563 individuals Saving means different enrolled in one or more things to different people . of the Financial Security in Tailored education efforts, Later Life’s eight educational such as those undertaken program curricula 6. As by the USDA and DoD, a result, 90 percent of can maximize the reach participants increased and effectiveness of financial knowledge, 62 general saving activities . percent planned to use recommended financial planning practices, and 48 United States Department of percent planned to manage Agriculture Cooperative State their use of credit, reduce debt, and/or Research, Education, and Extension Service reduce household spending 7. A group of Rural Americans face many of the same 7,574 individuals who completed programs challenges as those in non-rural areas, such report a total of $6,307,708 of annual as excessive credit card debt, poor financial financial impact, such as dollars saved, planning, lack of savings for retirement and debt reduced, or new dollars invested 8. absence of skills for navigating a complex financial marketplace . Unfortunately, due to distance and lack of services (including Military Saves educational opportunities), rural residents For those serving in the U S. . military, may not have the same resources as saving presents a unique challenge, those living in urban places . That is why particularly for junior-level enlisted organizations such as the Cooperative individuals between the ages of 18 and 21 . Extension System, working in partnership Nearly a quarter (24 percent) of enlisted with the USDA CSREES, reaches out to servicemen and women do not save at all rural Americans, in addition to those in and almost half only save what is remaining more populated areas, with workshops, after monthly expenses, meaning they home-study courses, Internet-based have no systematic saving plans in place . curricula and other educational methods . That is why the DoD is developing specific saving programs tailored especially for To help individuals focus on their long- service personnel who need to begin term financial situations, for instance, saving to prepare for their futures . the Cooperative Extension System established its Financial Security in Later Based on a model of a consumer Life initiative . Through a package of organization’s campaign, pilots of this Web-based and face-to-face programs, social marketing effort have demonstrated the effort encourages participants to plan the same level of success in motivating for retirement and potential long-term service members to reduce debt and health care costs, act to save and invest, establish savings for the future . Some and evaluate their own financial conduct of the pilot locations have proven the
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Military Saves campaign can motivate of a wide range of ages, geographic service members to take action . communities, and economic levels . At one location, 50 percent of the By tailoring messages and activities to audience signed up, agreeing to save those who need it, organizations can $93,000 in the first year of saving . ensure that messages not only reach but also resonate with target audiences . Summary A greater emphasis should be placed on tailoring communications and Encouraging individuals to save is an education programs specifically to effective message only if it reaches various age groups, demographics, and those whom it is intended to help . audiences . The goal is to use a multitude Accordingly, it is critical that awareness of messages and approaches so that and education efforts ensure that all each message received is relevant to materials and activities are translated the targeted individuals and groups . into appropriate languages as needed and targeted to address the interests Calls to Action Tactics Employed: Public Awareness, Targeting 1-1 In the first quarter of 2006, the Treasury Department will partner with a nonprofit organization to develop and implement a public service announcement on the benefits of lifetime savings and the savings resources available on the Financial Literacy and Education Commission’s Web site, MyMoney gov. . 1-2 Organizations advocating for increased saving should augment their general communication approach with customized messages to address the interests of members of specific age groups, geographic communities, and economic levels .
Endnotes
1 U S. . Department of Commerce . (n d. ). National Income and Product Accounts Table. Retrieved July 26, 2005, from www bea. doc. gov/bea/dn/nipaweb/TableView. asp#Mid. 2 Ibid . 3 Greenspan, A . (2004, August 27) . Remarks at the 2004 Symposium of the Federal Reserve Bank of Kansas City . 4 National Association of Insurance Commissioners . 2003 Survey . Retrieved from www naic. org/. consumer_home htm. 5 A high deductible health plan (HDHP) is a health insurance plan with a minimum deductible of $1,000 (self-only coverage) or $2,000 (family coverage) in 2005 . Annual out-of-pocket expenses
Chapter One: General Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
(including deductibles and co-pays) cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage) in 2005 . HDHPs may have first dollar coverage for preventive care . 6 U S. . Department of Agriculture . (n d. ). . Cooperative State Research, Education, and Extension Service . Retrieved July 26, 2005, from http://www csrees. usda. gov/index. html. 7 Ibid . 8 Ibid .
Chapter One: General Saving Chapter 2 Homeownership
Overview In 2001, President George W . Bush said by the Federal government and the “…homeownership lies at the heart of the focus of key policies and programs . American Dream . It is a key to upward In 2004, 69 percent of American mobility for low- and middle-income households owned their own homes Americans . It is an anchor for families and — an all-time high . Homeownership a source of stability for communities . It is important to all Americans because serves as the foundation of many people’s it represents a significant asset for financial security . And it is a source households . In 2001, 97 percent of all of pride for people who have worked homeowners held at least some equity hard to provide for their families ”. 1 in their homes, with a median national To households, communities, and equity value of $70,000 . Home equity the nation at large, homeownership represented 42 percent of their net worth 3. conveys significant economic and social Homeownership also can be one of benefits . Accordingly, for more than 70 the most effective means for low- and years, homeownership has long been an moderate-income families to build wealth . important public policy goal2 promoted For moderate-income homeowners,
TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy home equity represents 60 percent Further, as the mortgage lending market of net worth; and for low-income has become more competitive and prolific, homeowners, it is 80 percent of net the emergence of unscrupulous lenders worth 4. In fact, while the net worth of a has created concern regarding predatory typical low-income household is $7,900, lending practices . Through aggressive it is more than six times that, $50,000, marketing tactics, misrepresentation, for moderate income homeowners 5. and fraud, such creditors strip equity from homeowners by entangling them in mortgages with terms that are Challenges disadvantageous to the homeowner . In some communities, such lending has led Despite the benefits that can accrue to very high rates of foreclosure and has from owning a home, for a multitude resulted in financial ruin for homeowners of reasons, homeownership may not be victimized by predatory lenders . in the financial best interest of some While some regulatory and legislative families . However, for those positioned interventions have been undertaken for homeownership, it represents an to thwart predatory lending, financial important financial milestone and should education is viewed as a critical component be accessible to consumers for whom of protecting homeowner equity . ownership is financially beneficial . Some Americans may view owning their own Community-based programs can homes as a challenge for various reasons, be effective in both promoting and including negative credit histories, preserving homeownership . Local daunting down payments and closing homeownership initiatives can raise cost requirements, and complex loan awareness and move many individuals transactions . For some, basic homebuyer and families closer to making the dream education or promotion of specialized of homeownership a reality . Similarly, loan products may be all that is needed to intervention at a community level for help move them toward homeownership . homeowners in financial difficulty can For others, intensive, long-term counseling help mitigate the effect of predatory and credit repair may be necessary . lending for consumers and communities . Technology and innovation have resulted in the creation of a plethora of mortgage Issues in Homeownership loan products that are complex and possess features that may be inappropriate, 1. Using Grassroots Approaches to very risky, and financially detrimental Deliver Counseling and for some consumers, such as adjustable Training Programs rate mortgages and interest-only loans Currently, homeownership counseling where payment levels can change and training programs address specific dramatically over the term of the loan . In stages of homeownership — pre-purchase, today’s highly complicated and technical post-purchase, equity extraction, and mortgage market, the greatest challenge foreclosure mitigation . To successfully to consumers is to be equipped to evaluate educate consumers on these issues, the vast array of products and identify those curricula should move beyond this that are most beneficial to their individual model and be responsive to the financial circumstances and financial well-being .
10 Chapter Two: Homeownership TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy circumstances of borrowers and owners at organizations . The organization has all stages . Successful programs also need established the nation’s largest force to address a range of other challenges, of certified homeownership education including language and cultural issues, counselors and has provided counseling and geographic impediments in rural to more than 471,000 individuals . It has communities . There is no “one-size- also supported the development of 78 fits-all” solution to explaining how to Homeownership Centers throughout the achieve and maintain homeownership . nation . The Centers, created in 1997, are one-stop shops for a broad range Many local or grassroots organizations are of homeownership services available well-positioned to deliver homebuying to low- and moderate-income families . information and counseling because of The organization also seeks to cultivate their familiarity with the local market . partnerships with the government and the National non-profit organizations, private sector to provide affordable loans to financial institutions, including credit potential homebuyers, and has established unions, and housing partnerships, offer a national foreclosure prevention a variety of information and personal center to help address issues related to counseling to potential homebuyers . unscrupulous and predatory lending Moreover, Federal efforts through the practices and to identify and prevent HUD’s Local Homeownership Centers foreclosure for current homeowners . also help families realize the potential benefits of homeownership and assist A NeighborWorks America® organization in them in the home mortgage process . Chicago has collaborated with city officials and more than 20 lenders to reduce geographically concentrated foreclosures NeighborWorks America® uses Grassroots through its homeownership preservation Network to Provide Counseling initiative . Through innovative outreach, Many Americans turn to non-profit intensive counseling and intervention, and organizations to receive homebuying a targeted public awareness campaign, this counseling and training that specifically organization prevented 650 foreclosures target their local communities 6. in an 18-month period . NeighborWorks NeighborWorks America® is a national America® is currently undertaking non-profit organization comprised efforts to replicate this initiative in of more than 230 resident-led, Ohio and in other communities chartered groups operating within a beset by high foreclosure rates . larger nationwide coalition of local non-profit partnerships of residents, business leaders, and public officials . Local Credit Union offers First Time Homebuyer Program This Congressionally chartered, For decades, financial institutions, Federally funded, nonprofit organization including credit unions across the nation, uses a variety of methods to increase have successfully delivered community- support for low-income families’ access specific counseling and training to their to homeownership, which includes members, meeting the specific financial personal counseling, homeownership needs of the individuals and communities centers, and partnerships with lending
Chapter Two: Homeownership 11 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy they were established to serve . In return, Native American Housing Partnership Offers prospective homebuyers have turned Assistance On or Near Reservation to credit unions to help them navigate Public-private housing partnerships the homebuying process and provide bring together non-profit, for-profit, and the services they need to government sectors in a achieve homeownership . particular local community For instance, one such to address issues such credit union in Maryland as affordable housing, offers members a first- financing, and barriers to time homebuyer program homeownership . Housing that provides step-by-step partnerships on Native assistance through the American reservations are homebuying process . To particularly situated to provide complement this program, information and assistance the credit union provides to often remote areas in a a series of online self-help way that seeks to overcome classes entitled Fundamentals cultural differences . One such of Personal Finance: Making housing partnership brings Informed Choices and ongoing specific grassroots programs educational workshops and materials directly to and seminars, such as the local community on renting versus buying . the reservation and at the workplace . It seeks to improve understanding of homeownership issues Armed Services Credit Union Serves and access to homeownership, including Military Families providing mediation for the buyer with A second example is an armed services tribal and other governmental authorities credit union which focuses on providing and environmental clearances . financial services to its unique customer base of more than 2 5. million members Created to provide innovative and flexible worldwide consisting of Navy and Marine homeownership financing opportunities Corps personnel and their families . Credit on or near the reservation, the housing union staff visit their customers on Navy partnership empowers Native American ships, and conduct over 200 general families with new knowledge, skills, and financial presentations annually on the understanding to enable families to importance of good credit, financial build, buy, or renovate homes . Through management, credit reports, maintaining the program, individuals participate good credit, budgeting skills, budgetary in homebuying and financial literacy counseling, identity theft, and others . classes and learn how to establish The credit union also provides online individual development accounts . tools, brochures, and a quarterly member Native American families also turn to newsletter covering issues such as money the housing partnership to make first management, credit scores, and the mortgage financing more accessible factors that contribute to those scores . and to secure secondary financing
12 Chapter Two: Homeownership TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy through down payments, closing costs, understand the information and know how and principal reduction assistance . best to relate it to prospective homebuyers . The credible homebuying and mortgage HUD Local Homeownership Centers education and awareness programs seek Grassroots organizations also are supported to equip potential homebuyers with through Federal efforts in HUD’s four the knowledge they need to make wise regional homeownership centers, located decisions, and are not simply focused in Pennsylvania, Georgia, Colorado, and on selling a particular product . These California . Together, these four centers reach all parts of the country and provide current and prospective homeowners with information not only about the Federal Housing Administration (FHA) and its single-family mortgage insurance programs, but also non-FHA homeownership programs, counseling, mortgage servicing, and other issues relating to homeownership .
Summary programs highlight homeownership success stories, and encourage individuals Utilizing grassroots approaches to to connect homeownership with encourage homeownership, financial investments and savings . Public awareness institutions and community organizations efforts, such as those created by a housing can empower all Americans to transform partnership in Ohio, deliver clear messages the dream of owning a home into a reality . of the benefits of owning your own home, Through face-to-face counseling and as opposed to renting . Moreover, education targeted education programs, grassroots efforts, such as those provided by the HUD, programs can help families achieve, certified housing counselors, andNational maintain, and sustain homeownership . Homeownership Month help promote successful savings and homeownership . 2. Highlighting Success through Quality Education and Public Awareness Housing Partnership in Ohio Successful education and public awareness In one city in Ohio, residents are learning programs are only as strong as the how to become successful homeowners messages they deliver and the curriculum and gaining necessary financial skills and instructors they use . Homebuyer from the local housing partnership . education and awareness programs need Basing its efforts on proven successful to be of the highest quality and should programs and public education activities, be delivered by qualified instructors who this housing partnership has established
Chapter Two: Homeownership 13 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy a homeownership marketing campaign providing access to healthcare information called Fire the Landlord Now. Through and other social services . The Neighborhood colorful, contemporary ads placed in the Networks’ “Train-the-Trainer” Sessions local transit authority buses, such as “Fire enable NN center directors to provide the Landlord Now ”. “Buy a lot of home for resources for multifamily housing residents a little green,” the housing partnership was and their surrounding communities . These able to attract potential low- and middle- individuals are trained in topic areas based income homebuyers to its resources . on the resident’s needs which are identified Phone calls to the housing partnership through surveys of NN center clients . and the amount of homeownership counseling have dramatically increased . National Standard for Pre-purchase Homeownership Education and Certification for U.S. Department of Housing and Counselors and Trainers Urban Development The NeighborWorks America® Campaign As the primary Federal agency on for Home Ownership has set a national homebuying, HUD is uniquely positioned standard for pre-purchase homeownership to help homeowners and prospective education and established a five-day homeowners access quality, effective training and certification course for homebuyer education programs . To this counselors and trainers . Trainers end, HUD provides contact information certified byNeighborWorks America® for homeownership counseling services adhere to the following standards: on a state-by-state, district-by-district • All potential homebuyers receive basis through a comprehensive Internet a minimum of eight hours of resource, www hud. gov/local/index. cfm. . group homebuyer education with (The HUD Housing Counseling agencies follow-up individual counseling; are found at this link: www hud. gov/. offices/hsg/sfh/hcc/hccprof14 cfm. ). • The housing counselors are States listed on the site feature their local certified after completing the homeownership events and strategies . five-day “Homebuyer Education HUD also operates a toll-free number for Methods: Training-for-Trainers” consumers to locate a counseling agency class and passing the course exam; in their community . Both the Web site • The content, delivery and format of the and toll-free number are highlighted in homebuyer training is tailored to meet all of HUD’s brochures and publications . the needs of the participants (rather HUD created the program Neighborhood than a “one-size-fits-all” approach); Networks in 1995 to encourage property • Ideally, the training and owners to establish community technology counseling occur before a centers in HUD-insured and assisted purchase contract is signed; properties . Today, more than 1,100 Neighborhood Networks centers help to • Customer satisfaction surveys are improve the quality of life for residents by: used to evaluate the effectiveness (1) providing job training and placement, of the training; and (2) creating employment and educational • All volunteer trainers must opportunities, (3) advancing literacy adhere to a code of ethics 7. and language skills programs, and (4)
14 Chapter Two: Homeownership TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
National Homeownership Month homeownership as a foundation for financial security . By linking financial American consumers are learning about literacy and homeownership, awareness the value of homeownership from leaders efforts can promote effective strategies at the highest levels, including the on a broader scale . Through expanded President . Since 2002, President George public education efforts and an integrated W . Bush has proclaimed the month of mass media campaign, organizations June as National Homeownership Month, can expand access to the range of calling on the people of the United educational resources available to States to join him in recognizing the consumers, particularly by promoting importance of providing all citizens a best practices and success stories . chance to achieve the American Dream . During National Homeownership Month, Americans are encouraged to learn 3. Community Collaboration Can more about financial management Be Invaluable in Developing and and how to take advantage of the Distributing Programs homeownership opportunities available Worthwhile education and training to them in their communities . In 2005, programs are only of value if the National Homeownership Month stressed individuals they are intended for are that the journey to homeownership aware of their availability and take full involves more than simply finding a real advantage of what is offered . For instance, estate agent and obtaining a mortgage . many renters may not know where to National Homeownership Month featured obtain information on homeownership a five-city tour which was a collaboration or how to get assistance in setting among twelve Federal agencies and homeownership goals; thus, they need to showcased the numerous programs be exposed to messages that will direct available to individuals . Several other them to the appropriate programs . homeownership events occurred simultaneously throughout the country Moreover, connecting the right people during the month of June . These with the right financial messages can be a programs focused on teaching the “how- challenging task for any one organization tos” of buying a first home . Through this to accomplish alone . For instance, one education effort, individuals and families program may have the expertise, but discovered how to become homeowners, not the on-the-ground presence . By an important step in safeguarding their partnering, organizations can pool their financial futures that also contributes resources to achieve common objectives . to the overall strength of our nation . Truly successful homeownership awareness initiatives require collaboration among Summary all sectors that target the specific groups that need information the most . By An increased public awareness of best working together, public- and private- practices and successes, particularly at sector organizations can demystify the the local level, can result in increased homeownership process and provide understanding and acceptance of consumers with the tools necessary to
Chapter Two: Homeownership 15 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy become homeowners . Organizations, such A key focus is to build assets — including as a homeownership network in Montana, both skills and wealth — of residents a housing association in California, and a to ensure long-term self sufficiency . faith-based housing agency in Michigan, Toward that end, the housing association demonstrate how homeownership established an individual development programs that target specific groups can account program that matches the serve as successful education tools . personal savings of residents with donated funds . As part of financial education Lenders and Government Agencies in classes, participants are required to put Partnership in Montana Provide Counseling aside a small percentage of their earned and Find Financing for Potential Homebuyers income into savings accounts attached Public and private sector organizations to a particular asset-building goal (e g. ,. have joined together to provide Montana home purchase), with a savings match residents with the information and access — two-dollars matched for each one-dollar they need to successfully navigate the saved — from the housing association entire homebuying and homeownership made possible through private donations . process . Through a system of service By providing economic literacy training, delivery partners, the organizations mentoring, and asset accumulation, promote homeownership throughout the program helps citizens realize 184 Montana communities . Lenders and their dreams of homeownership . government agencies partner to provide financing for down payments and closing Housing Counseling Agency Teams with cost loans for first-time homebuyers, single Faith-Based Organization in Michigan to Reach heads of households, and families with New Clients a disabled member . The organizations Access to financial literacy information also provide residents with homebuyer has become easier for residents in one education, foreclosure prevention Michigan city, thanks to a faith-based counseling, and individual counseling . housing counseling agency . This housing counseling agency was established as an Nonprofits and Government Agencies in outreach effort through a local church, Partnership in a City in California Provide and it has counseled approximately Housing and Savings Match Program 32,000 individuals on homeownership The government and the private sector through faith-based and community- have joined together to provide the based organizations . Approximately education, training, and assistance that 6,000 of those clients have become residents in a Californian city need to make homeowners with the help of this homeownership a reality . The housing agency . As part of the HUD National association in that city not only develops, Intermediary for Housing Counseling, owns, and operates affordable multi-family this housing counseling agency oversees housing, but also seeks to establish strong 23 affiliated faith-based organizations and stable communities through resident that provide housing counseling participation and leadership development . services in Michigan communities .
16 Chapter Two: Homeownership TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Summary
Homeownership can be a complex process counseling efforts . Partnerships between for the average family to understand . public and private sector organizations Through public-private and private- can help those individuals and families private collaboration, public awareness who are underrepresented in the and education programs can successfully homeownership market better understand deliver homebuyer education and how they can become homeowners . Calls to Action Tactic Employed: Partnerships 2-1 Between the second quarter of 2006 and the second quarter of 2007, the U S. . Department of Housing and Urban Development will join with the Treasury Department to host a series of meetings highlighting the work of successful partnerships that have advanced homeownership . 2-2 Lenders and other businesses should partner with grassroots organizations to provide financial education on buying a home and one-on-one counseling to demystify the homebuying process .
Endnotes
1 Bush, George W . (2001) . Radio address by the President to the nation . Retrieved June 24, 2005, from http://www whitehouse. gov/news/releases/2001/06/20010608-7. html. 2 Dietz, R D. ,. & Haurin, D R. . (2003) . The social and private consequences of homeownership . The Journal of Urban Economics, 54, 401-450 . 3 . The Federal Reserve Board . (2001) . Survey of Consumer Finances . Retrieved from http://www . Federalreserve gov/pubs/oss/oss2/2001/scf2001home. html. . 4 Ibid . 5 Ibid . 6 On April 11, 2005, Neighborhood Reinvestment Corporation began doing business as NeighborWorks America® . Refer to www nw. org/network/aboutUs/history/default. asp. for additional information . 7 Neighborhood Reinvestment Corporation . (2004) . Creating educated homebuyers: A Comprehensive Approach, Written Testimony before the House Committee on Financial Services, Subcommittee on Housing and Community Opportunity, Washington, DC
Chapter Two: Homeownership 17 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
18 Chapter Two: Homeownership Chapter 3 Retirement Saving
Overview Today, the retirement landscape is born in 1950 1. In 2002, the life expectancy dramatically different than it was in of a 65-year-old individual rose to 83, previous generations . Americans are now while a 75-year-old person may live more living longer than in years past, health care than 11 additional years 2. With those 11 costs represent a much larger proportion years come increased health and living of retirement expenses, and workers expenses that require planning . While are expected to take more individual seven in 10 Americans are somewhat responsibility for their retirement saving confident that they will have enough due to a shift from traditional defined money to live comfortably in retirement, benefit plans to defined contribution only 42 percent have actually calculated plans . As a result, it is more important what they will need and what they need than ever that Americans employ lifelong to save to reach their retirement goals 3. strategies to build retirement saving . As the nation grows older and the The average life expectancy for those retirement landscape continues to change, born today is 78 years, almost a full decade there is more of an impetus to properly longer than the life expectancy of those plan and save for retirement . Social
19 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Security continues to play an important 60 percent of private-sector employees part in Americans' retirement security . In did 8. In 2004, only 53 4. percent of all fact, Social Security currently provides 50 full-time employees participated in an percent or more of the income for two- employer-sponsored retirement plan 9. thirds of married couples and unmarried Such opportunities to save for retirement persons (age 65 or older) receiving are more likely to be found in large Social Security benefits, and is the only firms . Employees of firms with over 100 source of income for 22 percent of such employees are twice as likely as employees couples and persons 4. For beneficiaries of firms with 100 or fewer employees to with average earnings, Social Security have access to and also to participate in retirement benefits will replace only about a retirement plan 10. In 2003, 42 percent 40 percent of pre-retirement earnings . of workers in small businesses (1-99 Additionally, the Social Security system employees) had access to retirement plans itself is facing challenges . With the “baby and 35 percent participated, as opposed boom” generation preparing to retire to 75 percent and 65 percent respectively soon, Social Security will be paying out of employees in larger firms 11. more than it takes in by 2017 and the A recent study examined the saving Social Security trust funds are expected and investing activity of more than to be exhausted by 2041 5. At that time, 600 employees at a major company without changes to the program, Social considered as “low savers” — those who Security will not be able to pay all do not contribute enough to the plan to scheduled benefits . President George W . receive the full company match or do not Bush commented on this situation when contribute to the plan at all . The study he said, “Social Security was a great moral found that 72 percent didn’t know how success of the 20th Century, and we must much they needed to save for retirement, honor its great purposes in this century . but thought that they should be saving The system, however, on its current path, two-to-three times more . Despite this, 77 is headed toward bankruptcy . And so we percent said that they would continue must join together to strengthen and save to contribute at their current level and Social Security ”. 6 The ongoing public 34 percent said they still did not plan policy discussion on the future of Social to participate in the plan . The study Security is something Americans should also identified several barriers to saving, heed as they make their retirement plans . including lack of basic knowledge about Since its inception, Social Security has their employer’s plan, discomfort with provided a minimum foundation of investing, procrastination, and debt 12. protection . A comfortable retirement Finally, Americans should consider usually requires not only Social Security, tax-preferred individual accounts to but also personal saving and saving save for retirement, such as traditional from employer-based plans . In 2001, 64 Individual Retirement Accounts (IRA) percent of all wage and salary workers and Roth IRAs . Approximately 5 7. were employed by organizations million American taxpayers contributed sponsoring pension plans 7. While 91 to an IRA in 2000, while 6 8. million percent of public-sector employees had contributed to a Roth IRA 13. access to a retirement plan at work, only
20 Chapter Three: Retirement Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Challenges
There are many retirement saving Financing one’s retirement is a complex challenges . These include: that life task, and it requires thorough planning expectancy is increasing; that Social and understanding of the options . Security alone was not meant to and The current discussion on Social Security, will not provide an adequate retirement initiated by President Bush, has raised income; that many employees do not awareness about the issue of retirement have access to employer-sponsored security and the need to plan for the pension plans and many of those who future . Individuals across the country are do are not participating; and that many engaging in discussions Americans have not even about Social Security, calculated what they personal retirement will need to save for a accounts, and retirement comfortable retirement . planning . As more and more As average life expectancy people come to understand increases and employees the real problems facing are expected to assume Social Security, they also greater individual understand the need to take responsibility to prepare action to strengthen the and save for retirement, system for future generations . there is a growing For effective retirement need for increased planning, Americans should public awareness of the focus on the roles that Social importance of saving Security, employment-based for retirement and the retirement saving, and ways consumers can individual saving will play in seek to achieve that their retirement saving . goal . It is important to determine how to best reach and educate those groups of individuals who are not saving adequately Issues in Retirement Saving and to develop products or campaigns targeted to encourage greater saving . 1. Educating Workers on All Retirement There are specific roles that both large and Savings Opportunities small employers, as well as government Millions of the Americans in the baby and non-profit organizations, can play boomer generation will begin to retire to boost understanding of retirement between now and 2019 . Yet only 62 planning and increase employee percent of American workers are saving participation in savings options . for retirement 14. Moreover, only four While the challenges are significant, in 10 workers have taken the time and they can be overcome by maximizing effort to complete a retirement needs available opportunities and providing the calculation, which is considered the educational programs and guidance that basic planning step designed to help have been proven effective in practice . individuals determine how much money they are likely to need in retirement 15.
Chapter Three: Retirement Saving 21 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
As retirement saving options continue explaining to all Americans the role Social to grow, employees need to understand Security can play in a worker’s retirement . that retirement planning involves more This statement allows individuals to know than just paying into the Social Security whether they have accumulated enough system . While a minimum foundation “work credits” to qualify for benefits and, and a valuable component of retirement, if so, how much those benefits might be . Social Security is but one of many The Social Security Statement represents components of retirement income . one of the Federal government’s largest Moreover, some employees who have efforts to communicate directly with not previously saved for retirement now Americans about Social Security and the have the opportunity to make “catch up” need for individuals to prepare in advance contributions to their retirement plans . for retirement . However, many Americans Many Federal government agencies are are not using the information to the partnering to improve public utilization fullest extent possible . In fact, a recent of available retirement strategies and Government Accountability Office (GAO) saving vehicles . The collective goal of these survey indicates that only 66 percent of agency efforts is to ensure that Americans respondents remember receiving the are aware of all of the retirement saving statement 16. To expand its educational options available to them and are equipped reach on retirement, SSA supplements the to utilize these options in an effective way information available on the statement to improve their overall retirement security . with benefit calculators available at www socialsecurity. gov/planners. and with A wide range of Federal initiatives exist to the wealth of information available at increase public knowledge of retirement www socialsecurity. gov. and MyMoney gov. . saving while encouraging more Americans to save for retirement . Among such initiatives are specific actions such as U.S. Department of Labor – National Summit the annual distribution of the Social on Retirement Savings Security Statement, the National Summit In the spring of 2006, the DOL will on Retirement Savings (Saver Summit), and convene its third Saver Summit . The recent legislative and administrative purpose of the Saver Summit is to advance changes to Federal retirement laws . the public’s knowledge of retirement saving and its critical importance to the future Social Security Statement well-being of workers and families . The Saver Summit will facilitate the development The SSA is committed to educating all of broad-based public education programs Americans on their individual retirement that (1) encourage and enhance individual futures by increasing public understanding commitment to a personal retirement of the basic features of Social Security and saving strategy; (2) identify the problems assisting workers in preparing for their workers have in setting aside adequate long-term economic security . Through saving for retirement; (3) identify the its annual mailing of the Social Security barriers which employers, especially Statement, SSA provides more than 140 small employers, face in assisting their million workers over the age of 25 with workers in accumulating retirement an earnings summary and estimates of saving; and (4) examine the impact and future Social Security retirement benefits,
22 Chapter Three: Retirement Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy effectiveness of individual employers to retirement plans . The Economic Growth promote personal saving for retirement and Tax Relief and Reconciliation Act among their workers and to promote of 2001 (P L. . 107-16) allows individuals participation in company savings options . over the age of 50 to make “catch-up” contributions to their retirement saving plans while increasing IRA contribution Legislative and Administrative Changes limits from $2,000 to $4,500 . Specific legislative and administrative efforts have equipped Americans with To encourage employers to provide additional options to properly plan and assistance to their employees, the DOL actively save for retirement . While public has provided guidance concerning education efforts continue to spotlight how employers may safely provide these positive retirement saving changes, investment advice to defined contribution plan participants in Advisory Opinion many Americans remain unaware of 17 these changes or do not know where 2001-09A . Before this opinion was published, many employers were hesitant to provide certain financial education materials or tools (such as computer programs) to their employees because of concerns regarding liability for providing investment advice . Finally, the Saver’s Credit, enacted in 2001, offers specific incentives for low-income workers to save toward retirement . The Saver’s Credit provides a government matching contribution, in the form of a nonrefundable tax credit, for voluntary individual contributions to 401(k) type plans, IRAs, and similar retirement saving arrangements . and how to access relevant information . Some examples of these legislative and administrative changes are the ability Summary to make “catch-up” contributions to Efforts are underway across the nation retirement plans, the DOL Advisory to increase public awareness of the Opinion on providing financial education most effective ways to plan and save for in the workplace, and the Saver’s Credit . retirement . These initiatives attempt to In recent years, the Federal government educate Americans on the advantages has promoted policy changes that of various saving products and on new now allow workers to build greater options for retirement saving . Further retirement savings, allow older workers education efforts aimed at increasing to make “catch-up” contributions, and the public’s understanding of retirement provide incentives to employers to offer saving should receive priority attention .
Chapter Three: Retirement Saving 23 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Vehicles for increasing knowledge about rates by establishing retirement plans that and boosting retirement saving include the automatically enroll workers, allowing Social Security Benefits Statement,Saver them to opt-out of retirement saving Summits, and legislative and administrative instead of requiring them to opt in 18. measures . All Americans — young, old, Private employers, the Federal and those in between — should be aware government, and nonprofit organizations of their Social Security benefits and are all playing roles in distributing should read and understand their Social information on retirement to employees Security Statement . This statement is an and in providing a foundation of effective tool for retirement planning that understanding for all retirement savers . provides all Americans with a snapshot Some private employers are also turning of what they might expect during their to innovative retirement savings plan retirement years from the Social Security features such as automatic enrollment to system . Government agencies, financial help employees prepare for the future . organizations, nonprofit organizations and community-based organizations offer a wealth of information intended Retirement Education Efforts – to help inform individuals about saving Private-Sector Employers for retirement . Current efforts to educate The private sector has demonstrated Americans on preparing for retirement success in retirement saving education, should be supplemented with information equipping employees with valued from other sources, including information information and services . One such that focuses on types of retirement saving employer provides its workers with a vehicles and “catch-up” contributions . core financial education curriculum . The curriculum includes instructor- led workshops, firm- specific financial 2. Encouraging Retirement Saving for education software, a financial counseling Employees of Large Firms help line staffed by financial planners and With the increasing popularity of defined educators, and access to an online financial contribution plans, employers are campus . This initiative has resulted in finding that their employees need more both increased 401(k) participation assistance in planning for their financial and increased contribution rates 19. futures . Many employees look to their Another such employer has been offering employers for guidance on whether to similar educational programs centered on save for retirement, how to do it, and financial literacy training to its employees how to plan for the future . Employers are for many years . This firm strongly believes frequently viewed as a primary educational that education is a necessary component resource for reliable information on for integrating employer benefits with investment choices, asset allocation employee lives . Employees attend strategies, and basic retirement planning . employer-sponsored programs such as Many employers meet this employee Life Planning 101, Investing in Your Future, expectation and provide extensive and Healthy, Wealthy, and Wise during financial education programs in the work hours . Internal evaluation surveys workplace to improve retirement saving . have demonstrated that these programs In fact, some employers have been able regularly receive favorable scores 20. to increase retirement plan participation
24 Chapter Three: Retirement Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Retirement Education Efforts – Federal Through the Web site www tsp. gov. , Government as an Employer employees can access their accounts, use various saving calculators, view online As one of the nation’s largest employers, statements, and print account-related the Federal government engages in a wide forms . FRTIB also provides a toll-free range of education activities to prepare its telephone line for participants and their workers for retirement and to encourage beneficiaries, conducts a communications retirement saving . Administered by the effort tied to new lifecycle funds, and Federal Retirement Thrift Investment participates in the OPM-sponsored Board (FRTIB), the Thrift Savings Plan financial fairs for Federal employees . (TSP) provides a defined contribution retirement system to Federal civilian Beyond providing the TSP to its employees employees, Postal employees, and the Federal government is also attempting members of the to educate the Federal Uniformed Services . workforce on the need To encourage saving, for retirement saving and briefings and DVDs investment . As part of this are made available for effort, OPM has developed employees . Additionally, a retirement financial agency officials tasked literacy and education with administering strategy for employees . This the TSP receive effort provides workers specialized training with information on how so they can effectively to plan for retirement respond to questions . and calculate the retirement investment needed to The TSP is a tax-deferred defined meet individual retirement goals . contribution plan similar to a private- sector 401(k) plan . Generally, all Federal The OPM Federal employee retirement employees hired after 1983 are covered strategy is built on the belief that by the Federal Employees Retirement employers need to educate employees System and are automatically enrolled about employer-provided benefits while in the TSP whether or not a salary providing resources and guidance on contribution is made . By law, all Federal how best to use other programs and agencies contribute an amount equal to efforts to achieve successful retirement . one percent of an employee’s basic pay To guide this educational process, OPM into his/her account each pay period . surveyed the Federal workforce and is All employee contributions are voluntary developing a retirement readiness index with the employing agency matching that will help employees and employers dollar to dollar the first three percent of better understand retirement education pay an employee contributes each pay needs by benchmarking workforce period, and 50 cents on the dollar for retirement readiness . This approach could the next two percent of pay . Employees serve as a model, educating employers under the older Civil Service Retirement on issues to emphasize retirement System (CSRS) may contribute to the saving education to employees . TSP without any agency match .
Chapter Three: Retirement Saving 25 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Retirement Education Efforts – Assistance from effectively save for their futures, some Non-profit Organizations large employers are implementing automatic 401(k) enrollment plans . Large employers are also working with Under automatic enrollment plans, non-profit organizations to improve the employees are automatically enrolled in retirement education being provided to the retirement saving program unless employees . Through various initiatives they actively choose not to participate . nonprofit organizations have demonstrated how they can assist large private employers Automatic enrollment plans differ from and the Federal government in providing the traditional 401(k) plans that require employees with the financial education workers to actively choose to participate they need to plan for retirement . in the TSP . Under the traditional opt- in structure of most 401(k) plans, many Savings Fitness provides individuals workers never choose to save in the first with key information about saving for place, thereby, losing out on a sound retirement, and was developed through a saving and investment opportunity . partnership between the DOL’s Employee Additionally, many employees forfeit the Benefits Security Administration and a opportunity to receive a company match professional organization of financial if they fail to contribute to their 401(k) service providers . This publication has plans . Automatic enrollment encourages been featured in leading national media active involvement of employees . and is distributed through retirement planning workshops and through the With automatic enrollment, employee Commission’s Web site, MyMoney gov. . contributions, which increase gradually over time, are invested prudently and Also, a professional organization of preserved for retirement, all without certified public accountants developed putting the onus on workers to take the a multi-faceted program which included initiative for any of these steps . Workers lessons on retirement . This effort takes remain free to override the default options a broad leadership role in educating the – choosing whether to save or not to save American public — from school children and controlling how their savings are to retirees and those in between — on invested – but those who fail to exercise financial topics that apply specifically their retirement saving are not left out . to each age group’s particular stage of life . Retirement saving efforts focus The effects of automatic enrollment are on annuities and retirement planning, distinctly positive, with studies showing borrowing or withdrawing money that automatic enrollment increases from a 401(k), closing a retirement both participation in 401(k) plans and income gap, estimating retirement the level of employee contributions 21. income needs, and understanding Automatic enrollment features are defined benefit plans, among others . used by a number of large U S. . firms .
Retirement Plan Feature Options – Automatic Summary Enrollment Plans Employer-based financial education has To help their employees maximize proven effective in helping workers plan retirement opportunities and
26 Chapter Three: Retirement Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy and save for retirement 22. By establishing The DOL provides small business owners their own retirement education programs and their employees with education and materials or partnering with non-profit resources on retirement plan options, plan education efforts, employers can help their management, and employer responsibilities employees understand their retirement for operating retirement plans . plans and assist employees in planning and saving appropriately for the future . Specific Retirement Plan Options and Management emphasis should be placed on helping large employers institute innovative To encourage growth in the number retirement plan features, such as automatic of retirement plans available, DOL, in enrollment in 401(k) plans, to increase partnership with a national association of participation rates and retirement saving . business leaders, developed an interactive Web site to help small business employers determine the best plan option for their 3. Retirement Saving Options for businesses . This program provides small Employees of Small Businesses businesses with information focusing on reasons to offer retirement plans Many small business owners find that to employees, considerations if a small they are not familiar with the different business does not offer retirement retirement plans that are available to plans, and how plans benefit both them, including the options specifically employees and the business itself . created for small businesses and designed to be less costly and easy to administer 23. To augment this site, DOL partnered with the IRS to develop publications about For example, 73 percent of small various types of plans such as SEPs, and business owners have never heard SIMPLEs 26. DOL also offers a series of of or are not very familiar with the seminars in conjunction with the IRS and Simplified Employee Pension (SEP) a coalition of business and professional and 52 percent have never heard of or associations to assist small employers in are not very familiar with the Savings setting up and operating their plans and Incentive Match Plan for Employees of to educate small business owners about Small Employers (SIMPLE) – two plans their responsibilities as fiduciaries . that are specifically designed for small businesses 24. In stark contrast, 85 percent of small business owners are somewhat or Summary very familiar with 401(k) plans, which are designed for employers of all sizes, not Helping employees better understand specifically for small business owners 25. and prepare for retirement is not simply a task for large employers and The same range of communications and the Federal government . Small business education activities available to large firms owners can take advantage of the tools that have the capacity to boost employee above to offer retirement plans to their understanding of retirement saving also are workers and can play an important role available to small businesses . Additionally, in encouraging and educating their specific resources are available to small workers on retirement planning . businesses for use in educating small-firm employees on retirement planning .
Chapter Three: Retirement Saving 27 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
4. Taking Advantage of Tax-Preferred gross income . Investment earnings for all Individual Retirement Savings Products traditional IRA contributions accumulate tax-free and are not taxed until funds Many Americans do not make full use of are distributed, usually at a lower tax tax-preferred retirement saving vehicles, rate in retirement . Withdrawls from such as the traditional IRA and the Roth traditional IRAs, made before age 59 ½, IRA . Approximately 5 7. million American are taxed an additional 10 percent . taxpayers contributed to an IRA in 2000, while 6 8. million contributed to a In addition, the Taxpayer Relief Act of Roth IRA 27. There are many benefits to 1997 created Roth IRAs, which differ from saving for retirement in these individual traditional IRAs in that contributions accounts, including tax-deductible are made with after-tax dollars but contributions and tax-free accumulations earnings and distributions are tax-free . of investment earnings . With IRAs and The contribution limit to a Roth IRA Roth IRAs, for instance, families may in 2005 is $4,000 for individuals under plan and manage their retirement saving age 50 and $4,500 for individuals age more wisely based on their future needs . 50 or older . However, as with traditional IRAs, an individual’s contribution limit may be reduced or phased out in Individual Retirement Accounts (IRA) accordance with his or her modified and Roth IRAs adjusted gross income . Withdrawls A traditional IRA is a personal savings from Roth IRAs, made before age 59 ½, account that offers tax advantages to are taxed an additional 10 percent . set aside funds for retirement . Annual contributions of up to $4,000 for individuals under age 50 and $4,500 for Summary individuals age 50 or older (in 2005) are IRAs and Roth IRAs provide an fully tax-deductible for workers not covered opportunity for individuals to save for under employer-sponsored pensions . If retirement and supplement Social an employee is covered by an employer- Security benefits and employer-provided sponsored pension plan, that employee’s pensions . Eligible Americans should be deduction for contributions to an IRA encouraged to use IRAs and Roth IRAs is reduced or phased out in accordance to accumulate retirement savings . with the employee’s modified adjusted
28 Chapter Three: Retirement Saving TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Calls to Action Tactics Employed: Targeting, Integration/Teachable Moment
3-1 In 2006, the Treasury Department and the Department of Labor will co-host a roundtable with large employers on retirement saving . Topics will include successful strategies integrating the delivery of financial education into the workplace and other options for increasing participation and contributions in private pensions, such as automatic enrollment . 3-2 The Small Business Administration (SBA), the Department of Labor, and the Treasury Department are committed to conducting outreach to small businesses, and will continue to offer valuable resources on retirement options to small firms . The SBA will make available specific information for small businesses on general retirement issues by providing an online training link that will be available on MyMoney gov. by the second quarter of 2006 .
Endnotes
1 Centers for Disease Control & Prevention . (2004, November 10) . National vital statistics reports . 2 Retrieved July 5, 2005, from http://www cdc. gov/nchs/data/dvs/nvsr53_06t12. pdf. 3 Employee Benefit Research Institute . (2004) . Saving and retiring in America (2004 RCI fact sheet) . Washington, DC . 4 U S. . Social Security Administration . (2002) . Income of the aged chartbook: 2002 (Publication 13-11727) . Washington, DC . 5 U S. . Social Security Administration . (2005) . Annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (p . 81) . Washington, DC . 6 Bush, George W . (2005) . The State of the Union Address . 7 Beller, D . Coverage status of workers under employer provided health and pension plans . Unpublished tabulations . Washington, DC: Employee Benefits Security Administration, Office of Policy and Research . 8 Ibid . 9 Purcell, P J. . (2005, September) . Pension sponsorship and participation: Summary of recent trends (CRS Report to Congress RL30122) . Washington DC: U S. . Library of Congress, Congressional Research Service . 10 Bureau of Labor Statistics . (2005, January) . National compensation survey: Employee benefits in private industry in the United States, 2002-2003 (Bulletin 2573) . Washington, DC . 11 Ibid . 12 Hewitt Associates . Hewitt study reveals biggest barrier to retirement saving may be lack of motivation,” [press release] . Retrieved February 22, 2005, from http://was4 hewitt. com/hewitt/resource/newsroom/. pressrel/2005/02-22-05 htm. .
Chapter Three: Retirement Saving 29 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
13 Sailer, P J. ,. & Nutter, S E. . (2000) . Accumulation and distribution of individual retirement arrangements, 2003 . Retrieved July 5, 2005, from http://irs gov/pub/irs-soi/00retire. pdf. 14 Employee Benefit Research Institute, & Mathew Greenwald & Associates, Inc . (2005) . 2005 retirement confidence survey . Washington, DC . 15 Ibid . 16 Government Accountability Office, Social Security Statements . (2005, April) . Social Security Administration should better evaluate whether workers understand their statements (GAO-05-192) . Retrieved July 5, 2005, from http://www gao. gov/highlights/d05192high. pdf. . 17 U S. . Department of Labor, Employee Benefits Security Administration . (2001) . Advisory opinion (2001-09A) . Retrieved May 26, 2005, from http://www dol. gov/ebsa/regs/AOs/ao2001-09a. html. . 18 Madrian, B ,. & Shea, D F. . (2001, November) . The power of suggestion: Inertia in 401(k) participation rates and savings behavior . Quarterly Journal of Economics. 116(4). Cambridge, MA . MIT Press . 19 Vitt, L A. ,. et al . (2000) . Personal finance and the rush to competence: Financial literacy education in the U.S. (A national field study commissioned and supported by the Fannie Mae Foundation) . Middleburg, VA: Institute for Socio-Financial Studies . 20 Ibid . 21 Madrian, B . & Shea, D F. . 22 Bernheim, B D. . (1996) . Financial literacy, education, and retirement savings . University of Pennsylvania: Pension Research Council . 23 Employee Benefit Research Institute, & Mathew Greenwald & Associates, Inc . (2003) . 2003 Small Employer Retirement Survey . Washington, DC: Employee Benefit Research Institute . 24 Ibid . 25 Ibid . 26 U S. . Department of Labor, Employee Benefit Security Administration . Retrieved from www dol. . gov/ebsa/pdf/simplenet pdf. & www dol. gov/ebsa/pdf/simpleIRA. pdf. . 27 Employee Benefit Research Institute, & Mathew Greenwald & Associates, Inc .
30 Chapter Three: Retirement Saving Chapter 4 Credit
Overview Across the nation, consumers are dealing make credit risk evaluations and price with increased levels of debt . From according to the risk that each applicant January 2003 to January 2005, consumer represents . This technology also has debt levels increased nine percent, as played an important role in the growth in revolving debt, most typically credit card subprime lending, where creditors extend debt, increased by eight percent, and non loans to riskier borrowers at higher rates . revolving debt increased by 10 percent 1. Moreover, between September 2003 and This rise in consumer debt is consistent September 2004, there were 1 6. million with the increased availability of credit non-business bankruptcies filed 2. Providing from a variety of lenders . The increase assistance to those in bankruptcy and other in availability of credit has been fueled financially troubled consumers has become in part by technology, which has allowed a growth industry 3. In terms of the effects increased efficiency in credit underwriting of counseling, those seeking reputable and pricing . Technology has significantly financial counseling fare better than those increased the ability of creditors to who have not obtained this information . assimilate and process information to The use of reputable credit counseling
31 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy has a significant impact on making resolution of the complaint . According to borrowers more credit worthy, increasing the report, most consumers know what a the number of accounts that are paid off, credit score is, but do not know that some and decreasing total individual debt 5. behaviors negatively affect their score . Two important components of consumer By better understanding their credit credit are credit reports and credit scores . reports, consumers can better manage Credit reports their financial matters contain the in a way that will historical help their credit performance scores . Additionally, of a consumer’s consumers who review repayment and understand history of their credit reports financial can more easily obligations, spot inaccuracies including debt and instances of contracts, taxes, identity theft . and utilities . Lenders use Challenges this history American consumers, regardless of of performance to assess the repayment their income level or credit histories, risk that a consumer represents . A are regularly confronted with numerous credit score is the numeric assignment credit offers from a wide variety of of risk calculated from an algorithm lenders . As consumer credit increases in that uses credit report information to the United States, Americans are faced predict the likelihood of repayment . with a variety of issues in making credit The findings of a recently released GAO decisions . To begin it is important that report entitled, Credit Reporting Literacy: consumers understand the impact that Consumers Understood the Basics but Could excessive credit can have on their long- Benefit from Targeted Educational Efforts, term financial health . Moreover, an show that a large percentage of American understanding of credit scoring and the consumers have a good understanding of effects a negative credit history can have on the basics of credit reporting: they appear the cost of credit are critically important to know how credit reports are used, what for consumers in evaluating credit offers 8. information is contained in a credit report, In addition, when Americans choose to and are aware of their right to dispute obtain credit, it is critically important for inaccurate information 6. However, many them to have an understanding of the consumers did not appear to understand terms of credit that are being offered to that credit reports are used to price and them so that they can select the credit underwrite insurance policies and can terms best for them . These challenges impact employment 7. Also, consumers are are further compounded by not knowing unaware that they can file a complaint with where to seek out specific information the FTC if they have found inaccuracies and guidance on general credit issues 9. in their credit reports and are dissatisfied Effective educational programs and with the credit reporting agencies’
32 Chapter Four: Credit TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy materials provided by the Federal as well as another free, updated copy of government, private sector, and nonprofit the credit report to the individual if the organizations can help overcome these dispute results in a change . If no change challenges and equip consumers with is made, the statement of the dispute knowledge about the costs and benefits will still be included in the official file . of credit, and provide ready access to The world of consumer credit transactions resources on evaluating credit offers can be very complicated . In an effort and understanding consumer rights to increase public understanding of and protections . As consumers are met credit, credit reports, and credit scores, with aggressive marketing campaigns public awareness efforts should focus on by creditors on a regular basis and gain explaining the fundamental components increased access to credit, the need to of credit, such as key terminology (annual strengthen consumer credit literacy percentage rates, principal, interest becomes e g. ,. increasingly important . and finance charges, points and fees, minimum payment, repayment schedules, installments, balloon payments, deferred Issues in Credit interest, interest only, etc ),. the calculation 1. Increasing Public Understanding of finance charges, and the types of credit of Credit, Credit Reports, and available (e g. ,. unsecured credit such Credit Scores as credit cards, overdraft lines of credit, consumer loans, and student loans versus One of the greatest financial challenges secured credit such as mortgage loans, American consumers face is gaining home equity loans, and home equity lines access to information, education, and of credit) . High-quality programs also will counseling when it is needed most . During educate consumers about the providers critical teachable moments in consumers’ of credit, including banks, credit unions, lives Americans are in need of guidance thrifts, merchants, and payday lenders . and information on personal credit . Consumers throughout the nation have Consumer credit education efforts should been able to learn about key terminology make consumers aware of their rights and parties involved in credit through a under the Fair Credit Reporting Act (FCRA) wide range of public education initiatives, which allows them to review their credit including the FCRA and the New Free reports for accuracy . If an error is found or Credit Report Rule, and public resources, if an item is incomplete, individuals should such as the new Federal publication, Your immediately contact the credit reporting Access to Free Credit Reports . In addition to agency that issued the report to have it Federal sources of guidance, providers of corrected . The law mandates that the credit credit, such as credit unions and banks, reporting agency and the organization are making consumers aware of the role that provided the information (such as a of credit and individual credit options . bank or credit card company) have the These lender programs include seminars responsibility for correcting inaccurate and public campaigns on key topics, or incomplete information on individual such as issues that affect credit scores . consumer credit reports . After a consumer inquiry, the credit reporting agency must provide written results to the individual, Fair Credit Reporting Act and the New Free
Chapter Four: Credit 33 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Credit Report Rule The law also places responsibilities on the credit reporting agencies . For instance, The FCRA promotes the accuracy, fairness, credit reporting agencies must delete and privacy of information in the files or correct inaccurate or unverifiable of credit reporting agencies . A 2003 information; may not report outdated amendment to the FCRA, the FACT Act, negative information; and must get requires each of the nationwide credit consumer consent before providing any reporting agencies to provide consumers information to potential employers . with a free copy of their credit report, upon request, once every 12 months, from www annualcreditreport. com. 10. Consumers Federal Trade Commission Publication – who order a copy of their report online Your Access to Free Credit Reports by visiting this Web site should be able to The FTC has prepared a brochure entitled access it immediately . Consumers may also Your Access to Free Credit Reports, available at complete and mail the form, the Annual MyMoney gov. as well as at the FTC’s Credit Credit Report Request Form, which is Web site, www ftc. gov/credit. . The brochure available on the Web site . If the consumer describes how to order a free annual orders the report by calling the toll-free credit report; explains why consumers 1-877-322-8228 number, the report will be would benefit from ordering their credit processed and mailed within 15 days . report; delineates other instances where A credit report consumers are contains eligible to receive information on a free report; and where a person explains what to lives, how a do if the consumer person pays his finds inaccuracies or or her bills, and errors in the report . whether the As of September 1, person has been 2005, free reports are sued, arrested, available in all states, or has filed for U S. . territories and bankruptcy . possessions, and the Nationwide credit District of Columbia . reporting agencies sell the information to creditors, insurers, Credit Union Offers Public Seminar on employers, and other businesses that Credit Scoring use it to evaluate applications for credit, insurance, employment, or renting . One regional credit union in Northeast Florida offered a free Credit Scoring Moreover, the FCRA provides additional Seminar to the public in August 2004 consumer rights with respect to credit . and another credit scoring seminar For example, under this law most in the fall of 2005 . Credit Scoring consumers have the right to be told about seminars are taught by credit union information that is used against them, representatives and are intended to to ask for a credit score, and to dispute educate attendees on how to read credit incomplete or inaccurate information . reports, improve their individual credit
34 Chapter Four: Credit TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy score, identify mistakes, and settle during a time of specific financial disputes . Credit union membership difficulty can be particularly trying . Many eligibility is extended to everyone in consumers do not know to seek out credit Northeast Florida and all members of counseling when it is needed most . the public are invited to attend the credit For American consumers experiencing union’s free credit scoring seminars . financial problems, reputable and effective credit counseling services not only provide Large Bank Provides Classes and Materials on assistance in negotiating with creditors Credit Management on behalf of the consumer, but also One center was created to support help to educate the consumer on how consumer demand for much needed to manage personal finances and avoid financial and credit education through future credit problems . Reputable credit funds provided by a major bank . This counseling services employ counselors center helps families achieve their whom they certify and train in consumer financial goals by teaching them how to credit, money and debt management, manage money and use credit wisely . A and budgeting . Moreover, non-profit core component of the center’s public credit counseling organizations have a legal obligation to provide education awareness campaign is designed to 11 educate consumers on the importance of and counseling to consumers . knowing one’s credit score . The center Effective counseling services help also conducts adult financial literacy consumers understand how to qualify workshops nationwide and maintains a for, shop for, obtain, and maintain credit . credit and financial education Web site . By counseling individuals on issues, such as establishing credit, debt-to- income ratios, credit history and score, Summary comparing terms, timely repayment, credit American consumers can become efficient management, and debt consolidation, managers of credit if they are equipped credit counselors, can empower credit with a solid understanding of and holders . Credit counseling efforts also can comfort level with the credit system, its provide specific strategies for resolutions terminology, and the institutions involved and understanding consumer protection in personal credit and credit reporting . and consumer rights . As advocates, Individuals also should be aware of their counselors can contact lenders to discuss rights under the FCRA, understand how options in time of financial stress and help to check the accuracy of their credit identify agencies to contact for consumer reports, and learn how to fix potential credit issues and specific complaints . credit report errors or other such problems But not all credit counseling organizations through the credit dispute process . provide these services . Some charge high fees, not all of which are disclosed, or urge consumers to make voluntary contributions 2. Using Reputable Credit that can cause them to fall deeper in Counseling Services debt . Many of these organizations claim Even for those who understand the that a debt management plan is the only credit process, knowing what to do option for the consumer – before those
Chapter Four: Credit 35 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy counselors spend time reviewing the Reputable Credit Counseling Services consumer’s financial situation – and many In communities throughout the nation, offer little or no consumer education American consumers turn to credit and counseling . Moreover, just because counseling services to provide the a credit counseling organization says information and guidance they need to that it is non-profit does not guarantee navigate difficult credit issues . A reputable that its services are free or affordable, credit counseling organization will or that its services are legitimate 12. negotiate on a consumer’s behalf with Unfortunately, in recent years, there has creditors and, more importantly, will offer been a growth in deceptive practices in advice on managing money and debts 15. the credit counseling marketplace . The Additionally, a credit counselor will help a FTC and some state Attorneys General client develop a budget, and will provide recently took action against several free educational materials and workshops . companies that called themselves credit Reputable credit counseling organizations counseling organizations . The FTC and employ counselors whom they certify and the state Attorneys General said that these train in the areas of consumer credit, companies deceived consumers about the debt management, and budgeting 16. cost, nature, and benefits of the services They work with consumers to analyze they offered; some companies even their entire financial situation and misrepresented their nonprofit status 13. develop a personalized plan to solve The IRS included credit counseling their money problems 1. 7 Typically, they agencies in its 2005 “Dirty Dozen” offer follow-up sessions that are designed report in order to remind taxpayers to monitor the consumer’s budget that they should be careful with those and keep the consumer on track . credit counseling agencies that push debt payment agreements, charge high Non-profit Organization Offers Credit fees, or claim to fix credit ratings 14. Counseling in Community Centers Additionally, in order to ensure that non-profit credit counseling agencies are One nonprofit organization with a complying with the law, the IRS has made presence in several major U S. . cities auditing these organizations a priority . includes credit counseling among the financial services it provides at its inner Consumers can find assistance and city community centers . Visitors to these guidance on personal credit issues by community centers can avail themselves working with reputable credit counseling of financial counseling to help attain services . Additionally, other consumers economic self-sufficiency and to help the utilize urban-based, non-profit financial communities in which they live gain a counseling agencies offering programs sustained spirit of revitalization . Through that address the specialized needs of ongoing collaborations and long-term inner city residents with credit issues; partnerships with leading government, and Federal judicial efforts that serve private sector, and community interests, Americans who have sought relief from such urban-based, non-profit centers persistent, unresolved credit problems address the specialized needs of inner city by filing for bankruptcy protection . residents with credit issues, providing self help, hands on programs that allow inner city residents to work toward financial
36 Chapter Four: Credit TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy security and achieve independence . problems that may lead to bankruptcy should know that a new bankruptcy law In these community centers, trained requires them to obtain credit counseling counselors work with credit counseling from a credit counseling agency approved program participants over a period of two by the U S. . Trustee Program (a component weeks to six months . The program operates of the Department of Justice) within 180 in the eight cities across the country days before they file for bankruptcy . where the organization has community centers . This program and others like it The new law also requires a consumer work to resolve issues that previously had bankruptcy filer to attend a personal restricted individuals from becoming financial instruction course, after filing depository customers at a bank . Counselors bankruptcy, as a condition of receiving a help mitigate discharge of debt . The prohibitive U S. . Trustee Program issues, such as will approve financial those that may instruction courses restrict individuals for this purpose, from accessing and the Bankruptcy and opening Clerk will maintain a traditional, low cost publicly available list lines of credit and of approved courses . issues that impede These provisions, homeownership . which took effect on Through the hands October 17, 2005, were on implementation adopted as part of the of results-oriented Bankruptcy Abuse specialized empowerment programs‑— Prevention and Consumer Protection Act including economic empowerment, of 2005, signed into law on April 20, 2005 . digital empowerment, and economic education‑—these community centers attempt to meet the specialized needs of Summary inner city residents who are struggling As Americans deal with increased to address unresolved credit issues . consumer debt, confusing financial The program offers one-on-one credit offerings, and programs offering quick counseling assistance to individuals, fixes to financial problems, reputable and identifies and works to eliminate credit counseling services play a unique the barriers that prevent those with and important role in helping Americans credit problems from fulfilling their full to manage credit successfully . Outreach economic potential . The goal of this credit efforts should promote reputable credit counseling program with an emphasis on counseling for consumers and help link self-help is to provide consumers with a those in need to available services . focused, assisted course of correction . Counseling should not be seen simply as an option of last resort . Consumers should Credit Counseling and Financial Education seek out credit counseling before they for Bankruptcy Filers encounter major problems during times Consumers facing serious financial of financial stress, and before a financial
Chapter Four: Credit 37 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy failing or before declaring bankruptcy . Effectively used, credit counseling can help consumers avoid future financial problems .
Calls to Action Tactics Employed: Public Awareness, Integration, and Teachable Moments 4-1 The Treasury Department will launch a multi-media campaign in the third quarter of 2006 to seek to improve credit literacy among consumers . The campaign also will invite Americans to get information about managing consumer credit at MyMoney . gov . By accessing the Web site, Americans can learn more about credit history, credit reporting, and credit scoring . 4-2 Consumers should take advantage of the credit management tools available to them such as the free annual credit reports, available at www annualcreditreport. com. and 1-877-322-8228 . Consumers should review the information in their report, understand how it is used, and know how to detect errors and possible instances of identity theft . 4-3 Consumer lenders should use their unique expertise and existing distribution channels to promote credit education among their customers and the public at large . Useful efforts might include development and distribution of credit education materials, support for reputable credit counseling or financial education efforts, referrals to credit education resources, or creation and maintenance of other financial education programs . Efforts may focus on adults or youth, but such financial education efforts should be easily distinguishable from marketing efforts from the consumer’s perspective . 4-4 Consumers should seek reputable credit counseling services early, when financial problems start, to avoid potential bankruptcy . Lenders and social service organizations should refer consumers to reputable credit counseling services at the onset of financial difficulties
Endnotes
1 Federal Reserve (n d. ). . G19 Consumer Credit . Retrieved August 2, 2005, from www Federalreserve. . gov/releases/g19/hist/cc_hist_sa html. . 2 American Bankruptcy Institute (n d. ). . Annual U.S. non-business bankruptcy filings by chapter 2000-2004. Retrieved August 2, 2005, from www abiworld. org/Template. cfm?Section=Press_Releases2&CONTE.
38 Chapter Four: Credit TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
NTID=12267&TEMPLATE=/ContentManagement/ContentDisplay cf. . 3 Elliehausen, G E. ,. Lundquist, C ,. & Staten, M E. . (2003, January) . The impact of credit counseling on subsequent borrower credit usage and payment behavior . Washington, DC: Credit Research Center, Georgetown University . 4 Ibid . 5 Ibid . 6 The Government Accountability Office . (2005, March) . Credit reporting literacy: Consumers understood the basics but could benefit from targeted educational efforts (Report GAO-05-223) . Washington, DC 7 Ibid . 8 Many private companies and lending institutions develop scoring software systems to compute credit scores . Credit reporting agencies do not generate credit scores, but rather are repositories of consumer credit histories . 9 The Government Accountability Office . (2005, March) . Credit reporting literacy: Consumers understood the basics but could benefit from targeted educational efforts (Report GAO-05-223) . Washington, DC: Author . 10 Free reports are now available in all states, U S. . territories and possessions, and the District of Columbia . 11 A credit counseling agency with 501(c)(3) status under the Internal Revenue Code is required to be organized to provide educational or charitable services, i.e ,. it is an agency’s 501(c)(3) status that requires it to provide educational services . 12 Federal Trade Commission . (2005, March) . Facts for consumers: For people on debt management plans: A must do list. Retrieved July 26, 2005, from www ftc. gov/credit/. . 13 Federal Trade Commission . (2003, November) . Fiscal fitness: Choosing a credit counselor, and Knee deep in debt . Retrieved July 26, 2005, from www ftc. gov/credit. . 14 The “Dirty Dozen” report, published by the IRS, is an annual listing of notorious tax scams . The report also reminds taxpayers to be wary of schemes that promise to eliminate taxes or otherwise sound too good to be true . See www irs. gov. for more information . 15 See also Jean Chatzky (2005, August). How to find a credit counselor that you can trust. Retrieved August 22, 2005 from www msnbc. msn. com/id/9034211l. . 16 Federal Trade Commission . (2005, March) . Facts for consumers: Credit and your consumer rights, Federal Trade Commission, and Choosing a credit counselor. Retrieved May 26, 2005, from www ftc. gov/credit. . 17 Ibid .
Chapter Four: Credit 39 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
40 Chapter Four: Credit Chapter 5 Consumer Protection
Overview Consumers’ actions move markets and According to the FTC, an estimated 11 can determine the difference between percent of American adults are scammed the success or failure of entire businesses each year . The FTC’s survey of consumer or industries . Government consumer fraud in the United States, released in protection programs confront fraud, August 2004, showed that consumers deception and privacy breaches that with high levels of debt are at increased can shake consumer confidence and risk of becoming victims of fraud 1. undermine consumer choice . Of the four most common frauds in When consumers are scammed, they the survey, three are related to credit, lose more than money . They can also including credit-repair scams . These frauds lose faith in the marketplace . The often target people with high debt loads principle of caveat emptor (“let the or poor credit . According to the Federal buyer beware”) is important for all Bureau of Investigation (FBI), senior consumers to follow . A vibrant economy citizens also are often targets of fraud 2. cannot afford to have consumers lose The FTC, state Attorneys General, and confidence in the marketplace . other Federal, state and local consumer
41 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy protection agencies pursue such frauds identity theft . Education can empower using aggressive law enforcement . consumers to recognize, avoid, and report fraudulent or deceptive practices and Of the threats that consumers face in the is essential to consumer protection . marketplace, one of the greatest is identity theft . The FTC has found that nearly 10 million people a year are victims of identify theft, which involves either misuse Issues in Consumer Protection of existing accounts or new accounts 1. Educating Consumers about Reducing falsely established in the victim’s name . their Risk of Identity Theft That translates into nearly $48 billion in losses to businesses, nearly $5 billion in One of a consumer’s most important losses to individual victims, and nearly 300 financial assets is his or her credit hours per victim spent trying to resolve history . Identity thieves seek to deprive the resulting problems . Although people a growing number of Americans of the who had new accounts opened in their good credit reputation they have tried to names made up one-third of the victims, build . Identity theft is an insidious crime; they suffered two-thirds of the harm 3. many consumers may not even realize they have been victimized . For most, Identity theft was the number one topic recognition of identity theft occurs when of consumer fraud complaints to the consumers receive a bill for a credit card FTC in 2004, accounting for 39 percent account that they never opened, find of the consumer fraud complaints debts on a credit report that they never filed that year . In fact, the FTC receives incurred, notice a billing cycle where they 15,000 to 20,000 contacts each week have not received a statement, or find from victims and consumers who want specific charges that they did not sign to learn how to protect themselves for, authorize or know anything about . from identity theft or mitigate risks 4. Government entities, such as the FTC, Employers and commercial entities that are working to ensure that Americans have databases that contain personal are better informed about identity theft . identification information recently Through public-private partnerships, have become targets of identity thieves . consumers continue to learn more This represents another potential about the tell-tale signs of identity theft, vulnerability for identity theft and another preventive steps, individual legal rights, and reason consumers need to become how to exercise these rights if an incident knowledgeable about identity theft and has occurred . National public awareness how to deal with its consequences . campaigns also are instrumental in helping Americans to continue to receive important messages about consumer protection . Challenges Public education initiatives such as those One key to reducing fraud is the delivery established by the FTC, the Treasury of messages to consumers at times when Department, the U S. . Postal Inspection they are open to learning and changing Service, and the public-private steering their behaviors, such as when they have committee that produces the National encountered financial difficulty or Consumer Protection Week are particularly have been a victim of credit fraud or useful in highlighting identity theft issues .
42 Chapter Five: Consumer Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Federal Trade Commission Indeed, numerous law enforcement agencies, consumer protection The FTC has taken the lead among organizations, and financial institutions Federal agencies in the development and have printed, distributed or repackaged the dissemination of consumer information FTC’s consumer information on identity about identity theft, both in English and in theft . A national association of retirees Spanish . To increase consumer awareness helped enhance the FTC identity theft and to help them minimize the risk of campaign by co-branding ID Theft: What It’s identity theft, the FTC published a booklet, All About . The association printed 500,000 ID Theft: What It’s All About? Another copies of the brochure in English and FTC booklet, Take Charge: Fighting Back 30,000 copies in Spanish, and distributed Against Identity Theft, is a comprehensive the material through its state offices at victim recovery guide that describes what events, forums, fairs, and “consumer steps to take, legal rights, how to handle universities ”. A major supermarket specific problems one may encounter on chain, the SSA, the FDIC, the U S. . Secret the way to clearing one’s name, and what Service, and two national credit card to watch for in the future . This guide companies are among other entities that also includes the ID Theft Affidavit, a have customized the FTC’s information form developed by consumer victims, law and distributed its materials to audiences enforcers, and credit grantors for victims under those organizations’ brands . to use when disputing unauthorized accounts with creditors . Many of the FTC’s identity theft and credit publications U.S. Department of the Treasury include information about consumers’ The Treasury Department released a credit rights under the FACT Act . public report entitled The Use of Technology The FTC also manages the Identity to Combat Identity Theft which focuses on Theft Data Clearinghouse, the Federal available biometric technologies used government’s central source of information to verify customers when they engage on identity theft and its database for identity in financial transactions . This report theft complaints . The FTC supports a also examines various non-biometric toll-free hotline (1-877-IDTHEFT), and a technologies financial institutions currently secure complaint form at www consumer. . use to deter and detect the crime of gov/idtheft . identity theft . The Treasury Department anticipates continued improvements in The FTC’s consumer and business non-biometric technologies along with education campaign on identity theft has the increasing use of biometric security included other materials, media mailings, and identity products on a case-by-case radio public service announcements, and basis, but finds that biometrics are “not a guest interviews on local and national radio silver bullet” for reducing identity theft . and television programs . The FTC’s tips for consumers on reducing their risk of In 2004, the Treasury Department, identity theft or dealing with its aftermath working with other parts of the Federal have been repeated in thousands of radio government and with the financial services and television broadcasts, newspaper sector, released a report entitled Lessons and magazine articles, and Web sites . Learned by Consumers, Financial Sector Firms,
Chapter Five: Consumer Protection 43 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy and Government Agencies During the Recent of identity theft act quickly to resolve their Rise of Phishing Attacks. This publication, situations . Panel discussions emphasize available at www treas. gov/offices/. the value of industry, government, and domestic-finance/financial-institution/ consumer collaboration to combat this cip/pdf/fbiic-fsscc-report-05-2005 pdf. , crime online and in the physical world . describes measures consumers can take In the DVD, financial sector representatives to prevent falling victim to phishing and government officials discuss what and how to respond if they receive a identity theft is, how identity thieves go phishing email or become a victim . about stealing identities, and specific steps we as individuals can take to safeguard our U.S. Postal Inspection Service sensitive information . Viewers will learn The U S. . Postal Inspection Service that common sense actions like destroying works with Federal, state, and local law documents with sensitive information enforcement partners and with other before throwing them out or checking government and industry stakeholders to their credit reports at least once a year help prevent, investigate and prosecute can help stop the thieves . Viewers will identity crimes . U S. . Postal Inspectors are also find that filing a police report can charged with investigating identity and help to expedite a victim’s recovery from financial crimes that involve the U S. . identity theft . A resource library contains mail . The Postal Inspection Service additional information, brochures, forms, has produced and disseminated a DVD and Web sites to help consumers . entitled Identity Crisis, which presents a In the first quarter of 2006, the dramatic look at a couple victimized by Treasury Department will make the identity theft, the criminals who defrauded DVD available to the public through them, and the devastating aftermath . The the MyMoney gov. Web site and the also provides tips on how individuals can 1-888-MyMoney toll-free hotline . protect themselves proactively against identity crimes and the steps they can National Consumer Protection Week take in the event they become victims . National Consumer Protection Week (NCPW) is designed to highlight consumer U.S. Department of the Treasury DVD protection and education efforts around The Treasury Department developed a the country . Every February a steering DVD to educate consumers about how committee of government agencies to deter and detect identity theft and and public and private sector groups what measures to take if they become partner to select and profile a timely victims . Identity Theft: Outsmarting the Crooks topic of consumer interest . For example, examines the costly crime of identity for the 2005 campaign, organizations theft for which consumers spent more partnered to help educate consumers than 250 million hours last year repairing and businesses about identity theft . A the damage to their credit records . In theme of the 2004 NCPW dealt with the addition to what it costs consumers, benefits of financial literacy . Each year, commercial and financial firms lose the NCPW steering committee Web site billions annually . A real life victim’s story offers a “turnkey” press kit, with resources highlights how important it is that victims including sample news releases, letters
44 Chapter Five: Consumer Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy to the editor, op-eds, radio public service and community-based organizations, announcements, posters, educational schools, and other trusted sources . materials, and promotional ideas . NCPW is organized by a coalition of 2. Guarding against Fraudulent organizations, including the FTC, the Business Opportunities Federal Citizen Information Center, the Federal Communications Commission, Some Americans can be taken in by the FDIC, the U S. . Department of Justice’s fictitious business opportunities and Office for Victims of Crime, the U S. . other money-making schemes, where Postal Service, the U S. . Postal Inspection fraudsters try to gain consumers’ financial Service, a national association targeted information and access to their financial to consumer agency resources . These schemes pose real leaders, a national dangers to Americans organization for seeking to invest in a consumers, a national business opportunity . association for retirees, The FTC uses aggressive a national organization law enforcement to put representing local fraudsters out of business businesses, a major and creative education consumer rights and tools to raise public protection agency, a awareness of fraudulent national consumer business opportunities . federation, the Fraudulent business National Association opportunities can of Attorneys have potentially General, a national long term effects on association targeted consumers . The FTC to consumer affairs is expanding its efforts leaders, the California Office of to alert consumers to recognize, avoid Privacy Protection, the Ohio Attorney and report frauds of all kinds, including General’s Office, a non-profit resource advance fee loan scams, credit card loss center with a focus on identity theft, protection plans, and credit repair scams . and a non-profit clearinghouse that addresses privacy rights issues . The FTC’s Project Biz Opp Flop illustrates the agency’s approach to raising awareness of one major consumer protection issue . Summary Education is a consumer’s first line Project Biz Opp Flop of defense against a variety of unfair, Business opportunity scams appeal to deceptive and misleading practices in the optimist in everyone, with their the marketplace . Consumers can learn exhortations to “Be your own boss!” how to avoid, identify, and report a They are of particular concern to the variety of threats by accessing educational FTC because they often prey upon materials through the media, state and consumers who are trying to build a solid local government agencies, advocacy
Chapter Five: Consumer Protection 45 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy economic future and therefore, those and if you choose to engage in fraud, they least able to afford being ripped-off . The will find you and shut you down . As a result FTC attacks these scams on two fronts: of aggressive public campaigns, such scam through coordinated law enforcement artists also are beginning to recognize that actions and consumer education . jail time may await them for their misdeeds . For example, the FTC recently launched Operation Biz Opp Flop, a Summary collaborative civil and criminal law enforcement effort to crack down on Public education efforts should business opportunity fraud, including accompany every consumer protection franchise and work-at-home scams . The law enforcement announcement . Such effort included six FTC cases aimed at outreach activities play an important role schemes that defrauded consumers out in educating consumers about frauds of approximately $100 million dollars, in the marketplace, as well as how to and more than 100 additional civil and recognize and avoid fraud, and what criminal actions brought by the U S. . to do if they have been victimized . Department of Justice, the U S. . Postal Inspection Service, and 14 states . 3. Safeguarding Senior Citizens from To reach consumers who use the Internet to Targeted Consumer Threats find business opportunities, the effort also included launching a “teaser” Web site that Many criminals choose to prey on provides valuable information on how to older Americans . Through education avoid falling victim to a business opportunity efforts and engagement campaigns scheme . The site for Sundae Station launched by organizations such as the (www wemarket4u. net/sundaestation). Attorney General’s Offices of Florida and looks like a pitch for a “can’t miss” business Kentucky, more seniors are better able opportunity for an ice cream sundae to defend themselves against consumer vending machine . The site contains fraud, including identity theft . typical claims of fast money with minimal effort . Once consumers click on any of Attorney General’s Office of Florida the links, they learn the ad is actually a Recognizing the specific fraud threats to consumer education piece posted by the senior citizens and seeking to educate FTC with guidance about recognizing and residents on how to avoid such risks, avoiding business opportunity rip-offs . the Attorney General’s Office of Florida The Sundae Station teaser site is part of established the Seniors vs. Crime Project . a larger consumer education campaign Run by volunteers, this seniors-focused that includes media outreach along with program reinforces the message of crime brochures, electronic cards, public service prevention and provides specific means for messages for the classified ad columns of Florida’s senior population to be alerted to newspapers, and short newspaper feature . consumer fraud and other such criminal The cooperation between the FTC and acts . To date, Seniors vs. Crime has trained law enforcement authorities—and the more than 2,000 volunteers throughout the resulting press coverage—sends a clear state to assist in this public education effort . message to business opportunity scammers: Seniors vs. Crime was started to offer crime law enforcement authorities are watching,
46 Chapter Five: Consumer Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy prevention seminars to Florida’s older such as telemarketing fraud, home residents while providing comprehensive improvement and repair fraud, identity training for law enforcement officers theft, and sweepstakes fraud . On average, and other criminal justice practitioners there are about four programs a month in understanding how their work is where representatives from the Attorney impacted by Florida’s aging population . General’s office and local law enforcement Since its launch, the program has officials travel to senior centers and established storefronts where seniors community facilities . To complement can visit to report potential frauds the Senior Crime College, the Attorney or seek additional information . General’s office also disseminates a crime prevention handbook for seniors . Attorney General’s Office of Kentucky The Attorney General’s Office of Summary Kentucky works in collaboration with Recognizing that senior citizens are local law enforcement officials to operate frequently targeted by perpetrators of a consumer protection prevention fraud, general consumer protection efforts program entitled Senior Crime College . The by private and public sector organizations Senior Crime College is designed to teach need to pay attention to the specific seniors how to recognize potential crimes needs of seniors . Programs, materials, and before they happen by making them outreach efforts should address seniors aware of the techniques perpetrators explicitly and make reporting accessible commonly use, and who to alert if they to those who have been victimized . identify a scam or are victimized . The program, started in 1998, has educated thousands of Kentucky’s senior citizens on various consumer protection topics
Chapter Five: Consumer Protection 47 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Calls to Action Tactics Employed: Public Awareness, Partnerships, and Quality Materials 5-1 Americans should learn more about preventing and recovering from identity theft through the use of Federal government materials . The media, private companies and non-profits can help with the Federal government’s efforts to raise awareness by directing consumers to MyMoney gov. and www consumer. gov. . 5-2 In the first quarter of 2006, the Treasury Department will make the DVD, entitled Identity Theft: Outsmarting the Crooks, available to the public through the MyMoney gov. Web site and the 1-888-MyMoney toll-free hotline .
Endnotes
1 Federal Trade Commission (August 2004) Consumer fraud in the United States: An FTC survey.[Federal Trade Commission Staff Report] . Retrieved from www ftc. gov/reports/consumerfraud/. 040805confraudrpt pdf. . 2 Federal Bureau of Investigation (n d. ). . Retrieved from: www fbi. gov/majcases/fraud/seniorsfam. . htm . 3 Ibid . 4 Ibid .
48 Chapter Five: Consumer Protection Chapter 6 Taxpayer Rights
Overview For virtually all Americans, understanding examine the tax code from top to bottom . our rights and responsibilities as taxpayers And when their recommendations are is an essential component of financial delivered, you [United States Congress] literacy . As the American economy and I will work together to give this has evolved, tax code provisions have nation a tax code that is pro-growth, proliferated in number and complexity . easy to understand, and fair to all ”. Navigating the complicated maze of code In January 2005, the President appointed has become increasingly challenging for a bipartisan Advisory Panel on Federal many . The task of simplifying the code is an Tax Reform, under the leadership of important issue, attracting attention from Senators Connie Mack and John Breaux, the highest levels of government . President to make recommendations to make George W . Bush made it part of his reform the tax code fairer for all Americans, agenda, outlining his plan within the simpler so everyone can understand 2005 State of the Union Address: “Year it, and more pro-growth, to help boost after year, Americans are burdened by our economy . The panel was also asked an archaic, incoherent Federal tax code . to draft recommendations that were I’ve appointed a bipartisan panel to
49 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy revenue neutral and that considered Challenges the importance of homeownership and charitable giving . The Panel held meetings Many taxpayers do not receive the tax all over the country; the members listened benefit for which they are eligible . To to experts, economists, lawyers, and average understand why this is the case, two taxpayers; they studied all the information primary factors must be considered . that was presented to them, and they First, taxpayers — both individuals and have made bold recommendations . The businesses — do not automatically receive recommendations were presented to benefits; they must take direct action to U S. . Treasury Secretary John W . Snow initiate or claim the benefit . This, however, on November 1, 2005, which began the raises the second point — taxpayers must dialogue that will help first be aware of those shape the future of tax benefits for which they policy . Their advice are eligible . Public is the starting point, awareness campaigns and and the Treasury educational initiatives Department is reviewing must squarely address their recommendations the issue of making and considering them taxpayers cognizant of carefully before making the benefits for which recommendations they qualify under the to the President . Federal tax code . Given the complexity of Taxpayer rights are Federal tax laws, many compromised when Americans currently taxpayers are unaware rely on third-party assistance (paid and of the full range and scope of available voluntary) to file their tax returns . In fact, programs and initiatives . Increased more than 60 percent of all Americans public awareness offers the potential to use tax preparation services and spend maximize taxpayers’ access to resources more than $140 billion annually on these that simplify the tax payment process and services . Many taxpayers focus strictly on increase utilization of programs and rights meeting their obligations — that is, paying for which taxpayers may be eligible . the amount owed to the government . However, taxpayers have rights as well as obligations, and financially educated Issues in Taxpayer Rights taxpayers are aware of both . The Federal tax code states that some people, such as 1. Helping Individuals to Identify and persons with disabilities, senior citizens, Utilize Available Programs and Services those with low- to middle-income, the Individuals qualify for tax benefits for a unemployed, and other groups, may host of reasons . Persons with disabilities be eligible for various benefits available and/or their caretakers, senior citizens, through Federal programs and through tax low- to middle-income or unemployed incentives . Such support is often critical, in individuals, and others all may be eligible some cases bringing low-income taxpayers to receive valuable benefits . Tax benefits one step closer to financial stability . are organized on both national and
50 Chapter Six: Taxpayer Rights TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy community-based levels and may take seek assistance from the IRS’s Voluntary the form of tax credits, tax preparation Income Tax Assistance (VITA) program. assistance or even direct advocacy . VITA provides aid to those who need help preparing their income tax returns by Tax Credits linking taxpayers to volunteers trained to When taxpayers fail to exercise their rights, prepare basic Federal income tax returns . billions of dollars in unclaimed benefits VITA offers free tax help to people whose are forfeited . Those who do exercise their incomes are $36,000 or less . Volunteers rights realize a significant return: that is, sponsored by various organizations receive 21 million low-income, working American training to prepare basic tax returns in taxpayers do receive approximately $38 communities across the country . VITA billion by claiming the Earned Income sites are generally located at community Tax Credit (EITC), a measure designed to and neighborhood centers, libraries, aid low-income Americans 1. Yet millions schools, shopping malls and other of taxpayers eligible for the credit do not convenient locations . In some locations, claim it, effectively forfeiting billions of participants also are able to receive free dollars each year . The EITC is just one electronic filing of completed tax returns . of many such credits available to benefit The VITA Web site is www irs. gov/. low-income, working Americans . newsroom/article/0,,id=108104,00 html. . Other taxpayers are aware that they The IRS also sponsors programs to qualify for some benefits but disregard provide taxpayer assistance for key target their eligibility for other benefits . populations, including, for example, For example, taxpayers who receive senior citizens and military personnel . Supplemental Security Income (SSI) The Tax Counseling for the Elderly (TCE) often neglect other benefits that they program provides free tax assistance are entitled to through the Federal tax to people 60 or older, while Tax-Aide code . Further, a 2004 poll found that volunteer-counselors offer tax advice 83 percent of persons with disabilities to low-to-middle income taxpayers, never claimed available tax credits and/ particularly those 60 or older during the or deductions related to work, and less filing season . The Armed Forces Tax than half of persons with disabilities Council offers tax program coordinators who own homes claimed available for members of the Army, Air Force, Navy, home mortgage interest deductions 2. Marine Corps and Coast Guard . Through military VITA sites, service personnel can receive free tax advice, tax preparation, National Volunteer Tax Preparation Programs and assistance to military members and Those who are entitled to EITC, SSI, their families worldwide . Moreover, people and other Federal benefits can maximize with disabilities can receive tax benefit their opportunities by turning to information and assistance through a volunteer tax preparers, often available collaborative national tax campaign through a range of Federal, non- and local social services agencies . profit and faith-based organizations . For instance, low-income workers can
Chapter Six: Taxpayer Rights 51 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Local Social Services Organization Offers Free increase the overall volume of community Tax Filing to Low-Income Taxpayers in Florida EITC filings . An additional goal of the initiative is to promote general financial Often, free tax preparation assistance education and to enhance workers’ exists at the local level . Such services abilities to build assets by making them deliver assistance to those who need aware of reputable financial institutions support to successfully navigate and asset development programs . current tax code provisions . For example, taxpayers in one city in Taxpayer Advocate Service Florida who seek assistance in securing the tax benefits to which they are entitled Individual and business taxpayers have have access to a program that enables them access to useful resources — even to turn to local organizations for help . confidential, free counsel — to resolve The effort seeks to empower individuals tax-related problems . The Taxpayer and communities by promoting civic Advocate Service (TAS) is available to engagement, economic fairness and provide assistance in this area . improved access to health and human Although the TAS is a part of the IRS, services . A key purpose of the campaign is it avoids conflict of interest through its to heighten awareness of and increase the statutory independence, and its case number of low-income workers in the area advocates work on behalf of taxpayers to who claim the refundable Federal EITC . ensure that problems are resolved properly . First launched in 2002, in its first year, TAS has the authority to direct the IRS the program generated an additional $62 to hold off on taking certain imminent million in revenue for area residents by collection actions until the taxpayer has an significantly boosting EITC filings . With opportunity to speak with IRS personnel the “multiplier” effect of local spending, about alternatives . To request the services the program’s inaugural year is estimated of a TAS case advocate, taxpayers must to have had an impact of a quarter of a contact TAS at their toll-free number . 3 billion dollars on the local economy . In In addition, all taxpayers have the right to one Florida city, the program assisted 9,258 secure representation to resolve Federal residents in the 2004 tax season, achieving tax disputes . Depending on income over $800,000 in saved tax preparation 4 level, Low-Income Taxpayer Clinics fees . Further, the campaign helps (LITCs) represent low-income taxpayers consumers file tax returns electronically before the IRS in Federal tax disputes and encourages unbanked taxpayers to at no cost or for a nominal charge . open bank or credit union accounts to allow direct deposit of tax refunds . TAS also administers a grant program for LITCs . Though the clinics receive partial To achieve this, the program works with funding from the IRS, both the clinics 6,000 community volunteers trained by and clinic volunteers are completely the IRS who are drawn from a broad independent of and are not affiliated spectrum of community groups, faith- with the Federal government, and instead based organizations, policy makers, are operated by nonprofit organizations businesses, and individuals . Free tax or academic institutions . LITCs also preparation services are offered to provide tax education and/or outreach consumers in need, a service that helps to
52 Chapter Six: Taxpayer Rights TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy for taxpayers who speak English as a neither checking nor saving accounts 5. second language . A list of LITC locations Such statistics demonstrate the need can be found on the IRS Web site . to better educate those with disabilities about their eligibility for particular benefits to improve their financial Summary standing . Community organizations play A number of taxpayer benefits are available a critical role in responding to the need to Americans . By taking advantage of the for increased awareness . For example, credits and services described, taxpayers a coalition of non-profit organizations, can better understand their rights Federal government agencies, lenders, and can optimize their personal and and educational institutions recently business tax filings . Increased education launched a three-year, multi-faceted allows taxpayers to avail themselves national campaign to inform individuals fully of the benefits to which they are with disabilities, their families, and entitled under the Federal tax code . their employers about favorable tax provisions, financial education and other asset-building strategies . 2. Education and Outreach to Individuals The partnership campaign empowers and Employers disabled individuals and advances self- Education and outreach are essential to directed economic security by developing help make taxpayers aware of the benefits new publications and products on access, available to them as part of the Federal accommodation, benefits training, tax tax code . While some of the programs provisions, and technical assistance . were addressed previously, this section One principal partner, a non-profit of the National Strategy centers on the organization, also established a Web site education and outreach aspects of these to serve as a central location for financial programs . Education and outreach is information and identify credible resources often appropriately tailored to respond for individuals with disabilities . In addition, to the needs of key constituencies, such the IRS has links to publications for as individuals with disabilities and those individuals with disabilities at www irs. gov. . who employ or support them . Other programs identified, for example, support Cooperative Extension Conducts Rural Outreach the specialized needs of taxpayers who Project for Georgia Tax Filers reside in rural areas; while still others profile the targeted efforts of local social The Taxpayer Education and Outreach in service agencies . Also featured are Federal Rural America Project, delivered in 12 efforts to increase awareness of and states by the Cooperative Extension, a access to tax incentives for business . nationwide, non-formal educational system, provides an annual opportunity for asset building among working poor families by National Campaign for Individuals with assisting with the correct determination Disabilities and their Caretakers and Employers of tax liabilities and credits . The program Thirty-eight percent of working-age adults promotes taxpayer education, offers with disabilities live in households with information about refundable tax credits, annual incomes of under $15,000, and 30 and makes free tax assistance available percent of disabled working adults hold to those who reside in rural areas of the
Chapter Six: Taxpayer Rights 53 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy states . In addition, the program links collaborating with organizations and offices filers to Cooperative Extension System throughout Kansas to increase knowledge financial literacy programs offered in about and access to available financial partnership with the USDA-CSREES . services products among people with disabilities . The agency designed specific For the 2003 tax season, Georgia efforts targeted toward making individuals Cooperative Extension partnered with the on SSI and Social Security Disability IRS, which provided laptop computers, Insurance (SSDI) aware software, training, of the tax benefits certification, and under the Earned technical support . Income Tax Credit that Staff provided one they were potentially day of free tax filing eligible for, but had not assistance each necessarily sought . week throughout the filing season at In 2003, the agency five locations plus prepared returns for 97 numerous “one- individuals who had no day” sites arranged filing requirement or in partnership with withholdings, with 54 local employers and percent receiving tax other partners . As a result, in total, more refunds for the first time . The refunds than 400 tax returns were filed . In 2004, represented $36,161 in new money for program assistants provided one day of local residents . Some refunds were invested free tax preparation per week in each of in personal savings while other funds 18 counties throughout the filing season, were reinvested in the local economy . along with numerous one-day remote sites at convenient locations to prepare 1,000 Department of Labor Helps Businesses Employ Federal and state tax returns . These filers Disabled Workers received a total refund of $1 4. million, which they in turn spent or saved in one Businesses, too, should understand of 18 mostly poor, rural counties . More benefits granted to them by the Federal than half (57 percent) paid between $19 tax code, for instance, those given for and $425 for tax preparation in 2003, with hiring and accommodating people with an average of $104 spent; this resulted disabilities . DOL’s Office of Disability in a combined saving of $49,572 in 2004 Employment Policy (ODEP) has developed for some 575 filers . Use of direct deposit a Tax Incentives for Business Fact Sheet . This by filers doubled, from only 24 percent document outlines the following three saying they used direct deposit last year to tax incentives which help employers nearly half (49 percent) using it this year . offset costs incurred in accommodating employees with disabilities: the Small Business Tax Credit, the Architectural/ Social Services Agency in Kansas Helps Disabled Transportation Tax Deduction, and the Claim Tax Benefits Work Opportunity Tax Credit (WOTC) 6. Social services agencies are poised to exert Under the Small Business Tax Credit, significant influence in their communities . businesses may take an annual deduction For instance, one social services agency is
54 Chapter Six: Taxpayer Rights TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy for expenses incurred to remove physical, Taxpayers can protect their Federal structural and transportation barriers in benefits from thieves and external the workplace to accommodate persons threats by taking advantage of innovative with disabilities 7. WOTC provides a tax programs such as direct deposit of checks . credit of up to $2,400 per new employee Application of successful initiatives such for employers who hire workers from as the Go Direct campaign (detailed one of eight targeted groups, including below) can help to equip consumers with qualified veterans, qualified SSI recipients, the tools they need to take advantage high risk youth, vocational rehabilitation of direct deposit opportunities . (VR8) referrals, and qualified food stamp recipients 9.
Summary Campaigns, programs and other outreach initiatives supported by partnerships among the Federal government, community based-organizations, non- profit organizations, and academic institutions can increase public awareness of helpful tax provisions . All Americans — individual taxpayers, and Go Direct Campaign Increases the Safety and especially persons with disabilities and Convenience of Receiving Federal Benefits their caregivers and employers — benefit Sponsored by the Treasury Department from increased awareness of taxpayer and a Federal Reserve Bank, Go Direct is an rights, responsibilities and assistance . initiative aimed at educating Americans on Outreach efforts help individual and the many benefits of having their payments business taxpayers realize their financial deposited electronically . The campaign potential under the tax law, even providing seeks to motivate people to receive their assistance in tax dispute resolution . Federal benefits in the safest, fastest and easiest way possible — direct deposit . 3. Reducing Taxpayer Risks and Costs by Go Direct’s public education campaign is Encouraging Direct Deposit designed to motivate more Americans to deposit their Federal benefit payments, Taxpayers who receive Federal benefits, such as Social Security and SSI, directly into such as Social Security, may be at particular their accounts with financial institutions . risk for fraud . Because many low- and moderate-income Americans receive The goal of the program is to help people Federal benefits through the mail, thieves get their Federal benefits in a way that is are focused on intercepting checks and simple, safe and secure . Direct deposit is sensitive information from recipients less burdensome for recipients because and improperly using that information . payments are deposited straight into the recipient’s personal account, eliminating
Chapter Six: Taxpayer Rights 55 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy the need to hand-carry checks to a them, without fear of fraud or theft, bank, credit union, or other depository by utilizing important financial tools institution . Since payment is sent and such as direct deposit . In addition to received electronically, the process is faster the security benefits of direct deposit, than traditional payment methods, giving the system also is highly cost effective . participants greater financial flexibility . The opportunity for criminals to steal checks in the mail is completely removed, 4. Taking Advantage of Important, New eliminating the risk of mail fraud and Benefits to Realize Financial Saving reducing the risk of identity theft . As the population continues to age, Direct deposit generates prescription drug coverage is of paramount significant cost saving to importance to current the financial system in and future retirees . Under general, approximately a new Federal program, 75 cents per payment of beginning January 1, 2006, paper checks, multiplied prescription drug coverage by millions of benefit is available to eligible payments per month . Medicare beneficiaries . With the Treasury HHS’ Prescription Drug Department issuing Coverage public awareness nearly 160 million benefit campaign is an extensive checks each year, direct outreach program that deposit has the potential will educate consumers to save taxpayers about about the benefits they $120 million annually . can receive from the new Medicare prescription drug Despite direct deposit’s plan (Medicare Part D) . attractive benefits, currently millions of Americans — many senior citizens and Medicare Prescription Drug Coverage Public disabled populations — still do not take Awareness Campaign advantage of the opportunity, choosing HHS has embarked on an ambitious instead to receive their Social Security and public awareness and education campaign other Federal benefits in the mail . Efforts to help eligible Americans understand to increase direct deposit will benefit and enroll in a Medicare prescription today’s seniors and future generations drug plan . Through this effort, HHS will in numerous ways, and, as such, the distribute handbooks to all Medicare Treasury Department remains committed recipients, make information available on to encouraging more people to take the plan through its Web site and toll- advantage of the many benefits of direct free telephone numbers, and offer free deposit through the Go Direct campaign . personalized counseling through the State Health Insurance Assistance Program and other community-based organizations . Summary Under this new benefit, Medicare American taxpayers can take full advantage recipients can receive drug coverage of the Federal benefits available to
56 Chapter Six: Taxpayer Rights TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy by enrolling in a prescription drug Employer- and union-sponsored plan that contracts with Medicare . retiree plans may qualify for Medicare support if they continue to offer To gain access to this new coverage, prescription drug coverage individuals must specifically enroll in a Medicare prescription drug plan . The initial open enrollment period for this Summary plan runs from November 15, 2005, through May 16, 2006 . Those enrolling To better encourage enrollment in the after the initial cut-off are likely to pay Medicare Prescription Drug Coverage plan, higher monthly premiums, particularly enhanced education efforts will be if they do not currently have a drug undertaken to increase public awareness plan that covers prescriptions . and understanding of the benefits . Calls to Action Tactics Employed: Public Awareness, Partnerships, Quality Materials 6-1 Community groups including social service organizations, professional organizations, and faith-based organizations should take advantage of the IRS’s Voluntary Income Tax Assistance program . 6-2 In 2006, the Treasury Department and a Federal Reserve Bank will continue the national public education campaign, Go Direct . The campaign is designed to encourage Americans who receive Federal benefit payments, particularly Social Security, to use direct deposit . On an annual basis, the program will be assessed by the agencies to determine its effectiveness and viability . 6-3 The Department of Health and Human Services will continue its public awareness campaign on the new Medicare drug benefit that encourages seniors to enroll in the program . The public awareness campaign began on November 15, 2005 and continues until May 16, 2006 . The campaign provides eligible taxpayers with easy access to information regarding enrollment .
Endnotes
1 Internal Revenue Service . (2005, March) . Internal Revenue Service Data Book 2004 (Publication 55B) . Retrieved July 27, 2005, from www irs. gov/taxstats. . 2 National Organization on Disability & Louis Harris and Associates, Inc . (2004) . N.O.D./Harris Survey of Americans with disabilities . Washington, DC. 3 The Florida Prosperity Plan . (n d. ). . Florida Communities Help Families Climb Out Of Poverty. Retrieved August 2, 2005, from www prosperitycampaign. com/floridapc. html. .
Chapter Six: Taxpayer Rights 57 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
4 City of Miami . (n d. ). . City of Miami’s tax preparation campaign most successful ever . Retrieved August 2, 2005, from http://www ci. miami. fl. us/comm/pages/Press_Release/2005_taxpreparation. asp. . 5 National Organization on Disability – Louis Harris and Associates, Inc . (2000) . N.O.D./Harris Survey of Americans with disabilities. Washington, DC . 6 Small Business Tax Credit: IRS Code Section 44, Disabled Access Credit . 7 Architectural/Transportation Tax Deduction: IRS Code Section 190, Barrier Removal . 8 Refers to an individual who has a disability that results in a substantial handicap to employment and who has been referred from a vocational rehabilitation facility . 9 Opportunity Tax Credit: IRS Code Section 51, Work Opportunity Tax Credit (WOTC) .
58 Chapter Six: Taxpayer Rights Chapter 7 Investor Protection
Overview Effective investor education can help all decisions,”1 it is clear that more investor Americans become better positioned to education will benefit most Americans . achieve personal financial security and Beyond helping investors understand reach saving and investing goals such as financial concepts, increased investor homeownership and college education education can yield significant economic for their children . Over the long term, and social benefits . When consumers effective participation in our financial have the opportunity and ability to invest, markets is critical to reaching these goals, they infuse the markets with vital capital as well as to achieving overall retirement that help businesses and economies grow security . A working knowledge of basic stronger . In turn, these investments in the investing concepts will substantially economy ensure that new and creative improve an investor’s financial future technologies have a chance to develop even if the investor participates in and flourish . Saving and investing can also the markets only through a defined help individuals and families build wealth contribution retirement plan . Given and become more stable and secure . that a recent survey showed that only By actively promoting and supporting 40 percent of investors said they “know financial education at all levels — from most of what they need to make good 59 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy the basics to the most complex concepts These challenges can be overcome — regulators, securities professionals, by educating investors so that they and others can play a key role in assuring are better able to make appropriate that all investors get the facts they need financial choices, understand and to invest wisely and avoid costly mistakes . evaluate financial products, and protect themselves against fraud . An important component of investor education is helping investors understand the salient characteristics of investment products . Fees and costs are significant Issues in Investor Protection attributes for any investment, and 1. Equipping Consumers with Unbiased, particularly for those held over time . Neutral Investment Information While regulators do make available free resources to help Americans understand To have the best chance for achieving characteristics of various investments, personal financial goals, it is important including information on costs and for investors to have access to unbiased fees, both public and private sectors investor education materials . These can do more in this important area . materials should help investors understand the questions they should While investing offers significant potential ask about investments and their rewards, it is not without risk, including the investment professionals, where to possibility of fraud . Unfortunately, financial seek additional information, and scam artists prey on the willingness of where to turn for help and advice . some Americans to allow emotion to cloud their judgment . Americans lose millions Organizations such as the SEC, the of dollars each year to crooks who engage CFTC, and state securities regulators in affinity fraud and other financial are devoted to investor protection are crimes, lying about themselves and the particularly useful sources of this kind of products they sell 2. Increasingly in our neutral, unbiased investor information, global economy, these predators may be some of which may also be developed located off-shore and may not be subject to through funding from court settlements . U S. . laws . Educated investors are the best State securities regulators and trade defense against investment fraud, because associations for industry professionals knowledgeable consumers are equipped have created several financial education to ask questions and steer clear of scams . campaigns that deliver sought-after information through Web sites and other programs . Finally, some organizations have Challenges partnered to develop and disseminate tailored messages on investing for African Americans can benefit financially by American and Hispanic communities . increasing their understanding of diversification, compound interest, Securities and Exchange Commission Provides and how to evaluate financial products . Investor Education Resources An enormous amount of high-quality education material is available for free, The SEC produces a wide variety of primarily through the Internet . Yet helpful publications, calculators, and many of these excellent materials are other materials aimed at helping investors underutilized and not widely disseminated . make informed investment decisions .
60 Chapter Seven: Investor Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Publications include Get the Facts on Saving The SEC helps investors contact these and Investing, Invest Wisely: An Introduction programs to find the assistance they need . to Mutual Funds, and Variable Annuities: What You Should Know . The SEC does not Commodity Futures Trading Commission copyright any of its investor education Provides Online Primer materials and makes them freely available to all . The SEC’s Web site (www sec. . The CFTC provides consumers with a gov) also gives investors interactive wealth of background information and tools to help evaluate their investment tools to educate new commodity investors . decisions, linking to more than half a The CFTC resources provide investors dozen interactive tools from other Federal with ongoing and real-time tools that agencies, self-regulatory organizations, help detect potential fraudulent activity . and non-profit educational organizations . Through the CFTC Web site (www CFTC. . gov), the page entitled Through the Internet, “Before You Trade” the SEC allows investors introduces investors to the to easily check out their basics of futures trading investment professionals, and the paramount need in a page entitled “Check to perform background Out Your Broker or research on the company Adviser ”. This page shows or individual with whom investors how to access they choose to invest, as free public databases well as links that provide containing disciplinary direct access to publications and other information about trading . The Web about brokers and site also provides access to investment advisers . online resources for broker It recommends that registration and background investors call their state information . CFTC securities regulator for consumer advisories are more information, and issued to protect investors provides a link to a list of against possible fraud and relevant phone numbers . lists valuable precautions Most brokerage account investors should take agreements require before committing funds . investors to settle any disputes with their broker through arbitration rather than North American Securities Administrators the courts . The SEC educates investors Association on how to file an arbitration claim and how to find a lawyer specializing in State securities regulating organizations arbitration claims . Law schools in several serve as the voice of state and provincial states provide some investors with legal security regulators and focus efforts on representation through arbitration or investor protection . These organizations mediation clinics . These clinics may be are a source of consumer information able to help investors who have smaller on avoiding investment fraud . Investor claims and who are unable to hire a lawyer . education resources available on their Web
Chapter Seven: Investor Protection 61 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy sites include links to the securities regulator finance matters to communicate its in each state . Additionally, to encourage message effectively . This effort is a result investors to take down the specifics of of an innovative partnership between any conversation they have with their private sector groups and the Florida investment broker, a free investor checklist Department of Financial Services . identifies the fundamental questions an Throughout Oklahoma, investor education investor should ask before investing . This is being integrated with existing financial resource also provides tips to consumers, curricula, trainings, workshops, and media such as hanging up on any unsolicited opportunities, thanks to Winning through telephone offers to buy securities . Investment Strategies and Education (WISE) . WISE was created Investor Education to customize Funds from Court and expand the Settlements Financial Literacy In 2003 and 2004, 2010 teaching settlements of guide for use Federal court in Oklahoma . litigation matters (Financial Literacy by securities 2010 is a joint regulators resulted project to promote in court approval financial literacy, of $85 million, sponsored by state to be paid over securities agencies five years toward and other entities ). investor education . Established by Of this total, $30 million has been the Oklahoma Department of Securities specifically designated to state securities and a university outreach program, WISE regulators for investor education successfully uses television and radio purposes and $55 million for Federal programs, free workshops for newly efforts . The settlements involved conflicts married couples, a teachers institute, an of interest between the research and intergenerational stock camp, and free investment banking operations of the workshops for pre-retirement groups to nation’s top investment firms, with eight equip Oklahomans with the investment firms contributing the $85 million . knowledge they need to succeed .
State Securities Regulators Conduct Outreach Investment Education Programs Targeted toward and Education Programs African Americans and Hispanics Securities regulators in various states Four organizations joined together to have also developed investor education create a program to strengthen investor campaigns . For instance, securities awareness specifically in the African regulators in Florida developed a American and Hispanic communities . comprehensive public education initiative Mutual fund industry professionals that uses public outreach, a media deliver free education and information campaign, and a Web site on personal about personal investing at workshops
62 Chapter Seven: Investor Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy and conferences across the country, of investor education . Investors should at Historically Black Colleges and fully understand the types of costs, fees, Universities, and in interactive Web and expenses that may be charged against courses in English and Spanish . their accounts and the impact of those amounts over time . Even small amounts can result in to a significant total on Trade Association Sponsors Web Site for Investors an investment held for many years . Industry trade associations can help provide information to investors . For The SEC has a Mutual Fund Cost instance, one trade association foundation Calculator on its Web site, while the The sponsors a Web site National Association of Securities Dealers with information on (NASD) has a Mutual investing and saving Fund and an Exchange for retirement . The Traded Fund Expense Web site provides Analyzer . These easy- free information on to-navigate sites allow homeownership, investors to compare how markets work, fees, expenses, and diversification, other costs of owning and principles of these products, asset allocation . and information is available free of charge . Additionally, DOL has Summary information on fees for those participating in retirement plans . Effective education can help investors achieve long-term financial well- being . Through effective investor SEC’s Mutual Fund Cost Calculator education, Americans can learn to The SEC created its Mutual Fund Cost understand their own personal risk Calculator to enable investors to easily tolerance, investment objectives, and compare fund costs and assess their impact . time horizon to maximize investment Available free of charge at www sec. gov. , opportunities . Many financial services this Internet-based tool takes the math entities and community organizations and mystery out of questions like: “Am I focus on helping to educate investors . better off buying a no-load fund with yearly State and Federal regulators provide expenses of 1 75. percent or a fund with excellent resources for all consumers . a front-end sales charge of 3 5. percent and yearly expenses of 0 9. percent?”
2. Encouraging Greater Understanding of The cost calculator estimates mutual fund Investment Characteristics, ownership costs by including sales charges Particularly Fees (loads), annual operating expenses paid by investors, and “foregone earnings” Understanding how to research and (money that could have been earned effectively compare characteristics of had those fees been invested instead) . various investments is a critical component
Chapter Seven: Investor Protection 63 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
National Association of Securities Dealers In addition, a uniform fee disclosure form developed to help employers The NASD offers investors online compare the fees of prospective information through its Mutual Fund and providers for their plans is available on an Exchange Traded Fund (ETF) expense the DOL’s Web site at www dol. gov. . analyzers . The analyzers are free tools to help compare how sales loads, fees, commissions, and other fund expenses Summary can reduce returns on mutual funds and ETFs . The analyzers allow consumers to Investors should review and understand calculate the expenses of up to three funds the costs, fees and expenses associated or classes of a single with various investment products . Investors fund at the same time . need to understand the The organization impact these fees and makes its mutual fund expenses may have on expense analyzer the potential growth available without of their investment charge to securities vehicle . This can be firms for use on their achieved through Intranets as a tool for public education brokers and on their and widespread public Web sites for dissemination of use by their customers . effective information .
U.S. Department of Labor Offers Resources to 3. Protecting Investors from Fraud Explain 401(k)s through Increased Education Efforts Those participating in 401(k) retirement Knowledge is one of the best defenses plans can also look to the DOL for valuable against investment fraud . Securities information concerning fees . The DOL regulators caution investors to investigate has developed materials to help both before they invest . Fraudsters rely on employers who sponsor 401(k) plans and people not researching investments before employees who participate in 401(k) plans they invest . In fact, if it sounds too good to understand investment fees and be true, it probably is . Many free resources expenses . These materials are available make it easy to investigate companies, at www dol. gov/ebsa/publications. . The products, securities professionals, and materials help consumers understand promoters before making an investment . that some fees in 401(k) plans are paid by the employer, but others are typically Effectively researching and evaluating paid by the participant in the form of investment choices is key to helping net total return for their plan account . Americans avoid fraud . The SEC helps The DOL provides various compliance Americans understand what investment assistance materials and information fraud looks like, and how to avoid it . The relating to free seminars conducted by the CFTC warns would-be investors about DOL addressing fiduciary responsibilities potential commodities and futures fraud . regarding plan investments and fees .
64 Chapter Seven: Investor Protection TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
SEC Uses Interactive Tool to Teach Investors The SEC also publishes brochures, in about Fraud print and on its Web site, on how to avoid investment fraud . Additionally, The SEC launched a series of Internet- SEC staff conducts investor protection based initiatives to reach out to would-be seminars and workshops for investor investors when they are most vulnerable . groups around the country . By using fake scam Web sites, the SEC shows consumers how easy it can be for scam artists to gain email addresses, phone Commodity Futures Trading Commission numbers, mailing addresses, and even Provides Fraud Avoidance Tips bank account numbers, wire transfer The CFTC publishes information instructions, and credit card information designed to help consumers avoid from potential investors . The SEC commodities fraud at www cftc. gov/opa/. individually answers all inquiries coming opaconsumeradv0404 htm. . Investors are in from these sites, and in many cases warned to be wary of any firm that offers must invest significant time to convince to sell commodities or commodity futures consumers that these investment offers or options, particularly where the sales are too good to be true and fictitious . pitch stresses high returns and low risks . The SEC first began this approach when it The CFTC also warns consumers about launched www McWhortle. com. , a site that firms that claim to have made profits purported to be “an established and well- for all of their customers, advising that known manufacturer” with a revolutionary “get-rich-quick schemes, including those product it planned to produce with the involving foreign currency trading, tend money raised through an initial public to be frauds ”. The CFTC Web site also offering . In reality, the company did not allows investors to electronically report exist (it was made up by the SEC), and any suspicious activities or transactions . any consumer who tried to “invest now” was greeted with an educational message warning of the danger of such scams . Summary Within weeks of its launch, the Web site Through education, Americans can received more than 1 5. million hits and become aware of different types the McWhortle Webmaster (actually SEC of fraudulent investment schemes, staff) received more than 500 e-mails, while becoming more savvy and nearly all of which were overwhelmingly knowledgeable consumers of positive about the fake opportunity . The investment products in general . SEC has worked with teachers to include McWhortle in teaching modules and curricula, using it as a tool for separating the good from the bad on the Internet .
Chapter Seven: Investor Protection 65 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Calls to Action Tactics Employed: Quality Materials, Public Awareness 7-1 Investors should take advantage of the wealth of high quality, neutral, and unbiased information offered free of charge . 7-2 During the meeting hosted by the Treasury Department and the Department of Labor (see 3-1), the topics of discussion will include an educational emphasis on investment fees . Attendess will discuss how to present information on fees in a clear and understandable manner .
Endnotes
1 Securities Industry Association . (November 2004) . Annual SIA investor survey . New York, NY: Securities Industry Association Publications . 2 Federal Trade Commission . (August 2004) . Consumer fraud in the United States: An FTC survey . Washington, DC: Bureaus of Economics and Consumer Protection Federal Trade Commission .
66 Chapter Seven: Investor Protection Chapter 8 The Unbanked
Overview Though the opportunities to participate in The term “unbanked” is widely used to the United States’ banking system continue describe individuals who do not have to grow, the benefits of such participation a transaction account with any type of are yet unrealized: More than 10 million traditional financial institution, not just a individuals in the United States still do bank . The term also includes people who not maintain traditional bank transaction, do not have accounts at credit unions, credit, saving, or investment accounts 1. In thrifts, or other traditional depository fact, according to the FRB’s 2001 Survey institutions . This National Strategy adopts of Consumer Finances, nearly 10 percent the common, broader usage of the term of U S. . families do not have transaction “unbanked” which refers to individuals accounts and more than 12 percent lack without an established relationship with a checking accounts 2. Many more Americans depository institution . These individuals may have transaction accounts but do can also be described as operating not take advantage of available options outside of the financial mainstream 3. that are offered to them, and instead use alternative financial service providers .
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According to a 2003 survey of 46 banks, high minimum balances, which preclude more than 98 percent of the banks low-income consumers from effectively surveyed provided some type of financial using them . While these challenges can be education program; however, many of these overcome through industry-driven financial programs pertain to people who already products and services, it is essential to use financial services . For example, 96 establish and expand public-private and percent of banks provided homeownership private-private partnerships committed to and mortgage counseling; 93 percent financial education activities specifically offered affordable mortgage programs; tailored to the unbanked . These activities and 91 percent offered credit counseling . might include ongoing national and In contrast, only 57 percent of banks local public awareness campaigns that surveyed offered education programs prioritize educating those outside the that specifically target the unbanked 4. financial mainstream on the availability and benefits of financial services . Challenges Issues for the Unbanked Individuals who have not established a relationship with a depository institution 1. Using Banking Industry-Driven turn away from traditional financial Products and Services to Increase services for a number of reasons, including Understanding and Utilization cultural differences (see Chapter 9 for Cultural differences may initially impede more information), language barriers, those outside the financial mainstream a lack of trust in financial institutions, from turning to traditional financial insufficient knowledge of products and services . In addition to some distrust of services available, or insufficient assessment banks among the unbanked, many banking of their own financial needs . These products are not well-designed to meet the individuals also tend not to use traditional needs of low-income immigrants — the depository institutions (e g. ,. banks, largest group likely to be among those credit unions, thrifts, etc ). . Many factors individuals considered to be unbanked . contribute to people’s reluctance: whether They turn instead to alternative financial a result of lack of money, an absence of services, such as wire transfer companies convenient locations, or the (mistaken) and currency exchanges, to send money view that writing just a few checks a month to relatives because they may not view U S. . does not warrant the need for a bank banks as providers of similar services . In account, various barriers to participation 2004 alone, immigrants in the U S. . sent in the traditional financial system must be approximately $35 billion to countries considered when constructing meaningful in Latin America and the Caribbean financial education efforts . One such — representing the biggest share of barrier is the ready availability of alternative immigrants in the U S. 5. Further, monthly services, such as check cashing services . fees and minimum balances may inhibit or Moreover, some depository institutions otherwise preclude low-income individuals, may not offer products that are suitable particularly immigrants, from opening for many of the unbanked . For example, checking accounts, in addition to mortgage checking account products may require products with down payment requirements .
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As the products and services made available the extension of affordable financial through the U S. . banking (traditional services to individuals and communities depository) system increase, opportunities across the nation . NCUA partners with exist to help individuals outside of the Federal agencies to develop opportunities financial mainstream learn about and to assist credit unions with the resources understand what is available to them needed to serve underserved areas . Since through local institutions . For example, 2000, through the NCUA’s streamlined remittance programs to send money to regulatory framework, more than native countries, branch offices with special 700 credit unions have adopted over services, “starter” checking accounts, fixed 1,200 underserved areas, providing value contribution accounts, deposit- access to credit union service to more secured loans, than 100 million secured credit cards Americans . Access for those with no Across America has credit history, and forged partnership employer payroll opportunities for debit/ATM cards credit unions to may, depending make the ownership on how these plans society a reality are structured, for millions of serve as good Americans who might introductory services otherwise be left for this group 6. A out . The initiative combination of focuses on key areas traditional and nontraditional depository such as homeownership, Health Savings institution services (e g. ,. money orders, Accounts, small business lending, financial domestic and international wire transfers education and serving the underserved . and sale of pre-paid phone cards) may also be included by the financial system as it First Home Club Savings Program develops and distributes the products that may help meet the needs of the unbanked . For those unaccustomed to saving through traditional depository institutions, the Community-based efforts such as Access concept represents an easy-to-implement, Across America, First Home Club Savings understandable account program designed Program, and locally based saving to move individuals toward acquiring accounts that offer matching funds basic financial services . To introduce enable individuals without an established people to available services, banks that relationship with a depository institution participate in a First Home Club Savings to turn to U S. . financial institutions for Account Program provide low- and moderate- specific products and programs of value . income individuals the tools and support to help them achieve homeownership . Credit Unions Reaching Out to the Unbanked Club members maintain a dedicated through Access Across America saving account designated for the down payment and closing costs on a first home . Access Across America, an initiative of Club members must participate in both the NCUA, was established to create group and individual education sessions . economic empowerment and facilitate
Chapter Eight: The Unbanked 69 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Finally, when participants complete the This reluctance to access financial services program, the Club matches their savings is exacerbated by language barriers that at a three-to-one ratio up to $5,000 . prevent depository institutions and other organizations from properly educating consumers on available programs and Saving Accounts with Matching Funds services . Other unbanked individuals may Saving for a down payment on a home be wary of financial institutions due to can be overwhelming for anyone, but distant location, past negative experiences, particularly for those individuals who are concern that saving will affect their ability unfamiliar with traditional depository to receive government benefits, or other institution saving plans . To encourage and factors . By working with individuals in a support such saving among residents of collegial environment, local partnerships a city in New York, the local banks along can help people acquire the financial with the city housing authority encourage skills necessary to reach objectives such as citizens to save by offering saving with securing a job, buying a house or saving matching funds; in this way, individuals toward a personal goal . This is evident in can begin saving funds toward a down the success of efforts such as Money Smart payment on a house . Participants set a and the HHS’ Assets for Independence. saving goal and make regular deposits over a pre-determined period of time . When the individual goal is met, the Money Smart Financial Education Program housing authority, an affordable housing To expand the reach of financial services organization, matches the deposited funds . to the growing ranks of those groups As an added incentive, the saving account considered to be unbanked, the FDIC is is free of traditional service charges . collaborating with public- and private- sector organizations to promote Money Smart and the range of financial education Summary resources and services it provides . Money The financial industry can open new Smart is a comprehensive adult financial doors for individuals and strengthen education curriculum designed to help local communities by developing low- and moderate-income individuals innovative financial products and services outside of the financial mainstream that meet the needs of individuals develop financial skills and positive without a relationship with a depository banking relationships . Linked with other institution at the pre-banking, entry asset building programs, the FDIC is and advanced banking service levels . able to provide an easily understood, multilanguage, multimedia program . Money Smart is available free of charge 2. Encouraging Collaboration and Use and without copyright restrictions in of Existing Relationships to Increase English, Spanish, Chinese, Korean and Familiarity with Financial System Vietnamese (www fdic. gov/consumers/. consumer/moneysmart) . FDIC has Some immigrants harbor a distrust of the linked many banks to community groups U S. . financial system, perhaps as a result through Money Smart, establishing of instability of the financial systems in nearly 1,200 public-private partnerships their home countries or for other reasons .
70 Chapter Eight: The Unbanked TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy nationwide that have increased the using the Money Smart curriculum to reach of its financial education efforts . train educators from local nonprofit organizations who will teach between At the Federal level, FDIC has partnered 1,000 and 2,000 students each year 8. with the IRS to link Voluntary Income Tax Assistance (VITA) sites to Money Smart At the regional level, FDIC’s Kansas City Model Sites, where financial education Region has worked with 270 partners and is taught on a regular community development basis and generates collaborators in the active participants . region to facilitate 18,000 These partnerships work low-income individuals’ together to increase attendance at Money Smart awareness among low- classes . As a result, 9,500 income consumers about low-income households, eligibility for tax credits including immigrants, such as the Earned have opened deposit Income Tax Credit accounts and saved $2 25. (EITC) . VITA sites also million over a two-year offer free tax help to period . These figures eligible wage earners include 724 Individual and help consumers Development Accounts obtain applicable tax (IDAs) that make two-to- credits . In 2004, FDIC one matching funds to Money Smart Model Site families’ deposit accounts . partners helped 3,435 The funds may only be families file EITC claims used by participants totaling more than $5 1. for certain purposes, million (an average such as buying a home of $1,485 per family) 7. for the first time, going to college or vocational/technical school or opening Also on the Federal level, FDIC has a small business . All IDA participants partnered with DOL’s Employment and in some locations attend Money Smart Training Administration through their classes as a requirement to access funds 9. one-stop career centers to offer Money Smart as part of their programs that Overall, Money Smart has helped target populations likely to be outside the more than over 300,000 consumers, financial mainstream, such as welfare- resulting in the formation of 80,000 to-work participants, individuals with no new depository account relationships . access to mainstream financial service providers, public housing residents, Americans Enter the Financial Mainstream immigrants and low-income homebuyers . through U.S. Department of Health and Human At the community level, Money Smart has Services Program brought together FDIC and a national The Office of Community Services, nonprofit housing organization to help Administration for Children and revitalize communities across the United Families, HHS, administers the Assets for States through financial education Independence Program, which currently efforts . This organization has been
Chapter Eight: The Unbanked 71 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy provides grants to support more than 300 higher education . IDA customers receive IDA10 projects throughout the nation . financial education, and credit and debt Each project features strong partnership counseling, along with other supportive arrangements between a community- services to ensure their long-term success . based entity or a state or local government For many participants, the IDA is their agency and a private-sector bank or first saving or checking account . credit union . Several national banking organizations are supporting the IDA concept through their local affiliates . Summary IDAs are special restricted bank or Financial literacy information and credit union accounts that enable low- resources can be delivered directly income individuals and families to save to those without a relationship to a earned income and receive matching financial institution, the unbanked, funds of up to $2,000 per individual . through collaborative community Participants use their accumulated saving partnerships . Both public-private plus the IDA matching funds to acquire and private-private partnerships can a long-term asset, such as a first home or play valuable roles in this effort . micro-business or to enroll for or obtain Call to Action Tactics Employed: Quality Materials, Partnerships 8-1 Between the second quarter of 2006 and the third quarter of 2007, the U S. . Department of the Treasury, along with the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency, will host a series of four regional conferences to share best practices on banking of the unbanked . The conferences will bring together community-based organizations, financial service providers, and Federal, state, and local regulators to broker partnerships and discuss the latest developments and strategies in bringing people into the financial mainstream .
Endnotes
1 Braunstein, S . & Welch, C . (2002, November) . Financial literacy: An overview of practice, research, and policy (Federal Reserve Bulletin) . Washington, DC: Federal Reserve Board . 2 Ibid . 3 Transaction accounts form a comprehensive category comprising checking, saving and money market deposit accounts, as well as money market mutual funds and call accounts at brokerage firms . Instead of using the term “unbanked,” some financial institutions may refer to these individuals as consumers in the sub-prime market or as the “underserved ”. For more information, see Samuels, G . (2003, Fall) . Banking unbanked immigrants through remittances . Boston, MA: Federal Reserve Bank of Boston .
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4 Consumer Bankers Association . (2003, April) . CBA 2003 survey of bank-sponsored financial literacy programs . Retrieved April 2003 from www cbanet. org. . 5 Terry, D F. . (in press) . Remittances as a development tool . In D F. . Terry & S R. . Wilson (Eds ),. Beyond small change: Making migrant remittances count. Washington, D C:. Inter-American Development Bank . 6 Frumkin, S . (2005, September) . Remittances: A gateway to banking for unbanked immigrants . Office of the Comptroller of the Currency, Community Developments Insights . Retrieved May 26, 2005, from www occ. treas. gov/cdd/Remittances1. pdf. . 7 Federal Deposit Insurance Corporation (FDIC) . (2005, January) . FDIC and IRS partner in promoting access and financial education to workers eligible for earned income tax credits.(Press Release) . Retrieved July 27, 2005, from www fdic. gov/consumers/consumer/moneysmart/press/2005/mspr105. html. . 8 Federal Deposit Insurance Corporation (FDIC) . (2002, April) . FDIC and Neighborhood Reinvestment Corporation announce program to promote financial education and homeownership (Press Release) Retrieved from www fdic. gov/news/news/press/2002/pr4202. html. . 9 Riddle, Julie . (personal communications) (n d. ). . Retrieved July 27, 2005, from www . thefamilyconservancy org/life/fab. htm. Connell, Kelly Moema . (personal communications) (n d. ). . Retrieved July 27, 2005, from www elcentroinc. com/english/special_initiatives/programs_soon. . html . 10 For more information on IDAs, see Office of the Comptroller of the Currency, Community Developments Insights . (2005, February) . Individual Development Accounts: An Asset Building Product for Lower-Income Consumers. Howard, S . and Frumkin, S . Retrieved from: www occ. treas. gov/ftp/. release/2005-25a pdf. or www acf. hhs. gov/assetbuilding/about. html. .
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74 Chapter Eight: The Unbanked Chapter 9 Multilingual and Multicultural Populations
Overview Throughout the nation, minority markets Such projected increases in buying power serve as an important area of growth for of minority populations are expected to the American economy . The financial result in a combined minority buying services community looks to minority power of $3 trillion by 2009 2. However, markets as areas for demonstrable growth, despite minority populations’ significant particularly with their projected buying contribution to the national economy, the power . Projections from 2004 to 2009 immigrants among them are less likely to indicate: an Asian buying power gain participate in mainstream financial services of 45 percent; a Hispanic buying power than are native-born populations 3. Among gain of 45 percent; an American Indian Mexican immigrants, 53 percent do not buying power gain of 38 percent; an hold transaction accounts, while 37 percent African American buying power gain of 33 of other Latin Americans are without percent; and a multi-racial buying power accounts . Similarly, 20 percent of Asians gain of 30 percent . By comparison, the and 17 percent of European immigrants buying power of Caucasian Americans do not hold transaction accounts . is projected to rise by only 27 percent in the same five-year time period 1.
75 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
While the homeownership rate among understanding and utilization of financial minority households is higher than it has services, and encourage homeownership . ever been, minority populations still are not purchasing homes at rates similar to other groups . In the past 10 years Issues for Multilingual and (1995 through the first quarter of 2005), Multicultural Populations the Caucasian homeownership rate has increased from 71 percent to 76 percent, 1. Promoting Participation in the the African-American homeownership Financial Services Process through rate has increased from 43 percent to 49 Increased Understanding of the System percent, and the Hispanic homeownership Because financial issues and education vary rate has increased from 42 percent across cultures, acquiring an understanding to 50 percent 4. Similarly, from 1994 of these differences is critical to through 2004, the Indian/Aleut/Eskimo increasing the role of minority markets homeownership rate increased from 52 in areas such as transaction accounts and percent to 56 percent and the Asian or homeownership . For some, there is a lack Pacific Islander homeownership rate rose of trust of banks and government agencies . from 51 percent to 60 percent 5. While part Others have varying attitudes toward of the disparity in homeownership rates spending and saving, and may use intra- across minority and Caucasian populations cultural financial mechanisms such as peer can be explained in part by limited access lending and investing groups within their to financial services and products for communities . Still others must adhere to those sectors of the population who reside religious restrictions, such as the Islamic in remote communities, fundamental prohibition on the payment of interest . cultural differences may bear a far greater impact and must be recognized . To Moving beyond these differences connect effectively, financial education also requires overcoming language programs to multilingual and multicultural and cultural barriers when delivering populations must also be accommodated . financial education and financial services . Through careful research and innovative programs, sectors can better Challenges understand the needs of minority/ethnic communities while promoting greater As minority markets become a larger consumer knowledge of financial services and more powerful segment of the U S. . and consumer protection rights . economy, it is important that minority populations take full advantage of the To gain an improved understanding of financial services and opportunities financial service offerings, many consumers available to them . Whether it is because look to groups with which they are familiar they are not participating in financial and trust . Through partnerships with key markets, doubt the possibility of organizations and institutions — including homeownership, or face other hurdles, employers, consulates, religious leaders/ minority populations face specific houses of worship, community groups, challenges with regard to accessing community colleges, and schools — public needed financial services . Despite these education efforts can develop strategies to challenges, steps can be taken to improve work effectively with minority markets .
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Successful educational strategies should necessary financial education and support be consistent with cultural priorities and services to improve their access to the norms, and offer a range of activities, formal banking system . For example, including inter-generational classes, youth- in FDIC’s Chicago Region, the NATF’s focused education, and family-based Financial Education Working Group educates learning . By gaining trust in mainstream Hispanics on the benefits and importance financial service providers, consumers, for of establishing a financial account, the instance, can learn the differences between credit process, and mainstream banking banks, credit unions, and other financial as an alternative to the “fringe” banking service providers and understand how to system . Ten thousand Hispanics have shop for financial products and services . participated in financial education classes and workshops . Programs such Fifteen NATF as the FDIC’s banks in the New Alliance Task Midwest are now Force (NATF), offering products DOL’s Las Mujeres with remittance y el Dinero, a services that allow credit education Hispanics to open and financial bank accounts, counseling agency avoid high-cost wire targeted to serve services, and incur immigrants, lower remittance and a Texas costs for sending credit union money back home 7. targeted to serve During 2003 and 2004, 50,000 new government employees, demonstrate accounts totaling $100 million (with an how building strategic partnerships can average account balance of $2,000) were empower communities in need to deliver opened at NATF banks in the Midwest 8. successfully a wide range of linguistically and culturally responsive financial services and education programs . U.S. Department of Labor’s Las Mujeres y el Dinero Brings Financial Education to Hispanic Women FDIC’s New Alliance Task Force Helps Hispanics Access Financial Services Between October 2003 and October 2004 the Women’s Bureau of DOL sponsored To equip the Hispanic population with Las Mujeres y el Dinero (Women and specific, understandable information on Money), a series of financial education the benefits and importance of holding conferences that targeted Hispanic financial accounts, the credit process, and women . The conferences, held in each of mainstream banking, the FDIC’s NATF DOL’s 10 regions, included motivational brings together public and private sector speakers and educational workshops . organizations to help increase the number The conferences reached over 4,000 of Hispanics in the financial system . 6 Hispanic women in Texas; Florida; FDIC’s NATF is a broad based coalition of Pennsylvania; Washington; Connecticut; banks, community based organizations, Missouri; Ohio; Colorado; and New York . and others, providing Hispanics with the
Chapter Nine: Multilingual and Multicultural Populations 77 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Minnesota Counseling Agency Assists Muslims providing the service . For the credit union, with Financial Issues the remittance service has helped build relationships and attracted underserved Through education and communication immigrants into the formal financial sector . with local bankers and financial institutions, one credit education and financial counseling agency identifies Summary resources able to assist Muslims in reaching their goals of purchasing homes, buying By working with leaders in multilingual cars and owning businesses without and multicultural communities and violating their religious beliefs . Based in building partnerships across public- Minnesota, the agency has served more private and private-private organizations, than 10,000 immigrants and refugees from neighborhoods can ensure that cultural the African community, helping them issues are properly addressed . Local leaders navigate the American financial system . are particularly adept at identifying cultural Since 2000, the agency has provided a norms, legal and government issues, range of financial information and product education on a needs, effective delivery variety of issues, channels, and essential including budgeting, languages needed for banking, credit successfully delivering management, financial education homebuying, to minority markets . investing, and tax Through a commitment filing . The agency to increasing participation also provides in mainstream financial education financial services, to women through community leaders a center established to serve the economic are making an investment in the development needs and to build the residents of their community . financial acumen of immigrant women .
2. Changing Perceptions about the Texas Credit Union Promotes Low-Cost Accessibility of Homeownership Remittance Service Homeownership is an important part A Texas-based credit union targeted to of financial security for all communities government employees located on the and markets . But for some, the process of United States-Mexico border serves a buying and keeping a home is daunting . largely Hispanic membership . The credit To better encourage homeownership in union joined a major remittance network minority communities, education efforts in October 2000 to offer members of the should address language barriers and local community a safe alternative to more cultural influences, as well as possible expensive wire transfer services . Remittance misinformation . Through counseling, transactions are conducted in dedicated access to interpreters, homebuying and space within the credit union branch by homeownership classes, and education bilingual employees who specialize in programs offered in a variety of languages
78 Chapter Nine: Multilingual and Multicultural Populations TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy and at various cultural-specific venues, efforts for minority populations while homeownership can become a reality supporting high-quality counseling . for those in minority markets . To help overcome the language barriers Summary that may keep potential homeowners from fulfilling their dreams, initiatives To increase homeownership in such as a Midwestern homeownership minority markets, local communities resource center have successfully provided must work together to create and homeownership information and guidance distribute home-buying materials in the languages needed by local residents . and services in native languages .
Homeownership Center Employs Multilingual 3. Improving Access to Financial Services Resources to Promote Homeownership in Minnesota Minority markets also face a number of obstacles to financial services, including Through native language classes and physical proximity . In some communities, materials, more and more minority sector such as Native American reservations and consumers in two cities in Minnesota are ethnically concentrated neighborhoods, learning how to make homeownership there may not be an abundance of a reality . The center provides dedicated financial institutions . These communities interpreting services to consumers in seek specific strategies 9 need . To assist to help them better English language secure the financial learners, housing services resources, while providers are gaining the products, able to tap the underwriting, and center’s cadre delivery mechanisms of interpreters, that are culturally all trained in compatible . homeownership essentials In minority markets, and financial successful financial terminology . behaviors are more The center offers likely to occur when homebuyer citizens gain an education increased knowledge classes for area and understanding residents in of financial issues, Spanish, Cambodian, Russian, and and are provided the physical access to Hmong . Additionally, the center works those services that are most beneficial . in partnership with a wide range of By working through the public school private and public sector organizations system, English language providers, and the two cities of Minnesota where, citizenship education centers, recreation together, they are working to improve organizations, and tax preparation sites, and standardize financial education public and private sector organizations
Chapter Nine: Multilingual and Multicultural Populations 79 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy can increase access to financial services Coalition Creates and Implements Customized for underserved communities . Efforts Program to Build Financial Skills in Native such as the President’s Financial Literacy American Families Initiative and a Native American financial reated by a coalition of community literacy program have demonstrated what groups and foundations, one is possible through improved access . Cprogram provides Native American families with specific lessons to develop President Bush’s Financial Literacy Initiative personal financial skills while embracing Understanding the need for greater native traditions and values . Through a financial literacy in America that specifically designed curriculum, Native incorporates a specialized focus on Americans receive the information, increasing Hispanic ownership of financial guidance, and assistance they need to assets, on May 4, 2005, President George help improve their financial standing . W . Bush called upon agencies to serve As part of this effort, community on the first national public-private members are offered a range of program partnership with the Hispanic community . modules, including Building a Healthy The Commission, led by the Treasury Economy, Developing a Spending Plan, Department, the FDIC, and the SBA, Working with Checking and Saving Accounts, will work with Hispanic groups, business Understanding Credit and Your Credit associations, and the private sector to reach Reports, and How to Access Credit. Educators populations that traditionally have lacked also are provided an instructor’s guide financial education resources . The FDIC and participant workbooks to help conducted a major advertising campaign Native American families strengthen for promoting the use of the Money Smart their personal financial skills . curriculum and offering local classes through FDIC’s regional network and Summary Hispanic groups . The SBA will continue to create Web-based instruction on its Spanish For geographically remote and site www sba. gov/espanol/. . The Treasury underserved areas of the country, Department will work with the Commission consumers need increased physical to maintain the availability of Spanish access to the banks and other financial language materials on MyMoney gov. and services necessary for proper financial the 1-888-MyMoney hotline . planning, saving, and investment .
80 Chapter Nine: Multilingual and Multicultural Populations TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Call to Action Tactics Employed: Public Awareness, Targeting 9-1 Between the fourth quarter of 2006 and the fourth quarter of 2007, the Treasury Department will host a series of roundtables on financial education topics of special concern to specific communities . The goal of each roundtable will be to raise awareness of the important financial education topics within the specific community highlighted .
Endnotes
1 Selig Center for Economic Growth, University of Georgia . (2004, Third Quarter) . The multicultural economy 2004: America’s minority buying power . (Georgia Business and Economic Conditions, 63)(3) . Retrieved July 27, 2005, from www selig. uga. edu/forecast/GBEC/GBEC043Q. pdf. 2 Ibid . 3 Berry, Michael B . (Ed ). . (2004, October) . Financial access for immigrant’s conference: Learning from diverse perspectives (Special issue) . [Electronic version] . Profitwise News and Views. Retrieved July 27, 2005, from www chicagofed. org/community_development/files/10_2004_pnv_session. pdf.
4 U .S . Census Bureau, (2005, April 25) . Census Bureau Reports on Residential Vacancies and Homeownership. Retrieved August 2, 2005, from www .census .gov/hhes/www/housing/hvs/ qtr105/q105prss .pdf 5 U S. . Census Bureau, www census. gov/hhes/www/housing/hvs/annual04/ann04t20. html. 6 Frias, M . (2004, Winter) . Linking international remittance flows to financial services: Tapping the Latino immigrant market . Supervisory Insights, 22-23 . Retrieved from: www fdic. gov/regulations/. examinations/supervisory/insights/siwin04/latino_mkt html. 7 Orozco, Manuel . (2004) . The Remittance Marketplace: Prices, Policy and Financial Institutions (Pew Hispanic Center Report) . Washington, DC: Georgetown University . Institute for the Study of Internal Migration . 8 Frias, M . (2004,Winter) . 9 Neighborhood Reinvestment Corporation, The NeighborWorks America® Network, and the NeighborWorks America® Campaign for Homeownership 2002 . (2001) Winning Strategies: Best Practices in the Work of Homeownership Promotion . Washington, DC: Neighborhood Reinvestment Corporation .
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82 Chapter Nine: Multilingual and Multicultural Populations Chapter 10 Kindergarten - Postsecondary Financial Education
Overview “Like all learning, financial education is concepts such as annual percentage rates, a process that should begin at an early inflation, and interest 2. According to age and continue throughout life . This a survey on personal financial literacy cumulative process builds the skills administered in 2004, high school necessary for making critical financial seniors answered just more than 50 decisions that affect one’s ability to attain percent of the financial literacy questions the assets, such as education, property, correctly 3. While this demonstrated an and savings, that improve economic increased aptitude on the issues for the well-being ”. 1 While few would dispute first time since 1997, 66 percent of high former Federal Reserve Chairman school seniors still failed the exam 4. Alan Greenspan’s statement, the truth The survey results indicate that those is that for many of America’s youth, students who successfully answered survey financial literacy is still not a reality . questions had something in common . Each year, young Americans spend Those seniors who attended money roughly $150 billion, yet they do not have management courses in high school a strong understanding of basic financial fared better than those who did not . In
83 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy schools that literacy among required financial youth, particularly literacy classes during their formal for all students, education years . 55 percent of Some of these the financial challenges include literacy questions finding room for were answered financial education correctly 5. The in the school day, percentage of the lack of teacher correct survey preparedness on responses on the issue, and a financial literacy lack of awareness of topics dipped effective materials to 51 percent in schools that required and curricula . While the K-12 financial education only for some environment is key to addressing the high school students, and 53 percent need for more financial education, where money management was taught non-school venues and college-level to students as an elective course 6. programs also offer promising options . The survey results also indicate that the majority of participants (58 percent) learn most of their money management Issues in K–Postsecondary skills at home 7. By comparison, 20 Financial Education percent said they learned such skills at school and 18 percent said they 1. Finding Room for Financial Education learned from personal experience 8. in K-12 Curricula through Integration While many educators now understand Struggles with financial literacy are not the importance of teaching students basic limited to high school students . According money skills, often tightly regimented to the Department of Education’s National course schedules do not allow for the Center for Education Statistics, more development of a separate, new course students who dropped out of college cited to meet this newly recognized priority . financial reasons, rather than academic Typically, established core curricula ones, for their decision 9. While there consume most of the school day, leaving are many financial reasons that might educators with little time to help their contribute to a student dropping out students become financially literate . of school, one of the factors may be the college students’ inability to plan and It may appear that subjects like math, manage their finances in ways that enable science, social studies, economics, history, them to meet the expenses of college . family and consumer science, and english all compete with financial education for precious space in a school’s curricula, and Challenges that adding financial education would necessitate dropping some other discipline . Data gathered by various organizations But just the opposite is true — integration demonstrate real challenges in financial of financial education into established
84 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy curricula permits schools and educators to meet their obligations to teach required courses while simultaneously exposing students to valuable financial literacy lessons . For example, second graders learning basic addition can use coins not only to understand the value of money, but also to begin practicing their arithmetic . Middle school students studying percentages in math class can be taught about the compounding of interest designing their own models for bringing rates . High school freshmen studying the financial knowledge to their students . Great Depression in history class can learn about the rise of the modern banking system and the Social Security system . High Nonprofit Organization Uses Volunteer school seniors in a family and consumer Executives and Specialized Materials to Integrate science course can learn about how credit Free Enterprise Topics in the Classroom works while receiving instruction on how Through the use of volunteers and to shop for major purchases like cars and rigorously tested materials, an international homes . Not only does this save precious nonprofit organization committed to class time, but the integration of financial providing every child with a fundamental education into “real world” contexts also understanding of the free enterprise carries the potential to attract students’ system, also supports teachers’ efforts to interest and facilitate their learning . integrate financial education into a wide In schools across the United States, variety of courses . These courses include students benefit from the integration economics, business, career development, of financial education into core consumer/home economics/family & subjects . Nonprofit organizations and consumer sciences, American history, the Federal government have played geography, government, mathematics, a role in developing materials and and world history . Coordinating closely curriculum, such as Money Math: Lessons with the classroom teacher, trained for Life . Moreover, other organizations volunteers offer a real-world perspective on have developed classroom newspapers financially literate behavior for students . that enable educators to use the news Positioned as in-class or after-school role and trends of the business world to models, the volunteers usually come from convey meaningful lessons to students . the business sector and work to support Educators and policymakers can also teachers and reinforce teaching concepts use the guidance contained in the through frequent, coordinated classroom Treasury Department’s White Paper on visits over the course of an academic Financial Education Integration when semester . Volunteers deliver programming
Chapter Ten: K–Postsecondary Financial Education 85 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy that helps students understand the to teach practical financial or math skills “economics of life ”. The organization’s to students in grades seven through program kits include classroom nine . For example, learning to calculate materials, supplies, and corresponding compound interest and understanding student, volunteer, and teacher guides . its mathematical significance, allows Sponsored by local businesses and students to appreciate the cumulative community groups, these programs benefits of regular saving . The curriculum are offered at no charge to schools . is available free of charge in electronic and hard copy formats at www publicdebt. . The organization works to teach students treas gov/mar/marmoneymath. htm. . to understand and appreciate the free enterprise system . Financial literacy elements are interwoven throughout all Major Financial Publication Brings Business the courses, in grades K-12 . Local offices of and Economic Lessons into High Schools the organization coordinate programming through Classroom Edition Newspaper and to match each community’s needs, Customized Curriculum reaching approximately 4 million students Some teachers integrate financial in 145 markets in the United States . education into their classrooms through the use of a student version of a business Treasury Department and Midwestern University oriented newspaper. This classroom Collaborate to Develop Money-Based Math newspaper has been in publication for 14 Curriculum years and is delivered each month to more than 5,000 secondary schools and to an In 2001, the U S. . Department of the estimated audience of 750,000 students . Treasury, working with a university in the Midwest, developed In addition to the Money Math: Lessons monthly student for Life, a curriculum newspaper, the that uses real-world classroom newspaper personal financial service includes scenarios to teach a teacher’s guide mathematical concepts that contains and basic finance to worksheets and students in grades seven lesson plans to help through nine . The teachers integrate lessons emphasize the the contents of the application of math in newspaper into their savings, taxes, balancing curricula . There are budgets and home additional lessons improvement projects . The kit contains and teaching resources available on their reproducible activity sheets for students Web site . The program also includes a and incorporates the use of spreadsheets . single copy of the daily newspaper which Developed to adhere to national math allows teachers to reinforce economic standards allow for easy integration, the principles in the classroom newspaper curriculum is appropriate for any class such with day-to-day developments from the as family and consumer science or social business world . The monthly student studies, or after school programs designed newspaper which features specially
86 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy selected articles from the daily newspaper The report, entitled Integrating Financial has included topics such as Who Deserves Education into School Curricula, identified Healthcare? and House of Cards: The Risks five access points for bringing financial and Rewards of America’s Credit Culture . The education into schools . The access points stories are intended to use the news and are state standards for education, testing, trends of the business world to convey textbooks, financial education materials, meaningful lessons that students can and teacher training . The White Paper practice everyday — in school, at home, can serve as a practical roadmap for policy and in their communities . The classroom makers, educators, and others interested newspaper is delivered each month with in accomplishing the goal of integrating the support of subscribers, sponsors, and financial education into core math and partners in the public and private sectors . reading curricula . It also includes a list of Web-based clearinghouses and other organizations that compile lists of financial resources that target school-age audiences .
Summary The starting point for giving people a basic understanding of personal finance is youth financial education, and the best starting place to reach large numbers of young people with financial education is in schools . Teaching financial education in schools starts the process of preparing children to become competent consumers and managers of household wealth . While some schools may opt for a stand- The Treasury Department White Paper — alone class, the inability to provide such Integrating Financial Education into School a class should not prevent a school or Curricula an educator from exposing students to In October of 2002, the Treasury financial topics . Integrating financial Department released a White Paper education concepts as part of other on integration of financial education subjects, such as math, social studies or into school curricula, as a result of a family and consumer science, offers a panel discussion hosted by the Treasury creative method of arming students with Department and the Department of lifelong financial skills . Such integration Education 10. The White Paper is available not only enhances the teaching of subjects at www treasury. gov/financialeducation. . such as reading and math, but also makes The panel consisted of key national financial education less susceptible to youth education groups, and focused on elimination due to local school budget the benefits of incorporating financial cuts or changes in course offerings . education into math and reading curricula within a standards-based educational system .
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2. Providing Teachers with Training and Wisconsin Program Instructs Teachers on Support to Effectively Teach Financial Financial Literacy Topics Education Topics A program in the state of Wisconsin Many teachers are not trained to teach provides teachers with the training and financial topics . Financial literacy is not education necessary to become effective something they were taught in college or financial literacy instructors . The program learned through professional development, provides the materials, curricula, and and therefore, they may not feel resources to enhance the self-sufficiency comfortable or confident in their abilities and financial literacy of educators and to teach it to students . Some teachers may the thousands of K-12 students they teach . also question their In partnership with a state own personal level coalition for financial literacy, of financial literacy, this program offers a series making it difficult of week-long teacher-training for them to instruct courses to educators . These authoritatively on the classes—held during the subject . The result summer on a college campus is that a teacher may in Wisconsin—provide fully recognize his or instruction and resources her students’ need for on issues such as personal financial education, finance, economics, savings but simply may not be and investing, insurance, trained to meet it . credit, and entrepreneurship . By raising the level of The curriculum is delivered educators’ knowledge by a blend of business and and confidence in academic professionals and teaching financial has created a motivational literacy subjects in a and professional experience range of academic that equips educators with settings (including content, materials, and skills public schools, private schools, and to teach and promote financial literacy community-based courses), schools in their classrooms and communities . can boost the availability of financial education to students . Through teacher Personal Finance Training Provided to West training programs, effective materials Virginia Educators and resources, and appropriate curricula, the financial literacy of educators, and In 2001, a personal finance training the students they teach, can improve . program began in West Virginia . The program helps teachers master financial Through innovative programs in both literacy topics by offering free courses Wisconsin and West Virginia, teachers to state educators and up to three and community educators are improving hours of graduate, undergraduate or their knowledge of financial literacy professional development credit . Topics issues and becoming more confident include credit and credit counseling, financial education instructors . identity theft, investor education, and
88 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy a variety of other issues . The training organizations have established program was initiated by a state coalition clearinghouses of free or low-cost materials for financial literacy, and represents that can be used by educators and parents a coalition of state agencies, private to teach financial concepts . State and local businesses and educational organizations governments, businesses and nonprofit with an interest in personal finance . can all benefit from such materials they seek to implement financial education programs in their communities . Summary To better equip educators with available Teachers should seek out and take resources, schools can partner with advantage of financial education training organizations that develop, sponsor, in their state or region . Schools can also and deliver financial education partner with local banks, credit unions, programs . Public-private and private- or other financial institutions to provide private partnerships can be successful financial literacy training to teachers . in bringing financial education into the classrooms and equipping schools with the expertise and resources 3. Providing Teachers with Effective needed to teach valuable concepts . Financial Literacy Materials, Curricula, and Resources Educators and families can access the financial education information and Even given resources available the time and in the marketplace willingness to through efforts incorporate from a national financial education coalition for into the school financial literacy environment, and through many teachers a special lack the resources clearinghouse and knowledge for financial necessary to education . develop and successfully teach a financial education program to their National Coalition Maintains a Database of students . Similarly, many parents may not Financial Education Materials feel adequately equipped to successfully A coalition for financial literacy seeks to instruct their children on financial issues . help educators and parents, including Many teachers and parents are unaware parents of home schooled children, locate of the wealth of financial education personal financial education materials . information and materials already available to them for little or no cost . To accomplish this, the coalition established a database of personal finance An abundance of financial education resources available from a variety of curricula exists to meet the needs education providers, such as government, of virtually all U S. . students . Several business and non-profit organizations .
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This database is located on the coalition’s development and implementation Web site, and many of the materials are of financial education curricula . low cost or free of charge . Teachers can use these personal finance teaching materials to support their state’s standards 4. Increasing Financial Literacy by in economics, business, math and family Reaching Youth in Non-Traditional and consumer science . To ensure that Educational Venues disseminated materials adhere to high Teaching financial literacy is not a task to standards, the coalition uses a review be addressed solely in schools . Non-profit checklist as a guide in the selection of organizations, private firms, youth clubs, materials to be included in the database . and other youth organizations should be active and involved in providing resources Foundation Provides Clearinghouse for and education to students throughout the Financial Education Materials nation . To complement what is happening in the classroom, involved organizations Educators throughout the nation, can reach out to including parents youth through non- of home schooled traditional methods children, can turn and venues, offering to a Web-based tailored information clearinghouse for that speaks directly financial education to young people . to provide materials and curricula on Through community a range of issues . education The clearinghouse efforts such as has materials for those available all ages, but has a through after- particularly deep school programs, offering for young summer camps, people, especially those in high school . personal finance clubs, correctional The materials provided through the facilities, and youth service organizations, clearinghouse are sorted into subject students are able to gain financial areas on a variety of financial topics . literacy skills through a non-school based Organizations can access teacher environment . For example, students guides and classroom materials who have dropped out of high school on financial education through are learning financial skills through an the clearinghouse Web site . alternative high school in Arizona .
Summary National Organization for Girls Teaches Financial Skills Teachers and parents can draw A national organization for girls that on the wealth of free and low-cost teaches leadership, character and a variety materials available from the many of practical skills has also been teaching organizations committed to the
90 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy its members about financial literacy . The low-income homes entering the sixth, organization has developed a curriculum seventh or eighth grades . It is focused kit to help members ages nine to 11 on combating a variety of problems, increase their financial skills. The projects including a lack of financial education . and activities included in the curriculum Students who have demonstrated academic offer opportunities for volunteers to achievement and advancement over the help girls learn, and put into action key previous school year are chosen from each concepts and skills related to personal county to participate in the program . money management . The camp activities The program also focus on preparing makes effective middle school use of corporate students for the day partnerships to they begin their help educate their careers through members . Working classes in such topics with various private as entrepreneurship, companies, the citizenship program leaders responsibilities, and developed Web sites conflict resolution, specifically designed as well as business for young girls . and banking . The Through these sites students learn the girls learn about financial issues that how to balance a checkbook, prepare a they will face throughout different stages budget, make a profit in business, assess of their lives . These sites are tailored for the value of money, and to manage and appeal to this particular demographic; money wisely . Campers also participate for example, one site provides a video in traditional camp activities such as game where girls can pick a character horseback riding, swimming and hiking . and make its financial decisions in hopes of reaching established goals . National Network of After School Youth Centers The site also provides links to financial Adopts Financial Education Curriculum aid and scholarship opportunities . An after-school youth organization with The program also uses awards and community centers across the country badges to encourage financial literacy . has identified financial education as a These awards are received after members priority for the young people it serves . complete various tasks such as coming This private-private partnership between up with marketing campaigns to sell a large discount brokerage house and products or after completing certain a boys and girls club is committed to exercises on the financial Web sites . reaching young people and increasing their financial skills . Through their North Carolina Summer Camp Provides joint program, 4 million young people Financial Training as Essential Life Skill have access to additional financial education through a national network In North Carolina, a summer camp of 3,700 neighborhood-based facilities . teaches life skills to boys and girls from
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The organization primarily serves or GED participate in a program that disadvantaged youth . In one major city in provides instruction in the areas of Colorado, for instance, 70 percent of the financial management, independent youth come from such households . The living, and employment retention . young people who are part of the financial Participants in the facility’s Transition literacy program receive personal financial Services Program participants scored in education lessons, and gain new insight on the top 8 percent nationwide among issues like budgeting, saving, and investing . correctional programs studied under the Teens from age 13 to 18 learn practical Corrections Program Assessment Inventory ways to save, spend and invest the money (CPAI) . CPAI is based on best practices they earn .These lessons are taught by and is the recommended assessment employees of this brokerage house who tool by the U S. . Department of Justice’s are given the time to volunteer and share National Institute of Corrections . their financial expertise with teenage club members and their families . Youth Service Organization To date, more than 450 clubs have adopted the program, with approximately A youth service organization offered by 36,000 teens expected to complete the the Cooperative Extension System in program over the next two years . The partnership with USDA-CSREES, plays club was able to initiate such a broad an important role in educating youth effort quickly because it partnered with about money . The organization reaches a national brokerage firm that provided 7 million young Americans annually, and the financial education curriculum . has three national curricula to help young people understand the basics of earning and managing money so they can develop Minnesota Correctional Facility Recognizes sound financial habits at an early age . 11 Importance of Financial Skills in Rehabilitating Offenders In one of the programs, the youth service organization works with students to set One of Minnesota’s state correctional financial goals, understand credit, and facilities is designed to provide treatment, learn about financial planning . Another education and transition services for program helps youth become informed serious and chronic male juvenile and responsible consumers in today’s offenders . The average age of residents dynamic marketplace . A third program is just under 18 . The facility’s leadership is an entrepreneurship effort focused on considers deficiencies in financial the knowledge, skills, and mindsets youth management and related skills as risk need to meet the pending challenges of factors for the youthful offenders being work and community in the 21st century . admitted to their facility . In response, the facility provides residents with the opportunity to learn financial and related Alternative High School in Arizona Stresses skills in an effort to reduce the rate of Financial Knowledge for Students recidivism . The program’s goal is to Recent high school dropouts are equip residents to become successful learning about financial skills through members of society . Residents who a collaborative effort . Established have earned a high school diploma through a partnership between the local
92 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy school district and two foundations, 5. Increasing the Financial Skills of this alternative public high school Postsecondary Students is designed to help those students According to the Department of (ages 17-21) who have dropped out Education’s National Center for of high school and who wish to earn Education Statistics, among 9,000 a full diploma instead of a GED . students surveyed from 800 postsecondary The students receive financial education institutions, approximately 3,300 training, obtain work experience, did not successfully complete the and participate in community service program in which they were enrolled 12. activities . They also learn through Nationally, 14 percent of students career development activities such as job who left college without completing a shadowing, guest speakers, and workplace degree cited financial reasons, while and college tours . The school offers its only 2 percent cited academic ones . computer-based instruction through For these students who are facing financial flexible, student-determined hours, while difficulties, both in college and following, providing financial literacy student skills can be a counseling useful tool in through a navigating personal Career Resource economic issues Coordinator . and succeeding The financial in one’s goals . education These skills can be curriculum gained through and instruction financial education is provided efforts offered by the local through colleges, credit union . universities, lenders, and non-profit Summary organizations . Through nonprofit organizations, private The higher education institutions firms, youth clubs, and other youth described below are providing financial organizations, students can receive much- literacy opportunities to students . needed financial literacy instruction . Designed to complement any financial Florida Community College Teaches Personal instruction occurring in the schools, Finance Topics community-based education can reach out Under the guidance of faculty members to youth through non-traditional methods . from the School of Business and English Others wishing to give students financial as a Second Language Department, skills outside of the classroom can follow instructors from the college’s five campuses the example of the referenced programs have incorporated the financial education and make use of non-traditional venues curriculum into their learning objectives . to reach youth on this important topic .
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Through a partnership with a large such as worksheets to reinforce the financial institution, the FDICMoney Smart concepts presented during each module . curriculum is being delivered to students . Interested students can also enroll in a Sessions are facilitated by students from certificate program in Family Financial business classes or by students in campus Counseling and Planning (FFCP) through business organizations with a banking the university’s Department of Human representative on hand to address specific Development and Family Studies . FFCP bank product and service related questions . certificate holders can then use their The classes are open to the public, financial literacy skills to find careers in but primarily are marketed to the personal financial counseling or planning college’s students . The college trained on behalf of community organizations 380 participants in 2004 and over that serve families and children . 1,000 students during the Spring 2005 semester . In 2005-2006, the college plans to expand the program and Summary add a computer-based instruction The years immediately following high option to reach even more students school offer significant financial milestones and community members . for many . Successfully managing tuition and student loan needs, a first credit University in Rhode Island Provides Incoming card, or a first apartment lease requires Students with Money Management Tools strong financial skills and access to the right information . To better equip At one Rhode Island university, incoming postsecondary students with the money freshmen enroll in an online credit skills they need, colleges, universities, education course as part of freshman lenders, and non-profit organizations can orientation . The program serves as a play a crucial role in making financial tutorial, providing an introduction to education available to young people . money management and credit use . This five-section program uses tailored materials
94 Chapter Ten: K–Postsecondary Financial Education TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Calls to Action Tactics Employed: Partnerships, Integration/Teachable Moments, Quality Materials 10-1 In 2006, the Treasury Department will partner with the U S. .Department of Education to host a summit focused on integration of financial education into the core school curriculum . The group also will survey promising practices in financial education and in teacher-training in an effort to assist others who are starting or enhancing programs . This public meeting will bring together policymakers, educators, and other leaders in the fields of general education and financial literacy . Findings from this summit will be made available to educators and policymakers throughout the nation . 10-2 Teachers, parents, and youth organizations should make greater use of the wealth of free and low-cost materials available on a variety of financial education topics through national clearing houses . 10-3 Postsecondary institutions should consider ways to raise the financial literacy levels of their students to help them avoid financial hardship due to mismanagement of credit and money .
Endnotes
1 Greenspan, Alan (2005, April 8) . The Federal Reserve System’s fourth annual community affairs research conference, Washington, DC: The Federal Reserve Board . 2 The National Council on Economic Education . (2005, March) . The standards in economics survey: What American teens & adults know about economics . New York, NY . 3 Jump$tart Coalition® for Personal Financial Literacy . (2004) . 2004 personal financial survey of high school seniors. Washington, D C. . 4 Ibid . 5 Ibid . 6 Ibid . 7 Ibid . 8 Ibid . 9 National Center for Education Statistics . (2002, November) . Short-term enrollment in postsecondary education: Student background and institutional differences in reasons for early departure, 1996–98 (NCES 2003–153) . Washington, DC: U S. . Department of Education, Office of Educational Research and Improvement . Retrieved August 4, 2005, from: nces ed. gov/pubs2003/2003153. pdf. . 10 U S. . Department of the Treasury, Office of Financial Education . (October 2002) . Integrating financial education into school curricula: Giving America’s youth the educational foundation for making effective financial decisions throughout their lives by teaching financial concepts as part of math and reading curricula in elementary, middle, and high schools (White Paper) . Washington, DC .
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11 Data from U S. . Department of Agriculture, Cooperative State Research, Education, and Extension Service . 12 U S. . Department of Education, National Center for Education Statistics . (2001) Beginning postsecondary students longitudinal study. Washington, D C. .
96 Chapter Ten: K–Postsecondary Financial Education Chapter 11 Academic Research and Program Evaluation
Overview Research has shown that many Americans 1990s, and almost 75 percent surveyed lack knowledge of the basic personal began in the late 1990s or early 2000 3. economics they need to make informed Since many financial literacy programs financial judgments and manage are relatively new, a common, systematic their money effectively 1. Across all approach to developing and delivering demographic and age groups, Americans financial education is still lacking . As lack sufficient knowledge of personal schools, employers, community-based finance issues . Research has affirmed organizations, and Federal, state, and this conclusion, and it is on this basis local, governments all work to help that greater attention is now being paid Americans achieve financial literacy, more to promoting and expanding financial research and program evaluation needs literacy efforts . Since the mid-1990s, many to be conducted so that organizations organizations have initiated financial are able to validate or improve their literacy programs in response to this efforts and measure the impact of their issue 2. In fact, a recent study of financial work on financial literacy levels . literacy programs found that 65 percent of surveyed programs began in the
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Successful programs use testing, surveys, Development at Washington University or other objective evaluation measures in St . Louis . Other areas of academic to prove their worth by demonstrating research include financial education in a positive impact on participants’ the workplace and in school curricula . attitudes, knowledge, or behavior, with formal program evaluation determining Credit Research Center at Georgetown University quality, effectiveness, or value . As individual financial education programs Research conducted by the Credit are deemed successful, these will help Research Center at Georgetown University establish specific program goals and compared the usage of credit cards by performance measures to track the three different groups — those opened progress and success of other programs, by young adults through college student serving as models for future efforts . marketing programs; those opened through conventional marketing channels by young adults (aged 18-24); and those Challenges opened through conventional channels by older adults 4. They found that student- To properly evaluate financial literacy marketed accounts had smaller balances, programs and move successful models lower credit limits, and lower utilization into increased practice throughout the rates than accounts opened by other United States, financial education leaders groups . They also found that while student- can turn to both academic research and marketed accounts were more likely to be programs to help identify best practices . delinquent and have a higher likelihood of charge-off, both the delinquency and charge-off rates of the student-marketed Issues in Academic Research accounts and conventional accounts of and Program Evaluation young adults converged within 24 months . The findings are consistent with credit 1. Encouraging Academic Research card issuers’ statements that they establish Research on the effectiveness of student accounts with relatively low financial literacy programs has been credit limits, expecting that the large conducted in a variety of areas, including majority of new, young cardholders credit, homeownership, savings, and will learn how to manage a credit card, retirement savings . Additionally, some establish strong credit histories, and studies have focused on the setting in become longer-term credit customers . which financial education has been provided, such as in the workplace or Pension Research Council as part of high school curricula . Research at the Wharton School of the Samples of academic research conducted University of Pennsylvania examined in the area of financial literacy and a series of issues related to financial education include studies by the Credit education using an annual survey of Research Center at Georgetown University, households conducted by a financial the Pension Research Council at the management and advisory company 5. This Wharton School of the University of research found that households fail to fully Pennsylvania, and the Center for Social
98 Chapter Eleven: Academic Research and Program Evaluation TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy appreciate their financial vulnerabilities of Individual Development Accounts and do not posses adequate decision- (IDA) 6. The key difference between IDAs making skills when it comes to financial and other subsidized savings programs matters . In light of this evidence, the is that IDAs require financial education, research examines financial education and thus the population of participants programs offered through the workplace is particularly of interest in the financial and focuses on the effects of these literacy arena . These studies from the programs on household behaviors . Center for Social Development, the first quantitative look at the effects of financial education on savings in IDAs, found that 12 hours of general financial education increases savings, although the effects may diminish or reverse as hours increase . Although the implications from these studies may only be drawn for participants in the American Dream Policy Demonstrations, the findings suggest that financial education has significant effects on savings behaviors, and that the courses do not need to be long to realize these positive effects . Moreover, the findings suggest that targeted, culturally-relevant marketing messages help convince people to attend financial education classes and to consider these classes to be worthwhile .
Financial Education in the Workplace The study found that financial education A number of studies have examined in the workplace increases both the financial education in the workplace . participation in private pension plans Research conducted at Iowa State and the level of contributions to those University examined the link between plans . Thus, the study concludes that financial education in the workplace any improvements to financial education and workplace satisfaction 7. Using data programs in the workplace would from a national sample of employees go a long way toward encouraging of an insurance company, the study greater retirement savings . found that employees who participate in workplace financial education more fully understand personal finances and Center for Social Development at Washington recognize how financial literacy impacts University in St. Louis their financial futures . Moreover, the study Studies from the Center for Social found that employees gain confidence in Development at Washington University financial matters and their future financial in St . Louis have examined data from situation through workplace education, participants in the American Dream Policy and are more likely to be satisfied with Demonstration, a national demonstration and supportive of their company .
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In addition, research conducted by Financial Education in School Curricula the College of Management at North Studies of financial education have also Carolina State University examined focused on its effects on students when whether financial education programs financial education is taught through effectively alter retirement savings goals school curricula 10. For instance, research and choices, such as contribution rates, from the National Bureau of Economic income needs in retirement, and selection Research examined the long-term effects of retirement options in the pension of high school curriculum mandates on plan 8. Using data from three surveys adult decisions regarding savings . Using a of participants in a financial education survey of American households, the study seminar, they found that participation in found that state mandates that require the seminar increased contributions to high school students to receive instruction pension plans and that many participants on topics related to household financial re-evaluated their expected retirement age decisions (such as budgeting, credit and retirement income goals . However, management, savings, and investments) the study also found that there was a significantly increased asset accumulation substantial disconnect between the stated once the students reached adulthood . intention to change saving behavior and These effects on asset accumulation were the actual actions taken by participants . gradual over time rather than immediate . For example, over one-third of participants reported that they simply failed to take the necessary steps to increase their Summary retirement savings, despite the stated desire to do so after the program . Academic research on financial education and its effects on personal behavior is Research conducted for the National necessary to assist policy makers and program Bureau of Economic Research also developers in the design and implementation examined the effects of financial education of financial education programs . in the workplace 9. Using a survey of households, this study looked at the effects of financial education programs offered 2. Program Evaluation Utilizing Proven in the workplace on general saving and Quantitative Analysis on retirement saving . This research found that a significant number of employees As financial literacy programs are rely heavily on financial education in the implemented in communities throughout workplace, and that workplace financial the nation, specific emphasis should be education replaced other potentially placed on making certain that materials authoritative sources, such as financial and curricula are proven to be effective planners, and displaced other sources, in improving financial literacy skills . By such as parents and friends . The study scientifically reviewing past performance also found that financial education in and achievements, financial literacy the workplace increased the rates of providers can establish a clear sense of general saving and retirement saving . programmatic best practices and successes .
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To effectively assess financial literacy Available at no cost to all U S. . high programs, evaluators should ensure schools, the financial planning program that: 1) materials are tested before uses contemporary materials to teach publication under conditions that the basics of personal finance to young realistically replicate the target settings people while developing life-long habits and audiences; 2) feedback from teachers and attitudes about money .The study and learners is collected and used to shape found that as a result of participation in development and revision of materials; the program, 60 percent of participants 3) materials include assessment tools, had changed their saving patterns .Of such as pre- and post-tests, and examples those who reported having changed their of acceptable work, where appropriate; saving habits, 80 percent said they now and 4) assessment tools measure both save for what they really need or want and student knowledge and behavioral change 20 percent indicated that they now save as a result of teaching and learning . every time they receive money . Comparing financial knowledge and behaviors Both nonprofit and Federal sectors have after participating in the curriculum evaluated their programs using quantitative to levels before the program began, methods . Organizations that developed 38 percent of students had improved such programs as a financial planning skills for tracking spending, 61 percent program for high school students, K-12 knew more about the cost of credit, 58 personal finance curriculum, andMoney percent improved their knowledge about Smart have used empirical studies to investments, and 44 percent felt more evaluate the quality and delivery of their confident about managing their money . financial literacy education efforts . Students were surveyed before they studied the curriculum material, immediately Money Management Program Increases High after they completed the classes, and, School Students’ Knowledge again, three months after completion . Research demonstrates that high school Immediately after studying curriculum students enrolled in a national nonprofit material, there was a statistically significant foundation’s financial planning program increase on all financial knowledge, are more skilled and confident with behavior, and confidence questions . financial literacy issues . By conducting an Three months after completion, students extensive study of program participants, had statistical increases on all but one the foundation was able to empirically question . The nationwide, 18-month determine that high school students evaluation project was conducted by enrolled in the financial planning Minnesota Cooperative Extension in program nationwide know more about partnership with USDA CSREES . managing money and have begun using money management skills that will be with them for a lifetime . The financial Non-profit Documents Gains in Students’ planning program is offered in partnership Financial Aptitude after Completion of Class with the and participating Land Grant A personal finance curriculum developed University Cooperative Extension Services by a non-profit organization focused and associations of credit unions . on teaching young children about the
Chapter Eleven: Academic Research and Program Evaluation 101 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy free enterprise system . Detailed studies in Money Smart classes — specifically of the impact of this sequential and those classes focusing on basic banking, integrated program have spotlighted budgeting and financial management, the organization’s ability to improve and credit, including understanding the financial skills among K-12 students . importance of a good credit report . Students address business, economics, The survey will consist of conducting and finance issues by using information, two questionnaires that Money Smart applying basic skills, thinking critically, students complete and then a follow-up and solving complex problems . In studies telephone interview six to twelve months of these programs by external evaluators, after students complete their Money Smart these students demonstrated a significant training . The goal of the survey is to understanding of economics and business determine the extent to which Money Smart knowledge and an enhanced desire to stay financial education training is effective in in school and pursue a career in business . helping participants change their behavior Quantitative research on this personal to improve their money management skills . finance curriculum demonstrated high levels of student interest in and understanding of financial issues and Summary strong support from teachers and A broad and deep base of research on volunteers . Students not only made gains financial education will assist policymakers in their understanding of economic and public and private sector providers and business concepts, but they were of financial education in their work on able to use this understanding to make financial literacy . While research has financially responsible decisions . been conducted on financial literacy, Overall the study found that students who some questions remain unanswered . had previously participated in the program Additionally, some practitioners of had significantly more knowledge prior financial education may not be aware to beginning the program than students of the latest research on this subject . who had not previously participated .
Money Smart 3. Program Evaluation Utilizing The FDIC and a national nonprofit Qualitative Evaluation housing organization have partnered To supplement the quantitative research to conduct a survey of Money Smart that highlights successful financial students and the impact Money Smart literacy efforts, educators, state and local has on participants’ lives .In particular, governments, nonprofit organizations, the survey is attempting to determine and employers can also use qualitative if participants develop banking measures to gauge the success of relationships, such as opening checking financial education programs . or savings accounts, obtaining loans or using other bank services, as a result To ensure that Americans have access to of applying information learned from financial education programs that can the Money Smart training . FDIC will assist them in obtaining the practical survey students who have participated knowledge and skills necessary to make
102 Chapter Eleven: Academic Research and Program Evaluation TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy informed financial choices throughout of garnering support and acceptance their lives, the Treasury Department’s within a community and will result in Office of Financial Education (OFE) has more efficient delivery of information . published a list of eight elements of a successful financial education program . Indicator Four: Participant Follow Up These eight indicators relate to program content, delivery, impact, and sustainability . A successful financial education program Viewed collectively, the eight indicators follows up with participants to reinforce serve as a guide for developing new the message and ensures that participants programs or enhancing existing program are able to apply the skills taught . These strategies for achieving the greatest impact . actions serve to further break down those barriers and pave the road to better access to financial services . Indicator One: Focus on Basic Tenets A successful financial education Indicator Five: Specific Program Goals program should focus on one or more of the four basic tenets of financial A successful financial education program empowerment — basic savings, credit establishes specific program goals and management, home ownership, and uses performance measures to track retirement planning . While there are other progress toward meeting those goals . worthwhile financial education topics, To achieve goals, an organization these four areas are the basic building must first set goals . It is important that blocks to achieving financial security . financial education providers set a standard of excellence and track progress toward achieving their missions . Indicator Two: Tailored to Target Audience A successful financial education program Indicator Six: Demonstrable Impact should be tailored to its target audience, taking into account the audience’s A successful financial education program language, culture, age, and experience . can prove its worth by demonstrating a Cultural biases, language differences, positive impact on participants’ attitudes, and other related factors play an knowledge, or behavior through testing, important role in the development surveying, and other objective evaluation . of any educational program . Programmatic success — both for the individual and the community — can be measured, for instance, by determining Indicator Three: Local Distribution if participants increased savings, opened A successful financial education program bank accounts, saved for a home, or has the most profound impact when it qualified for a mortgage at higher is delivered through a local distribution rates than nonprogram participants . channel that makes effective use of community resources and contacts . Indicator Seven: Replicability Partnerships with local organizations that are already ingrained in the community A successful financial education program are one of the most effective means can be easily replicated on a local,
Chapter Eleven: Academic Research and Program Evaluation 103 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy regional, or national basis so as to have By raising public awareness of effective broad impact and sustainability . financial education practices, the John Sherman Award serves two purposes . First, it honors successful programs, which helps Indicator Eight: Built to Last increase participation by individuals in the A successful financial education program community and also raises the program’s is built to last as evidenced by factors stature in ways which may help with such as continuing financial support, fundraising . Second, it provides others legislative backing, or integration into an with model programs to assist with the established course of instruction . This development of initiatives in communities element simply recognizes that good that need financial literacy assistance . programs must have the ability to survive if they are to have a strong impact . The award’s Web site, which includes a list of past recipients, is located at www . In practice, these indicators have been put treas gov/offices/domestic-finance/. to use to recognize programs, such as those financial-institution/fin-education/ . honored with the John Sherman Award for Excellence in Financial Education, that are making a difference in financial literacy . Summary Effective programs possess similar John Sherman Award for Excellence characteristics . Successful programs not in Financial Education only produce positive statistical results, Through its John Sherman Award, the but also embody qualities that reflect Treasury Department honors programs program focus, focus on intended that embody the qualitative achievements audiences, and a commitment to public identified in its Eight Indicators . The outreach . Such programs also set specific award is named for John Sherman, the goals and demonstrate replicable 32nd Secretary of the Treasury who served results . The eight specific indicators from 1877 to 1881 in the administration of developed by the Treasury Department President Rutherford B . Hayes . Established are resources that can help key decision by the Treasury Department’s OFE, the makers determine the effectiveness of the John Sherman Award for Excellence financial literacy methods they are using . in Financial Education recognizes organizations around the country with exemplary financial education programs .
104 Chapter Eleven: Academic Research and Program Evaluation TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Call to Action Tactics Employed: Public Awareness, Quality Materials 11-1 The Treasury Department along with the Department of Agriculture Cooperative State Research, Education, and Extension Service, will convene a symposium of researchers who specialize in financial education between the third quarter of 2006 and the third quarter of 2007 . The goal of the symposium is to raise awareness of existing academic research and to define questions that require additional analysis . The symposium will result in a White Paper that will survey current financial education research and will also identify areas of potential future research .
Endnotes
1 The Government Accountability Office . (2004, November) . The Federal government’s role in improving financial literacy(Report GAO-05-93-SP) . Washington, DC . 2 Vitt, L A. ,. et al . (2003) . Personal finance and the rush to competence: Financial literacy education in the U.S: A national field study commissioned and supported by the Fannie Mae Foundation . Middleburg, VA: Institute for Socio-Financial Studies . 3 Ibid . 4 Barron, J M. ,. & Staten, M E. . (2004) . Usage of credit cards received through college student- marketing programs . NASFAA Journal of Student Financial Aid, 34(3) . 5 Bernheim, B D. . (1996) . Financial literacy, education, and retirement savings . University of Pennsylvania: Pension Research Council . 6 Clancy, N ,. Grinstein-Weiss, M ,. & Schreiner M . (2001) . Financial education and savings outcomes in Individual Development Accounts . Washington University in St . Louis: Center for Social Development . 7 Hira, T K. . (2005) . Understanding the impact of employer-provided financial education on workplace satisfaction . Journal of Consumer Affairs, 39(1) . 8 Clark, R L. ,. & d-Ambrosia, M B. . (2003) . Ignorance is not bliss: The importance of financial education . North Carolina State University and TIAA-CREF Institute . 9 Bernheim, B D. ,. & Garrett, D M. . (1996) . The determinants and consequences of financial education in the workplace: Evidence from a survey of households . Cambridge, MA: National Bureau of Economic Research . 10 Bernheim, B D. ,. Garrett, D M. ,. & Maki, D M. . (1997) . Education and savings: The long-term effects of high school financial curriculum mandates . Cambridge, MA: National Bureau of Economic Research .
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106 Chapter Eleven: Academic Research and Program Evaluation Chapter 12 Coordination Efforts
Overview Fulfilling its mission under section 114 Congress to lend its expertise and provide of Title V of the FACT Act, the Treasury primary support to the Commission . Department, with significant input OFE was established in May 2002 as part from the Commission, has worked to of the Treasury Department’s long-term analyze existing financial education commitment to ensure that all Americans resources, particularly publications have access to financial education and programs, in an effort to “identify programs that will help them make areas of overlap and duplication among informed financial decisions throughout Federal financial literacy and education their lives . As part of the commitment, the programs, and develop a plan to improve OFE has assumed primary responsibility the coordination of such activities ”. on Commission initiatives, specifically in regards to My Money resources To lead the Commission in its duties, the and other areas of coordination . Treasury Department’s Office of Financial Education (OFE) was designated by
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Issues in Coordination events; retirement planning; saving and investing; and starting a small business . 1. Coordination of Federal Information Through the online site, consumers can on Financial Literacy request the My Money Tool Kit, which Each year, Federal agencies develop provides information on personal financial information and education materials management issues such as investing, on consumer finance and consumer managing credit wisely, planning for protection issues . Much of this retirement, and understanding Social information is now made available Security benefits . The tool kit also through the World Wide Web, as provides citizen access to a wider variety Americans turn to Federal agencies’ of personal financial information through Web sites for immediate and dependable the Consumer Information Catalog . information on issues of concern . The quarterly Catalog, produced by the GSA Federal Citizen Information Center To ensure that consumers (FCIC), lists more than 200 of are provided one central the most popular and helpful location for all up-to- publications produced by date information on more than 40 Federal agencies, financial literacy, the including Commission members . Commission launched its My Money campaign . The MyMoney gov. Web site Through this effort, was established through the the Commission established a Web Commission’s Web Site Subcommittee . site, MyMoney gov. to serve as a central The site is hosted by the FCIC . clearinghouse for all Federal financial Members of the subcommittee included literacy information and resources, and a representatives from the FRB, NCUA, toll-free hotline, 1-888-MyMoney, where and SEC, Department of Education, citizens can obtain a free My Money USDA, DoD, HHS and HUD, DOL, Tool Kit of useful Federal publications . Treasury Department, VA, FTC, GSA, SBA, SSA, CFTC, and OPM . My Money In addition to the MyMoney gov. Web site, Providing consumers with one-stop Americans can also call the shopping for financial information, the 1-888-MyMoney hotline to order a free Commission established the MyMoney gov. tool kit of useful Federal publications Web site, a central repository for all Federal that will help them build financial financial and consumer education materials . literacy . Operators take orders in English Through MyMoney gov,. Americans and Spanish for tool kit publications . are better equipped with important Many of the publications offered as information on how to better manage part of the tool kit are available in their money, and thus improve their lives . English and Spanish and all My Money resources are available free of charge . The Web site provides information on key consumer topics, including To help develop the hotline, the budgeting and taxes; credit; financial Commission established a hotline planning; homeownership; privacy, subcommittee, comprised of fraud, and scams; responding to life representatives from the OTS, FDIC,
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NCUA, HHS, Treasury Department, and Commission found that some appeared GSA . The hotline operation is part of to be the same on the surface . However, the GSA’s National Contact Center . upon closer inspection, it became clear that the resources had important differences . The differences might Summary have been in the target audience, the To ensure that all consumers are able to delivery platform or specific content . receive accurate, up-to-date, and easy- For example, although there is an apparent to-find information and resources on overlap between the DOL’s Web-based financial skills, the Commission launched publication, Preparation for Retirement, and its My Money initiative . Through increased the SSA’s Step by Step Retirement Planner, public awareness of the resources available the two resources offer very different through My Money, including a national information . DOL’s publication includes public service announcement campaign, information on employer-provided the Commission can provide Americans pensions, profit-sharing plans, and tax- access to valuable Federal financial literacy sheltered savings plans . In contrast, the SSA programs, materials, and information . resource provides detailed information on Social Security benefits and requirements .
2. Assessing Federal Resources and In many cases, two resources might Avoiding Duplication and Redundancy have shared a small amount of similar information, because the information It is important for Federal agencies in each resource was prerequisite to to ensure that available resources discussing the main topic of the resource are effective, current and avoid which was vastly different in each redundancy and overlap . resource . In these instances the same American taxpayers deserve Federal basic concepts were communicated so that financial literacy resources that are the consumer could better understand effective . To make sure the taxpayers the different, more advanced concepts have access to effective resources, the that followed . For instance, the FRB’s Commission tasked all of its members publication, How to Establish, Use, and Protect with evaluating their own financial Your Credit, provides similar information literacy resources to determine their to that of multiple FTC Internet and effectiveness . The Commission collected print publications (i e. ,. Credit Repair, the agencies’ self-reported evaluation data Building a Better Credit Record, How to and presented the data in the Strategy Dispute Credit Report Errors, and ID Theft) . for Assuring Financial Empowerment The main difference between these two (SAFE Strategy) which will be updated and agencies’ materials is that the FTC’s are submitted to Congress annually . Each more detailed than those of the FRB . agency deemed its programs and resources Finally, some resources may address to be effective and worthy of continuance . the same topic but target different The Commission reviewed Federal audiences . In these resources, the same financial literacy and education programs concepts may be presented in greater and resources to identify possible or lesser specificity, depending upon overlap and duplication . After reviewing the audience and its level of financial these programs and resources, the sophistication . For example, DOL’s Savings
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Fitness and the SEC’s Tips for Teaching U.S. Department of Labor, Internal Revenue Students about Savings provide general Service and the Small Business Administration information about how to start saving . The DOL works in partnership with The SEC’s online publication, however, the IRS to develop publications targets teachers while DOL’s publication regarding retirement plans that the SBA is an overview for all Americans . disseminates to various small business When considering how to reduce apparent owners and employees . The DOL and duplication in various publications it is IRS create publications about various important not to lose the benefits that types of retirement plans pertaining come from customizing a resource to to small businesses, such as Simplified its intended audience . Moreover, it is Employee Pension Plans (SEP), and Savings also important to avoid fragmenting the Incentive Match Plans for Employees information so that consumers would (SIMPLE) . Rather than recreating have to search for and consult several existing publications or developing new documents for a complete answer to their resources that highlight these types of financial questions on a particular topic . retirement plans, the SBA utilizes the DOL’s and IRS’s existing resources After a review of Federal financial literacy and sends these publications out to materials, the Commission concluded small businesses seeking information that, to the degree overlap existed, it on these types of retirement plans . was both minimal and necessary . The Commission is working with all of its The Federal Deposit Insurance Corporation members to ensure that Federal agencies Money Smart Program work together and avoid “recreating the wheel” when it comes to producing The FDIC’s Money Smart program is financial literacy materials . In this way, another example of a Federal government the Federal government can get the program that reduces redundancy among most effective use from financial literacy Federal financial literacy resources . Rather resources by utilizing existing programs than creating a similar program and and publications, rather than expending developing similar teaching curricula, additional funds to create new resources . numerous Federal agencies including For example, several Commission members eight Commission members utilize the create valuable programs and publications, FDIC’s Money Smart program . Specifically, affording other Commission members the DOL opted to utilize the Money Smart ability to utilize these tools without creating program at One Stop Career Centers their own new resources . This can be seen established under the Workforce by looking at various examples such as the Investment Act . One Stop Career Centers partnership with the DOL, the IRS and offer Money Smart in coordination with the SBA and the Money Smart program programs targeted to populations that resources provided by the FDIC . By doing may be outside the financial mainstream, this, Commission members work together such as welfare-to-work participants, to avoid duplication and redundancy . individuals with no access to mainstream financial service providers, public
110 Chapter Twelve: Coordination Efforts TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy housing residents, immigrants and low- education resources, and will make income homebuyers . There are One Stop recommendations as to which programs Career Centers all across the country and publications should be enhanced, that use the Money Smart program . updated, or discontinued . In addition, the Commission will encourage its members to utilize existing resources, Summary rather than create their own . The Commission will continually assess the Federal government financial Calls to Action Tactic Employed: Public Awareness 12-1 The Financial Literacy and Education Commission will continue to enhance the Web site MyMoney gov. to make it more comprehensive and interactive . The Commission will also work with other organizations to promote the awareness and use of the Web site . 12-2 Every six months the GSA and the Treasury Department will partner to survey Federal financial literacy and education programs and resources to identify potential overlap and duplication . The results of this survey will be put in report form and will be submitted to Commission members, with the first report to be issued in September 2006 .
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112 Chapter Twelve: Coordination Efforts Chapter 13 International Perspective
Overview Since financial literacy impacts the global issues . As part of ongoing efforts to economy, concern for financial literacy grow free market economies, emerging expands beyond our shores . Just as in the nations are focusing ongoing efforts United States, other nations with consumer to include financial literacy as part of markets seek to educate their citizens on their overall economic development issues such as credit, money management, strategies . Although not every and investment . Educators and financial international effort to increase financial planners in the United Kingdom, Australia, education is mentioned, below are New Zealand, Japan, and other countries several valuable initiatives that highlight are dealing with issues parallel to those some of the great efforts to improve faced in the United States . In Australia financial literacy around the globe . for instance, a recent survey of adults suggested that workers could benefit from education about retirement planning 1. Challenges Countries with emerging consumer In the United States, those involved markets also are concentrating on the in financial education struggle with need to educate consumers on financial
113 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy generating public awareness of the financial services regulator, Japan’s need for financial education and Central Council for Financial Services getting the right information to the Information (the Central Council) and right people at the right time . It is the Australian Securities and Investments instructive to note that other nations Commission (ASIC) are identifying ways are confronting the same issues . More to enhance financial literacy efforts . valuable still is observing the ways other countries address these issues and which Organization for Economic Co-operation and practices are proving most successful . Development The OECD is comprised of 30 member Issues in International Perspective countries with a commitment to democratic government and a market- 1. Approaches Within Other Nations and based economy . The OECD has active Cross-Border Efforts relationships with some 70 other Nations and regions are changing countries and other non-governmental demographically each day . Increased organizations and is well known for diversity means new populations that its publications and its statistics . Its work require tailored communications and spans economic and social issues including education . Countries are beginning to macroeconomics, trade, education, recognize this, and increasingly they development, and science/innovation . see the need for all individuals in their In late 2005, OECD released a report populations to be better informed on entitled Thirty Principles and Good Practices financial matters . With this recognition, for Financial Education and Awareness that though, comes the reality that there provided international guidance useful are few available mechanisms to share in improving financial education and lessons learned and to enact systematic awareness in OECD and non-OECD improvements for educating and countries . The OECD report highlights informing the public on financial issues . the importance of financial education in Several nations appear to be developing terms of helping individuals budget and parallel efforts to establish national level manage their income, save and invest initiatives to improve financial literacy . efficiently, and avoid becoming victims Dialogue between the organizations of fraud . The report also stresses the responsible for these initiatives can need for financially educated individuals validate activities and expand the range to focus on increasing knowledge of of best practices . By learning from investment guidelines and consumer similar countries and using international protection laws . The implementation organizations to find solutions to common of these voluntary guidelines and good problems, organizations such as the practices will vary from country to country, Organization for Economic Co-operation taking into consideration the various and Development (OECD), International economic, social, demographic, and Organization of Securities Commissions cultural factors of different nations . (IOSCO), Counsel of Securities Regulators of the Americas (CSRA), an international The International Organization of Securities securities association United Kingdom’s Commissions
114 Chapter Thirteen: International Perspective TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
The IOSCO is an international Additionally, the IOSCO and its working organization with approximately 181 committees have published several reports member regulators that together oversee on global investor education efforts . more than 90 percent of the world’s One such report, published in 2002, securities markets . The IOSCO and its focused on emerging market countries member organizations work together to and indicated that 27 of 33 developing try to ensure fair, efficient, and sound countries surveyed had some type of regulation of the world’s financial markets . investor education initiative in place . The One of the main focuses of IOSCO is to report noted that the main goals behind encourage the global objective of robust initiating investor education programs in investor protection . The IOSCO and its these emerging market countries was to member organizations recognize that improve financial and investment literacy to achieve the high levels of investor among local investors and to increase protection, they need to focus on awareness of investors’ rights and duties promoting financial literacy across the and public interest in market development globe . To this end, many individual IOSCO and growth . This report demonstrates member organizations have created securities regulators’ global concern for their own in-country investor education promoting financial literacy as part of programs . These education initiatives their overall investor protection mission . include consumer publications, hotlines, Web sites, investor alerts, financial literacy The Counsel of Securities Regulators curricula, town meetings, investing tools, of the Americas and plain language disclosure documents . The COSRA was founded in 1992 as an organization designed to provide a mutual forum for cooperation and communication amongst securities regulators in the Western Hemisphere . The COSRA currently includes more than 31 member organizations from 26 countries in North, South and Central America, as well as the Caribbean . Since its inception, the COSRA has focused on the need for strong investor education programs . The COSRA’s focus on investor education comes from the recognition that widespread participation in financial markets is in the best interest of economic development . In the 1990s, the COSRA developed an investor education and protection campaign designed to serve as a catalyst for its member organizations throughout the region . As early as 1998, the COSRA held an investor education week where each of its members conducted a domestic
Chapter Thirteen: International Perspective 115 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy investor education campaign . Based on To demonstrate its commitment to investor this campaign, a continuing annual effort education, the organization published was launched by member countries to a paper in 2004 that endorsed several provide education programs to investors principles and best practices focused on in their respective providing investor education . countries . These programs These principles focus have included town on the need for broad, meetings, radio and effective dissemination of television shows, seminars, comprehensive investor brochures, public service education programs by announcements, and toll- organizations in the securities free telephone numbers industry . The organization for investor questions also focuses on applying and complaints . The these investor education COSRA campaigns strive principles to enhance to provide investors with the continued growth of information about the international securities importance of investing, markets . For example, how to choose investments members of the organization wisely, and the use of are currently working with investment professionals . the International Forum for Investor Education (IFIE) . IFIE provides information International Securities on investment processes in Association Organization the international financial An international securities association market and on investor education organization is composed of trade and programs in different parts of the world . In self-regulatory associations in eleven addition, IFIE provides the most up-to-date countries and is a member organization information on current trends in investor that is aimed at encouraging growth of education through the dissemination the international securities markets . This of relevant research to its members . organization believes investor education is critical to the long-term growth of the international securities markets . As such, Financial Services Regulatory Agency one of its major policy initiatives is to (United Kingdom) focus on effective international investor The non-governmental financial education efforts . The organization’s services regulatory agency in the United members believe that educated consumers Kingdom (UK) is an independent non- who are able to make informed judgments governmental body given statutory powers regarding their investments are more apt by the Financial Services and Markets to invest in securities products, promoting Act 2000 . Its overall aim is to promote their own well-being, which will in turn efficient, orderly, and fair markets and to contribute to the growth of securities help retail consumers achieve a fair deal . markets, higher levels of savings, and a The agency’s primary focus is to regulate more efficient allocation of capital . financial service providers in the UK, but it also has other statutory objectives,
116 Chapter Thirteen: International Perspective TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy one of which is to promote public education through a variety of multi-media understanding of the financial system . efforts, such as newspapers, videotapes, a Web site, a free computer consultation In November 2003 the agency proposed service, and a regular survey on household to develop and implement a national finances . In its outreach efforts, the Central strategy for financial capability, working Council launches multi-media campaigns in partnership with a wide range of to increase basic financial education other organizations . The chief executive knowledge, hosts life planning events, chairs a steering group comprising provides consulting services, and partners senior representatives of core partners with government institutions, schools, — government, firms, employers, not- families, and communities to conduct for-profit organizations, consumer activities that strive to teach children the representatives and the media . The importance of a family budget and debt agency recognizes that improving management . The Central Council is financial capability is complementary to, comprised of experts in financial services not a substitute for, firms treating their information and representatives of customers fairly . Consumer understanding financial, industrial, communications, and awareness influence both the community and similar organizations . nature and intensity of the regulation needed for consumer protection and whether consumers derive benefits from Australian Securities and competition in the market place . Investments Commission The Financial Capability Steering Group The Australian Securities and Investments has identified seven priority projects: Commission (ASIC) has an active school, young adults, workplace, families, financial literacy program, and has planning ahead for retirement, borrowing established a national strategy as a part of and the role of generic advice . Each of its Consumer and Financial Literacy Task these priorities is being taken forward by a Force . To develop its strategy, the ASIC specially convened working group . Steps has conducted research on successful are being taken to enable the impact of financial literacy models in the United the national strategy to be measured . Kingdom and the United States and has surveyed Australians on financial literacy issues . Through support from a major Central Council for Financial Services bank, the local survey has demonstrated Information (Japan) that financial literacy among younger and In Japan, financial services information older people requires specific attention . activities are conducted by the The ASIC is employing innovative Central Council for Financial Services approaches to reach these specific groups, Information .The Central Council’s such as a comic strip called The Max, mission is to educate the public about targeted toward 14- to18- year-olds and the importance of basic financial and designed to appeal to this age group . economic knowledge related to daily life . Since 1983 the Central Council has been engaged in the nationwide promotion of 2. Encouraging Global Partnerships financial and economic knowledge and Given the global economy and the benefit
Chapter Thirteen: International Perspective 117 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy of sharing knowledge at an international member . U S. . credit unions are linked to level, better communication and credit union movements in developing education among nations — particularly nations through an international through partnerships — would partnership . Fifteen U S. . credit union allow for more rapid assimilation of leagues have entered into partnership improvements throughout the world . agreements, leveraging U S. . foreign aid by providing technical assistance Nations are working to establish and exchanging innovative approaches comprehensive strategies to direct to serving credit union members with available government resources to educate partner movements . The not-for-profit consumers . Successful governmental cooperative structure of credit unions is approaches are emphasizing effective the same around the world, with “one collaborations with non-profit and the member, one vote” guiding the election of private sector . Through partnerships board members, determining the future with organizations like the worldwide of the financial institution, and ultimately representative of credit unions, a global helping to create ownership societies . non-profit organization that works with students, Asia-Pacific Financial Education Exchange, and Germany’s Global Non-profit Organization Focused Oeconomix, nations have added to their on Free Enterprise Spreads capacity to develop public awareness Financial Literacy Internationally campaigns and financial educational Financially focused students throughout materials, as well as deliver services the world are not limited by national to citizens who need them most . boundaries as they work together on free enterprise issues . A global non-profit Worldwide Representation of Credit Unions organization that works with students on 1,800 university campuses in more The organization that provides worldwide than 40 countries provides opportunities representation for credit unions serves to learn about free enterprise . This as a leading advocate and platform for organization helps students develop knowledge exchange and functions as a financial literacy skills and identifies development agency for credit unions . The opportunities for individuals to volunteer organization also presents an opportunity in their local communities by teaching to promote financial education in many personal finance, entrepreneurship, countries . This organization represents business ethics, and market economics . the interests of more than 40,000 credit unions in 84 countries serving 123 million credit union member-clients . International Foundation Creates Financial The organization currently carries out Education Resources on Two Continents technical assistance programs in ten In Asia, a U S. . private sector foundation countries focused on improving financial partnered with one of the world’s top performance, mobilizing savings and business schools, and hosted the women’s increasing outreach to create access to financial education conference in Hong quality credit unions for everyone . Kong . A key outcome of the conference A United States national association of was the idea to create an online knowledge credit unions is the organization’s largest and learning platform that will give local
118 Chapter Thirteen: International Perspective TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy financial education providers greater access and corporate finance . In 2004, more than to training and resource materials, allowing 650 teachers registered for the program . them to share their knowledge and Across the world, nations are focusing experience with more women as well as additional attention and resources on the wider community at a grassroots level . financial literacy efforts . Through the In Germany, the same foundation is cultivation of public-private partnerships working with the Institute of German like these, governments can help Economics to develop an innovative CD- their citizens secure the necessary ROM and Internet-based program which information and comfort level needed contains lesson plans, visual aids, and to access relevant financial services . supplementary resources to help educators teach students about personal and family financial management, entrepreneurship, Call to Action Tactic Employed: Partnerships 13-1 Between the third quarter of 2006 and the second quarter of 2007, the Treasury Department will host an international summit on financial education . To bring about this multinational dialogue the Treasury Department will invite the central government authorities responsible for financial literacy in their respective nations to convene and discuss recent developments, innovative methods, and successful strategies for improving financial literacy in their home countries .
Endnotes 1 ANZ Survey of adult financial literacy[Final report] . (2003, May) Melbourne, Victoria: Roy Morgan Research .
Chapter Thirteen: International Perspective 119 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
120 Chapter Thirteen: International Perspective TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Acronyms National Strategy for Financial Literacy Acronyms
APR Annual Percentage Rate
ASIC Australian Securities and Investment Commission
ATM Automated Teller Machine
CFTC Commodity Futures Trading Commission
COSRA The Council of Securities Regulators of the Americas
CPA Certified Public Accountants
CPAI Corrections Program Assessment Inventory
CRA Credit Reporting Agency
CSREES Cooperative State Research, Education, and Extension Service
DOD U S. . Department of Defense
DOL U S. . Department of Labor
EITC Earned Income Tax Credit
ESA Education Savings Account
ETF Mutual Fund and Exchange Traded Fund
FACT Act Fair and Accurate Credit Transactions Act
FBI Federal Bureau of Investigation
FCRA Fair Credit Reporting Act
FDIC Federal Deposit Insurance Corporation
FFCP Family Financial Counseling and Planning
FHA Federal Housing Administration
FHLB Federal Home Loan Bank
Acronyms 121 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
FRB Federal Reserve Board
FRTIB Federal Retirement Thrift Investment Board
FSA Financial Services Authority
FTC Federal Trade Commission
GAO U S. . Government Accountability Office
GED General Educational Development
GSA U S. . General Services Administration
HDHP High Deductible Health Plan
HHS U S. . Department of Health and Human Services
HSA Health Savings Account
HSFPP High School Financial Planning Program
HUD U S. . Department of Housing and Urban Development
IDA Individual Development Account
IFIE International Forum for Investor Education
IOSCO The International Organization of Securities Commissions
IRA Individual Retirement Account
IRS Internal Revenue Service
ITIN Individual Tax Identification Number
LITC Low-Income Taxpayer Clinic
NASD National Association of Securities Dealers
NASAA North American Securities Administrators Association
NCPW National Consumer Protection Week
NCUA National Credit Union Administration
OCC Office of the Comptroller of the Currency
122 Acronyms TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
ODEP Office of Disability Employment Policy
OECD Organization for Economic Co-operation and Development
OFE U S. . Department of the Treasury’s Office of Financial Education
OPM U S. . Office of Personnel Management
OTS Office of the Thrift Supervision
PSA Public Service Announcement
SAFE Strategy for Ensuring Financial Empowerment
SBA U S. . Small Business Administration
SEC U S. . Securities and Exchange Commission
SEP Simplified Employer Pension
SIMPLE Savings Incentive Match Plan for Employees
SSA Social Security Administration
SSDI Social Security Disability Insurance
SSI Supplemental Security Income
TAS Taxpayer Advocate Service
TCE IRS Tax Counseling for the Elderly Program
TSP Thrift Savings Plan
USDA U S. . Department of Agriculture
VITA IRS Voluntary Income Tax Assistance Program
WISE Winning through Investment Strategies and Education
WOTC Work Opportunity Tax Credit
Acronyms 123 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
124 Acronyms Appendix A
GENE FULLER, REMTECH, Financial Literacy Inc /TimeMAPS. MICHELLE GLASSBURN, and Education Eleve Group, Inc . Commission MARK GUIMOND, American Association of Debt Management Other Commercial Sector- KATY JACOB, Center for Specific Meeting Financial Services Innovation CHRISTOPHER JACOBS, American Location: Council of Life Insurers Securities and Exchange Commission, JENNA KEEHNEN, U S. . Organizations 450 5th Street, NW, Washington, D C. . for Bankruptcy Alternatives Date: MATHILDA RICHARDSON- February 25, 2005 WHITFIELD, AAA Straight Forward ELINORE ROBEY, Charles Discussion Moderators Schwab Foundation The discussion was moderated by JOANNE SEYMOUR, Dynaminds, Inc . Dan Iannicola, Treasury Department; AMY TRAVERSA, Lincoln Financial Group John Nester, Securities and Exchange Commission; and Carolyn Welch, CAROL WALKER, Financial Freedom, Inc . Federal Reserve Board . Primary Focus of Meeting Discussion Participants Participants discussed the shared DAN IANNICOLA, Treasury Department responsibility for better educating consumers on financial issues . Successful JOHN NESTER, Securities and programs and initiatives require the Exchange Commission involvement of both public- and private- CAROLYN WELCH, Federal Reserve Board sector organizations, with parties playing specific roles that emphasize their strengths SUSAN WYDERKO, Securities in the dialogue . In addition to effective and Exchange Commission materials and financial education curricula, MICHAEL BEACHAM, Money public awareness campaigns are a strong Savvy Generation component of increasing consumer knowledge of financial issues and concerns . LAURA DAMBIER, Lincoln Financial Group BILL DEERY, REMTECH, Inc /TimeMAPS. Key Discussion Points Role of Federal Government
125 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Participants noted that the Federal do not respond to group education . government plays an appropriate and Employers and family courts also are seen vital role in financial education efforts, as valuable outlets for financial education particularly by focusing on efforts that and counseling, particularly if awareness emphasize the importance of financial programs are “turnkey” for easy use education and place the topic on par, and integration by all organizations . in terms of community concern, with issues such as nutrition, physical fitness Materials and Curricula Development and general health . To aid this effort, the There was no consensus on who should Federal government should study the be primarily responsible for developing types of financial education programs financial education resources . The public and delivery mechanisms that are most sector is an unbiased and credible source effective and most needed . Research for information, but may be a better also could be used to establish uniform coordinator than originator . The private standards for financial education sector is a strong source of innovative programs and to help highlight best and creative materials and programs . practices as models for effective The primary source of the materials is partnerships, materials development, not as important as ensuring that the delivery, and results measurement . materials are thoroughly and systematically The Federal government also should distributed and adhere to a consistent set catalogue existing financial education of standards . The point also was made materials, oversee the development of that sales and marketing materials from new materials, and provide incentives for private sector sources are not the same financial education program development as true financial education materials . and delivery . Specific legislative and Fundamental Financial Education Skills policy changes also could be enacted to simplify financial transactions . Participants identified several skills that should be fostered in financial education Effective Delivery Mechanisms efforts: 1) budgeting and saving; 2) Participants identified the public school shopping for financial products and system as an important delivery channel services; 3) delaying gratification; 4) for financial education, indicating that understanding credit cards; 5) setting financial education efforts should be financial goals throughout life; and 6) required, either as part of the current understanding options and resources curricula (through integration of personal available when confronted with financial finance lessons) or as a specifically difficulties such as debt negotiation, credit designated requirement for graduation . In counseling and debt management plans . addition to the schools, special emphasis Public Service Announcements and should be placed on providing financially Awareness Campaigns distressed families with information on credit counseling and debt management Public awareness campaigns focused on plans, working with community-based financial education issues offer a wide programs to reach children in “fun” range of benefits for consumers . National environments, and using computer-based efforts, including the distribution of public materials to reach those individuals who service announcements, can help educate
126 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Americans on the resources available for those in financial distress, the power and cost of money (impact of compounding from both debt and savings perspectives), and key financial concepts such as interest rates, compounding and the timetable for paying off revolving debt . In addition to a factual approach, some participants stated it may be necessary to use “shock value” to illustrate the negative outcomes such as bankruptcy and diminished quality of life .
Appendix A 127 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
DAPHNE SMITH, National American Financial Literacy Securities Administrator Association JUSTIN SOUTHERN, West and Education Virginia State Auditor's Office Commission MARGARET WARREN, Internal Revenue Service Government Sector Public TIM MULLEN, National Association Meeting of Insurance Commissioners Location: Primary Focus of Meeting Federal Deposit Participants described several ideas for Insurance Corporation (FDIC) a national public awareness campaign 550 17th Street, N W. ,. on financial literacy . Several indicated Washington, D C. ,. the need for a sustained, multi-year Date: approach, initiating a campaign that will result in lasting changes on financial March 4, 2005 behaviors . Campaign messages should Discussion Moderators be positive and empowering, particularly in the area of asset building . Messages The discussion was moderated should also be sensitive to and include by Lee Bowman, FDIC, and Dan different cultures, income levels, and Iannicola, Treasury Department . languages . Special efforts should be made to make financial education Discussion Participants “trendy” for both youth and adults . DAN IANNICOLA, Treasury Department LEE BOWMAN, FDIC Key Discussion Points Savings and Asset Building Strategy RALPH AVERY, Administrative Best Practices Office of the U S. . Courts Example programs cited during the REBECCA FANNING, Administrative meeting included Individual Development Office of the U S. . Courts Accounts, Earned Income Tax Credit HILLARY HUNT, Commonwealth refunds, Voluntary Income Tax of Pennsylvania Assistance (VITA) sites (particularly those established as a coalition where many DARRELL LLOYD, Internal financial service organizations are co- Revenue Service located at the site), regionally focused DAVID MANCL, Wisconsin Jump$tart, financial institution efforts (e g. . FDIC’s Coalition of Personal Finance for Youth New Alliance Task Force in the Chicago JERRY MUNK, National American area), and in-school bank branches . Securities Administrator Association ADAM RABINER, New York Government’s Role in Encouraging State Banking Department Private Sector Involvement
128 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
While there was no consensus regarding education and those who did not (National government’s role in financial education, Bureau of Economic Research did such several participants mentioned that all a study that could serve as a model), levels of government (Federal, state, measuring the number of Individual local) should encourage various private Development Accounts and volume of sector professionals and organizations matching funds and their impact, using to volunteer time to teach financial behavioral sciences experts in the design of education . Incentives such as continuing the metrics selected, comparing the volume education credit or monetary incentives of bankruptcy filings over time, conducting (seed money or tax breaks) could be a before and after survey of awareness of provided . Workplace financial education financial scams, and considering whether programs, school-based branches of there are measures within the No Child financial institutions, and government- Left Behind law that might be useful in sponsored events for educators would assessing levels of financial education . also be useful . As part of its role, Moving the Campaign Forward government could lead the development and implementation of a centralized First, states may consider establishing measurement system for determining the an office focused on financial literacy . success of financial education initiatives . This office would understand all of the organizations within the state that have a Coordination and Management of relevant piece/function related to financial Financial Education Programs education . The office would coordinate Participants agreed that it is paramount state-relevant activities and would report to better educate citizens on all directly to the governor . It would be financial education programs currently created so it does not have a general available in the marketplace . Keeping fund or taxpayer dollar implications, existing programs up to date and better and could be structured on delivery promoting their available resources systems (community-based, school-based, should be a top priority, allowing current workplace-based, etc ). It was noted that efforts to better meet consumer needs Pennsylvania presently has such an office . and broaden teaching on additional At the Federal level, the government financial education topics as needed . could serve as a clearinghouse for best Measuring Campaign Success practices and organize and coordinate national meetings on specific topics Participants identified a range of ways where best practices could be shared to measure the success of a sustained with state and local organizations . national public awareness campaign . Recommendations included monitoring the number of people who access their credit report, conducting a longitudinal study of children who had financial
Appendix A 129 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
ANGELA LYONS, University of Illinois Financial Literacy WAYNE MOORE, University and Education of Missouri Extension GAYLE ROSE MARTINEZ, Commission University of Wisconsin RITA STRAUB, University of Sector Meeting Wisconsin Extension
Summary Primary Focus of Meeting Education Sector Meeting Participants discussed various ways in which financial education resources Location: can be disseminated to all communities U S. . Mint, throughout the country . In viewing 801 9th Street, N W. ,. ways to most effectively disseminate Washington, D C. . financial education, individual examples of students who lacked basic Date: financial literacy skills were analyzed . March 7, 2005 Participants recommended the Federal government take the lead in forming Discussion Moderators partnerships that would allow financial literacy tools to reach the individuals The discussion was moderated by Marcie and communities that need it most . Brown, Department of Education, and Partnerships at all government levels, Dan Iannicola, Treasury Department . including non-government entities such as the academic community, non-profit Discussion Participants institutions and the lending community were referenced as an extremely effective DAN IANNICOLA, Treasury Department way to improve financial education . MARCIE BROWN, Department of Education HENRIETTA FORE, U S. . Mint Key Discussion Points JOE BOTTA, Virginia Cooperative Extension Government’s Role in Enhancing Financial Education NORINE FULLER, Fashion Institute of Design & Merchandising Government’s role in financial education should be to encourage traditional and NINA TORRES, The Hispanic Association non-traditional partnerships ranging of Colleges and Universities from a broad spectrum of entities . DEBRA MINOR DRISCOLL, Oregon The Federal government should bring State University Extension Service stakeholders, especially from private and non-profit institutions, together ANNE FREMION, Ohio State to determine the most effective way to University Extension reach all populations and demographics . JOYCE LASH, Iowa State Also, several participants suggested the University Extension Department of Education partner with
130 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy other Federal agencies, such as the young people, and utilize this area to Treasury Department, to become more focus key financial education issues . The involved in financial education by hosting issues of savings, individual choices and meetings and conducting additional the importance of avoiding excessive substantive research . Several participants debt were the key overall messages that also mentioned that government incentives were discussed . Portraying the beneficial to teach and deliver financial education effects of compound interest and offering tools would be greatly effective . a way to help consumers already in debt were also mentioned as essential Measurements of Success components to developing a strong Measuring success was an instrument that awareness campaign . Some participants the participants felt we needed to take suggested that educating consumers to time to review and suggested that the better understand their credit scores, Federal government may consider that it and to make consumers aware of the takes time to expect results (strong results effects of a bad credit score, were key cannot happen in a short time period) . elements to empowering consumers The percentage of individuals filing for to make better financial decisions . bankruptcy, testing after teaching financial education lessons to children, and studying Financial Education at the increase or decrease in retirement plan Post-Secondary Institutions participants were all mentioned as possible The need to enhance financial education indicators that the Financial Literacy and at colleges and universities was emphasized Education Commission should utilize for and several examples about students measuring overall effectiveness of collective who struggled with credit card debt efforts . In addition, it was mentioned that were given . Several of the participants financial education stakeholders should pointed out that the number one reason look at private institutions that offer for dropping out of school was for retirement planning education as part financial reasons, not academics . Another of employee orientation, versus private participant said that she personally knew institutions that do not offer retirement two college seniors who had job offers planning education during orientation and revoked because their hiring employers compare the percentage of employees that did a credit check and discovered that choose to enroll into retirement plans . The the students had poor credit scores . group recognized the need for creative Other participants mentioned that ways to get employee participation up in students are more likely to pay their credit employer sponsored retirement plans . card loans over their student loans . Multimedia Public Service Campaign Partnerships with schools and local banks, financial education seminars on Participants agreed that launching a campuses and payment courses on loans multimedia public service campaign were all mentioned as possible plans would be extremely effective in reaching that could help students make strong consumers . Tailoring a message that targets financial choices . Having workshops specific populations and communities was on college campuses was a suggestion emphasized . For example, when targeting that many participants supported . young people, the campaign should focus around an area that is popular to
Appendix A 131 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
DAVID CASSERLY, Jump$tart Coalition Financial Literacy for Personal Financial Literacy THEODORE DANIELS, Society and Education for Financial Education Commission VIRGINIA DAVIS, Native Financial Education Coalition Sector Meeting AL DUARTE, InCharge Education Summary Foundation Education Foundation BOB DUVALL, National Council on Economic Education Non-Profit Organization HECTOR GAMBOA, Spanish Meeting Coalition for Housing Location: DAVID GODSTED, Networks Office of Personnel Management (OPM) Financial Institute 1900 E Street, NW, TRACEY GORDY, Corporation Washington, D C. . for Enterprise Development Date: KAREN GROSS, Coalition for March 11, 2005 Consumer Bankruptcy JOHNETTE HARTNETT, NCB Discussion Moderators Development Corporation The discussion was moderated by SUSIE IRVINE, American Financial Marcus Beauregard, Department of Services Association Education Foundation Defense; Dan Iannicola, Treasury VARINY PALADINO, American Department; and Ray Kirk, U S. . Savings Education Council Office of Personnel Management . CHERYL REYNOLDS, American Institute of Certified Public Accountants Discussion Participants JENA ROSCOE, Operation Hope, Inc . DAN IANNICOLA, Treasury Department JAY SEATON, Consumer Credit & RAY KIRK, Office of Counseling Service Midwest Personnel Management LINDA SHERRY, Consumer Action MARCUS BEAUREGARD, Department of Defense MAX SIMMONS, Take Charge America JORDANA BEEBE, Privacy Rights Clearinghouse DON BLANDIN, Investor Protection Trust EDWIN BODENSIEK, Junior Achievement Worldwide
132 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Primary Focus of Meeting literacy activities, and the U S. . Department of Education in particular can work to Non-profit organizations recognize the facilitate the task of boosting financial need to act both nationally and locally skills among consumers for state and to improve financial literacy across all local officials . Sectors can also work audiences . Nationally, a public awareness together to establish a listserv to share campaign, including public service information on best practices and to announcements, can guide discussion and use social science mapping techniques generate excitement and interest among to improve understanding on specific consumers . At the local level, the public, financial education programs . private and non-profit sectors can work together to disseminate existing resources Public Awareness Campaign and successfully implement best practices Participants agreed that a national tailored to local community needs . public awareness campaign on financial literacy education is needed and would Key Discussion Points be welcomed in communities throughout the nation . Any new public engagement Financial Education in the Public Schools efforts should coordinate with existing Participants recognized that public schools efforts and should be carefully developed play an important role in improving to ensure they are culturally appropriate financial education efforts . Participants and diverse . Public service announcements stated that local schools can advance could be used to provide consumers financial education by partnering with with direct information on money non-profits and government entities . management and wealth building, for Public awareness and education efforts instance, and identifying a popular should work in concert with each other, national spokesperson was viewed as focusing on best practices and practical a potentially valuable component . instruction . Special emphasis should be Measuring Success paid to providing classroom educators the professional development and Participants recommended that the support needed to integrate financial success of financial education efforts literacy into existing curricula . can be measured in a number of ways, including monitoring changes in savings, Utilizing Existing Financial Education investment and finance management Resources behaviors and conducting regular Participants stated that there are a number town hall meetings to gather public of specific efforts that can be undertaken responses . Participants recognized that to leverage existing financial education success takes time, first through public resources and coordinate outreach efforts awareness, then an increased level of to avoid overlap or duplication . State knowledge, and finally behavior change . governments can establish offices to help The first year of any education effort shepherd the process and coordinate should focus on general awareness . state-based financial education efforts .
The Federal government can help bring together private, public, and non-profit organizations to encourage financial
Appendix A 133 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
CHRISTY MINTON, (by Financial Literacy teleconference), Bancorp South JODI MITCHELL, Mountain and Education America Credit Union Commission CYNDY SCOTT, Tower Federal Credit Union Sector Meeting SHERYL NEAS, National Summary Community Capital Association Primary Focus of Meeting Lenders Meeting Participants discussed the need for all Location: sectors to work together to provide Room H-C-8, financial literacy information to U S. . Capitol, consumers . As the Federal government, Washington, DC educators, employers, and community organizations work together to develop Date: curricula and identify and model best March 14, 2005 practices, public service announcements and other public education efforts Discussion Moderators can be valuable in boosting consumer understanding of financial issues . The discussion was moderated by Dan Iannicola, Treasury Department, and Barry Wides, Office of the Key Discussion Points Comptroller of the Currency . Role of the Federal Government Participants noted that the Federal Discussion Participants government should engage in a range DAN IANNICOLA, Treasury Department of activities to bring financial literacy to the public forefront and make it a part of BARRY WIDES, Office of the the national consciousness . The Federal Comptroller of the Currency government can do this by providing THE HONORABLE DANIEL guidance in terms of standards and best AKAKA, U S. . Senate practices, encouraging and fostering partnerships across sectors, and working THE HONORABLE JUDY BIGGERT, with state and local government to U S. . House of Representatives integrate financial literacy in the public THE HONORABLE DAVID DREIER, schools . Most importantly, the Federal U S. . House of Representatives government can lend a sense of urgency to the issue of financial education that RHONDA BENTZ, Visa participants felt is currently absent . KIM BOHANNON, North Carolina Credit Union League
134 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Measuring Success Distribution can be accomplished through partnerships, public education, and Participants recommended that the professional development for educators . success of financial education efforts can Specific efforts should also focus on be measured in many ways, including providing employers with the incentives how many 401(k) plans and IRAs are to incorporate financial education in used now versus 10 years from now; the workplace . Employers can bring in quantifying savings rates; decline in experts to explain benefits and planning . bankruptcies; and declines in unsecured Pastors, churches, and faith-based debt; pre- and post-tests to measure organizations can also play a role in the effects of financial literacy curricula in promotion of financial education . public schools; increases in credit scores; and decreases in predatory lending . Public Service Announcements and Public Awareness Campaigns Selection and Use of Programs All public education efforts should answer The Federal government can play an the question, “What’s in it for me?” Public important role in the selection of programs service announcements are seen as a by working with trusted organizations to valuable tool in establishing a specific call identify current financial literacy efforts to action for targeted groups (high school and best practices, particularly in specific students, 30-year-olds, English as a Second states and localities . Organizations such as Language individuals, etc ). To reach these community colleges, credit union leagues, audiences successfully, PSAs and other and the USDA Cooperative Extension outreach efforts must be tailored; a one- Service could also play a role in evaluating size-fits-all approach will not be effective . current programs, and all results could be placed on a Federal Web site . Effective All public awareness products should programs should be factual (not seen as be written at a seventh-grade reading a sales tool), and should be presented in level, with checklists and similar basic the appropriate language and format . materials effectively communicating the content . Content should be simple Proper distribution of financial literacy and streamlined, as participants believe education is key to its effective use .
Appendix A 135 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy that additional background information JULIE JUDY risks getting in the way of the message . CHERYL MOORE Financial Literacy SHANNON MOYER JANE SCHUCHARDT and Education MICHAEL SCHUTT Commission ROBERT WEAGLEY Sector Meeting JUDY WEISS Summary ANNE YOEMAN Primary Focus of Meeting Individual Respondents’ Session Raising financial literacy is a long-term process that requires multiple strategies Location: and approaches . Successful efforts need Department of Health and Human to be developed carefully and should Services, Administration for Children include specific engagement strategies and Families, Washington, DC and assessment mechanisms . Participants believe there are specific roles for Date: public- and private-sector interests at March 17, 2005 the Federal, state, and local levels, and that those involved in financial literacy should understand and successfully Discussion Moderators execute their roles and capitalize on the The discussion was moderated by education successes of other sectors . Dan Iannicola, Treasury Department; Luke Bernstein, Treasury Department; and Jim Gatz, Department of Health and Human Services .
Discussion Participants DAN IANNICOLA, Treasury Department LUKE BERNSTEIN, Treasury Department JAMES GATZ, Health and Human Services JIM BILELLO KELVIN BOSTON CATHY BOWEN RUTH FREEMAN KAREN HARRIS
136 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Key Discussion Points design to support those implementing financial education programs at state and Current State and Consequences of local levels . Targeted education efforts Financial Literacy might focus on, for example, consumers, According to participants, there is a dearth employers, and financial institutions, of financial skills among the population among others . The Federal government at large and among specific population could provide incentives among Federal subsets . More work still needs to be done to programs and private institutions to help financial institutions understand the reward success in financial education . benefits, both individually and nationally, Role of State and Local Institutions to improving financial literacy among consumers, particularly with immigrants, Educational institutions, financial families of all income brackets, small institutions, and private faith-based and businesses, and high school and post- community-based organizations also secondary students . The impact of such play an important role in increasing education could result in a stronger financial skills . Participants said state national economy, greater family self- and local institutions could replicate or sufficiency, and a reduction in predatory adapt to state and local conditions the lending and reliance on the cash economy . best practices identified by the Federal government . Specific emphasis could be Existing financial literacy efforts need to placed on providing financial education focus more on measuring programmatic through the local public school system effectiveness . Currently, there is little (local schools might consider instituting knowledge on the impact of financial specific financial literacy requirements education on individual or institutional for graduation) . State and local networks behavior . Participants believe the Federal also could tap Cooperative Extension, government could lead an effort to colleges and universities and private identify and promote best practices financial institutions to plan, implement, in financial education initiatives, and evaluate education efforts . Financial developing guidelines to evaluate the institutions could work with employers to short- and long-term effects of such develop local or corporate-based incentives efforts on families and communities . — such as loan forgiveness, qualification Role of the Federal Government for home mortgage, or lower interest rates — for achieving financial benchmarks . Participants stated that the Federal government’s primary role is to identify Measuring Success effective financial literacy practices and Participants recommended that the promote those best practices through success of financial education efforts recognized information channels (such can be measured in a number of ways, as MyMoney gov). . Consumers should be including changes in the level of 401(k) provided credible and useful information opportunities, increased personal that specifically addresses their needs savings, credit repair, and the number and personal situations . In addition to of first-time account holders . There distributing information, the Federal was strong agreement that measures government should collect, analyze and of effectiveness should be realistic disseminate data on effective practice and with respect to time and behaviors .
Appendix A 137 TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy
Public Awareness Campaigns Efforts should be carefully planned, executed, and measured, and adjustments Participants agreed that all engagement should be made based on campaign and education strategies need to be success . Multiple media, physical carefully tailored to consumers at large and locations, and modes of access should key population subsets . Communications be used to reach effectively different efforts should be positive and clear, and population subsets, including students, provide audiences with the tools and immigrants, older workers, rural resources they need to improve financial versus urban dwellers and persons at behaviors . Any public awareness campaign different stages of their financial lives . should be integrated so that messages layer and reinforce each other, regardless of source and intended audience .
138 Appendix A TAKING OWNERSHI P OF THE FUTURE: The National Strategy for Financial Literacy Appendix B
Appendix B 139