Boosting Student Financial Success
Gerri Walsh, president of the FINRA Foundation, highlights some of the foundation’s outreach efforts to advance financial education.
By Marta Perez Drake
The challenge of improving financial literacy in the United States is growing more difficult. An increasingly complex array of financial services offer consumers a potentially overwhelming number of products, services, and providers from which to choose, including those related to saving for and financing the cost of a college education.
Established in 2003, the FINRA (Financial Industry Regulatory Authority) Investor Education Foundation maintains partnerships with leading nonprofits and agencies to support innovative research and educational projects aimed at all segments of the investing public, advancing best practices in financial literacy education across an individual's life span. In this interview, Gerri Walsh, president of the FINRA Foundation, highlights some of the many examples of the foundation's outreach efforts. For more about FINRA's role in advancing financial education efforts for college students, see "Gerri Walsh on Enhancing Financial Capability" in the February 2013 issue of Business Officer.
When it comes to teaching individuals about financial decision making, what approaches have proven most effective?
There is a great deal that advocates of financial capability have yet to learn about which are the most effective methods. No single approach will work in all contexts because the American consumer is not monolithic. Another challenge is how to make financial education palatable. For instance, motivating students to learn about loan options can be tough, in part because of the negative association most of us have about any kind of debt. But integrating financial concepts into core subjects and one-on-one coaching models hold promise.
You've mentioned the positive impact that financial coaching can have on changing consumer behavior. How does the FINRA foundation support this effort?
Our coaching efforts primarily target low- to moderate-income women and are focused on helping them move from an insecure financial situation. While this isn't directly relevant to college students, some of our work points to key factors for financial success across the spectrum. For instance, we support a project in Oklahoma where community-based nonprofits worked with local utilities to enable low-income women with poor credit to qualify for level payment plans. The nonprofits found that when clients can budget consistent amounts, they become more likely to meet their monthly utility payments. After two years of financial counseling, paired with the level payment plan, most of the women had greater control of their finances, reporting higher credit scores and overall confidence to manage their finances. A key finding for the foundation, and an important implication for all educators, is the need to instill a sense of hope so that individuals don't feel overwhelmed by tough financial circumstances.
What are some other examples of ways the foundation is directly supporting research and educational efforts to advance overall consumer financial literacy?
One example is the http://smartinvesting.ala.org/ grant program administered jointly by the FINRA foundation and the American Library Association. This program funds public library efforts to provide patrons with access to free, unbiased financial education resources. The program's primary focus is to help those who might otherwise have limited access to important information relevant to their financial well-being.
We also partner with the U.S. Department of Defense Financial Readiness Campaign to offer our Military Financial Readiness Project, delivering free financial education tools and training to service members, their spouses, and on-base financial educators through a variety of programs and public awareness initiatives. The project's primary goal is to help military families manage their money with greater confidence, and this can include saving for and paying for college.
Perhaps most directly relevant to the college-bound student is our collaboration with the Consumer Federation of America and the Channel One network on Generation Money, a program to help teach America's teens about the power of compound interest with respect to debt and savings, along with other important financial lessons, such as problems associated with too much credit card debt. Launched in January 2009, the project reaches nearly half of all high schools and middle schools across the nation or approximately 5 million students. This past year when we analyzed the impact of the initiative, we found that students exposed to the programming were more likely to talk to their parents about money and about saving, spending, and budgeting than those who didn't.
I understand that the foundation also sponsors quite a bit of research. What are some examples that may be most relevant to the higher education sector?
One great example is Critical Choices: How Colleges Can Help Students and Families Make Better Decisions about Private Loans, prepared by the Institute for College Access and Success and its Project on Student Debt. A significant number of students make use of private loans without maxing out their federal loan options. Parents and students need effective guidance to understand their choices. The TICAS research focused on identifying cost-effective solutions to expand educational opportunity, protect the financial security of families, and advance the nation's economic competitiveness.
The FINRA Foundation also conducts its own research. Perhaps most notable is our National Financial Capability Study. We first conducted this study in 2009 and are set to release the results of our second study by the end of the first quarter in 2013. The first wave aimed to establish a baseline measure of the financial capability of U.S. adults by benchmarking key indicators of financial capability, and to evaluate how these indicators vary with underlying demographic, behavioral, attitudinal, and financial literacy characteristics. One component of the study was a state-by-state online survey of more than 28,000 individuals. You can visit http://usfinancialcapability.org for a clickable map that allows the public, policy makers, and researchers to compare the financial capabilities of Americans in every state and across geographic regions.
To what extent do generational or demographic differences factor into financial capability or influence financial decision making?
The results of our second study will likely shed more light about the differences in financial capability across a wide array of demographic variables. Something striking from our 2009 study is that across every measure, younger individuals-ages 18 to 34-tend to have lower levels of financial capability than do their older-generation cohorts. For instance, when it comes to use of nonbank borrowing, like auto loans, payday loan, pawn shops, or rent-to-own, 34 percent of 18- to 34-year-olds said they made use of those products and services versus only 12 percent of those ages 55 and older. Similarly, with regard to setting aside a rainy-day fund to cover three months of expenses, among those ages 18 to 34, 68 percent said they had not done this, versus 47 percent of those 55 and older who had established a rainy day fund.
Now, part of the reason that young people perform more poorly on financial capability measures may be experiential. Most of us don't gain financial knowledge until we make a financial decision, like investing in a 401(k) plan or using a credit card. Until you have real-life financial experiences, you don't often make wise decisions because you first have to learn from your mistakes. Our hope is that the broad-based concerted efforts by many different entities to educate younger Americans about key financial concepts and to raise awareness about the implications of financial decisions associated with various financial products will begin to improve the financial capability of all Americans, including current and prospective college students.
MARTA PEREZ DRAKE is vice president of professional development for NACUBO.