Financial Literacy - What Are We Doing About It?

Massachusetts Banker
By Larry Collins

First Quarter, 2004

Here is a sampling of findings in a survey recently conducted for FleetBoston, results that could be characterized as "very interesting." Among parents with children five or older, only 26 percent feel well prepared to teach their kids about basic personal finances. Only a quarter of Americans feel very well informed about managing household finances. Nearly six out of 10 Americans are racing to make changes in their financial situation so they'll have enough income when they retire. That's just one survey. There are dozens of others floating about, surveys of elementary school kids, of high school and college students, of inner city residents, and immigrants, and all of them come to the same conclusion: We're a nation lacking in financial literacy. So what do we do about it?

There is an abundance-some would say overabundance-of programs designed to provide people with the basic information they need to function in today's increasingly complex world of banking and finance. The problem is getting the information to the people who need it on a sustained basis, not just a one-shot lecture or a workshop. We're not talking about the intricacies of arbitrage or short selling here, we're talking about how to set up a personal budget, how to balance a checking account, how to establish credit and use it wisely, how to save and how to spend - the nitty-gritty financial information needed to survive, prosper and create wealth in today's economy.

Beyond 'the Usual Suspects'
The people who could use this information range from the so-called "unbanked," newly arrived immigrants, inner city residents of every racial and ethnic stripe, single parents wrestling with limited incomes to elderly folks on fixed incomes. And, oh, guess who else? Most of the youngsters attending school in America today, not just elementary schools, mind you. We're talking high school and college students too. "Contrary to popular belief, the audience for personal financial education is wider than 'the usual suspects,' low-wage earners and immigrants;" Kip Child, spokesman for the Braintree office of the Federal Deposit Insurance Corp., points out.

(In fact, a 2003 survey of more than 4,000 12th graders conducted by a major financial literacy crusader, the Jump$tart Coalition for Personal Financial Literacy, indicated that the nation's high school seniors knew less about financial basics than they did in a previous survey five years before!)

Banks, of course, play a critical role in both the development and the distribution of financial literacy programs. Partnerships with schools, community development corporations and other community organizations are commonplace. Inner city branch banks provide brochures and other materials in English, Spanish, and other languages. They offer workshops and seminars; bank employees serve as tutors to members of various minority groups; bank employees go into classrooms to deliver information on the dos and don'ts of handling one's personal finances. But is this enough?

Empowerment, Not Literacy?
Tony Robinson is assistant vice president in charge of community development at Boston's Wainwright Bank & Trust Co., and a certified minister. In recent years he has built a formidable reputation for himself as a spellbinding proselytizer, not of financial literacy, an expression he eschews, but of "financial empowerment." "I don't use that language - financial literacy," he declares. "That word literacy makes people in the 'hood' think you're talking down to them, like they're inferior. Empowerment is the right word, because that's what we're trying to do: give people the power to make a better future for themselves."

A former sergeant in the National Guard, Robinson started out in the mailroom at Wainwright Bank after graduating from Hyde Park High school. He says that on average he gives a multi-media presentation on the road at least once a week, visiting a variety of venues throughout the inner city. One recent session took place at Red Cross headquarters on Columbus Avenue in Boston, where some 200 red jacketed members of the volunteer service organization City Year listened raptly as the Rev. Robinson, strains of hip-hop playing lightly in the background, dazzled his young, exuberant audience with his gospel of the joys of compound interest and the woes engendered by check cashers and payday loans.

"You ever see a check casher store in Wellesley?" he asks, with a narrow-eyed visage of Cosby-like disdain. "Of course not, because the folks in Wellesley know better! They know how to use the services of a bank."

Robinson sees organizations like City Year, made up of youthful volunteers committed to helping out their neighbors, as a critical tool for getting out the gospel of financial empowerment. Like the preachers of old, he expects the message to be passed along. And while he is a preacher, he remains a committed banker as well. At the end of his session he invites his listeners to drop by a Wainwright branch and open an account, the first 10 dollars compliments of Wainwright. "Don't forget to tell them that Tony sent you," he reminds them.

A Crowded Landscape
One of the more widely utilized educational programs-for adults-is the FDIC's Money Smart Program, offered free of charge to banks and community organizations to foster financial education among adults absent from the financial mainstream. The FDIC program, endorsed by the MBA, provides banks with a dual benefit: It furnishes a ready-made curriculum to banks and others that covers all the financial basics-everything from how to select the right type of savings account to understanding the wonders of compound interest (often the most startling discovery in these learning sessions); in addition, banks using the FDIC's Money Smart program also may touch on some obligations under the Community Reinvestment Act (CRA). Money Smart, says FDIC's Kip Child is a "complete financial literacy curriculum. It consists of 10 stand-alone modules covering various personal finance topics, including bank services, budgeting, consumer's rights, managing credit and debt, and preparation for home ownership."

The 10-part series begins with an overview of bank services, then ranges through topics such as the basics of borrowing, checking accounts, budgeting, saving, security, and home mortgages. According to Child, the Money Smart curriculum has been nationally recognized. In Boston the FDIC has cited several community organizations for their efforts in promoting financial literacy in inner city neighborhoods, including Columbia Point Community Partnership, Inquilinos Boricuas en Accion, Asian American Bank and Trust, Emmanuel Gospel Center and Wainwright Bank and Trust of Boston.

To generate interest in the Money Smart program and to establish partnerships between banks and community organizations, the FDIC's Boston-area office conducted 18 training sessions throughout New England last year. At each session the FDIC brings together about 25 bankers and community organization staff members to map out the most effective strategy for preaching the Money Smart message.

Money Smart is just one of many financial literacy programs currently available. In fact, there are so many, emanating from every layer of government as well as the private sector, that Congress is now considering legislation designed to paint some focus and coordination into the financial literacy landscape. The federal government alone currently offers financial literacy programs through 16 different agencies, including the FDIC and other regulatory agencies.

Sen. Paul Sarbanes (D-Maryland) the ranking minority member of the Senate Banking Committee, and New Jersey Democratic Sen. Jon Corzine last year introduced a measure (S. 1470) that would establish a Financial Literacy and Education Coordinating Committee within the Treasury Department whose aim would be to coordinate the financial information provided by government agencies and the private sector. Similar legislation was introduced last year by Sen. Debbie Stabenow, (D-Mich.) and Michael Enzi, (R-Wyo.). Their bi-partisan bill would set up a Financial Literacy Commission in a central location, with a web site and toll-free phone number where consumers could access financial literacy programs now offered on a scattershot basis. Rep. Judy Biggert (R-Ill.) is the sponsor of a bill that seeks to determine the most effective ways of teaching financial literacy.

Jump$tart
Founded in 1997, Washington-based Jump$tart is a coalition of some 150 partners, including federal agencies, universities, and associations. Its goal is to enhance the personal financial literacy of students through high school. Jump$tart, in fact, recently announced it tracked a 350 percent increase in the number of state and federal bills dealing with financial literacy that were filed in 2003 over the previous year.

Bringing the message into the inner city by visiting neighborhood organizations, proselytizing among immigrant groups and other "unbanked" constituencies are laudable efforts. But remember the comment of the FDIC's Kip Child: "Contrary to popular belief, the audience for personal financial education is wider than 'the usual suspects,' low wage earners and immigrants." One need only drop into the local high school to find out.

High School Seniors?
Last year, the Jump$tart Coalition conducted a survey of high school students in 183 schools across the country. Underwritten by the Fannie Mae Corp., the survey was conducted in the form of a 45-minute written examination administered to more than 4,000 seniors. This was the second such survey in five years. Now, with the plethora of financial literacy programs available over that five-year period, including those promoted by Jump$Start, one would expect to find substantial improvement in the test results, right? Alas, that wasn't the case.

According to Jump$tart, "On average, participants in the 2002 survey answered 50.2 percent of the questions correctly - a failing grade based upon the typical grade scale used by schools (90 percent to 100 percent=A, 80-89 percent, B, etc.). The average score in the 1997 survey was 57.3 percent.

Another random survey finding, one that certainly does not auger well: Nearly 60 percent of the students knew that a sales tax makes things more expensive to buy, some 21.2 percent of them believed there is a 5.5 percent national sales tax, and 17 percent thought the federal government deducted the sales tax from pay checks. Again, what was that about the usual subjects?

Noting that the "No Child Left Behind Act of 2001" makes funds available to local school boards for innovative assistance programs, including "activities to promote consumer, economic and personal finance education," Dara Duguay, Jump$tart's executive director, says, "Our hope is that the latest survey results will compel superintendents to place a high priority on funding innovative personal finance education programs when applying for the money." That hope, however, appears to be bearing little fruit. "The problem is there are 27 categories of innovative programs listed, so it's very competitive, and very few superintendents are choosing financial literacy as one of their programs," says Duguay.

Beware of Mandates
Jump$tart's "ideal" financial literacy strategy would be to have every school system in America incorporate a financial literacy program as a mandated freestanding class, a goal Duguay quickly concedes is unrealistic. "The word 'mandate' in educational circles is a very dirty word," she observes. In fact, only a handful of states currently require that some personal finance lessons be part of the school curriculum, Illinois, Kentucky, New York and Idaho. The personal finance topics are usually woven into classes like economics, social studies, or family and consumer science (what used to be called Home Ec.).

"It's hard to understand," says Daniel J. Forte, president of the Massachusetts Bankers Association, "how school boards find time for curriculum like sex education and diversity training but not financial education. I would argue that they are all important and each deserves some attention.

Utah, with one of the nation's highest personal bankruptcy rates, is the only state that currently mandates a free-standing class in personal finances, a mandate that was adopted just last year. "What Jump$tart has seen as an easier approach is to say to educators, 'Let's look at the classes you're already offering, like economics, which usually has a lot of theory. Why not incorporate practical financial skills into that class?" says Duquay.

There is another difficulty when trying to shoehorn financial literacy topics into a crowded classroom schedule, according to Hilary L. Hunt, eastern state co-coordinator for Jump$tart. File under "dirty little secrets."

"The fact is that teachers are uncomfortable getting up in front of a class to teach something they themselves might have difficulty with," says Hunt. "I mean, it would be tough for a teacher to teach how to balance a checking account when they haven't balanced their own in five years ...Right now, no state requires teachers to take a course in personal finance. To me, that would be a big step forward."

While Massachusetts is not among those states that presently require financial literacy as part of the curriculum, the state's classrooms are not without access to a variety of programs that are out there, if teachers already burdened with MCAS obligations can find time to fit them in. One state- and MBA-sponsored program, Savings Makes "Cents" is directed at students in grades three through six. Patterened after similar programs offered by local banks for years, Savings Makes "Cents" has been taught in some 400 schools throughout the commonwealth. Comprised of eight 45-minute sessions over the school year, the program, according to the treasurer's office, "focuses the ABCs of money management. Local schools and banks work together to teach children basic monetary concepts, including how to open a savings account, the origin of money and basic budgeting skills."

Eileen Glovsky, who oversees the program for the treasurer's office, says, "The primary focus is on the savings account. We want to get kids in the habit of saving. One bank has taken it beyond the sixth grade to Middle School, establishing savings goals, like the traditional eighth grade trip," says Glovsky.

Still, while the Savings Makes "Cents" program is popular, Glovsky is considering cutting back the number of sessions. It's the same old story: many teachers already cramped for time find all eight sessions too much of a good thing. This is a commonplace view in any discussion involving establishment of financial literacy as part of a regular school curriculum - the pressures on a teacher's time.

Pick up any report on dealing with financial literacy-and these days there a many-and you're certain to find views like the following from a witness before a recent session of the Education Reform Subcommittee in Washington: "Speaking as a former school board president, I can tell you that a federal demand for a new stand alone class (in financial literacy) is a demand that few school districts could easily meet."

Again, it's that mandated stand-alone aspect that has proven to be the most formidable obstacle to incorporating financial literacy programs into America's classrooms on a sustained basis.

Lots of Volunteer Efforts
Meanwhile, banks, state agencies and other organizations keep coming up with voluntary programs designed to capture student interest, and teachers, often spurred on by the enthusiasm of their students, make room for these activities, often at considerable sacrifice in their own time and energy. One of these programs is the Stock Market Simulation (SMS), in which classes, largely in grades four through 12, compete against each other by investing a hypothetical $100,000 stake in the stock market over a 10-week period. Since its inception in 1977, when less than 2,000 students participated in the program, SMS participation has grown to half a million students annually. In Massachusetts, the program is provided to hundreds of Bay State classrooms by the Massachusetts Council on Economic Education and co-sponsors include Sovereign Bank, Wainwright Bank and the securities division of the Massachusetts Secretary of State's office.

Now, about that nationwide Fleet survey: Last October Fleet hired Leiberman Research Worldwide to conduct it. Some 2,250 adults participated. The dismal responses were enough to justify FleetBoston's commitment to a $30 million financial education initiative aimed at helping consumers with their financial decisions and instructing both adults and youngsters in personal finance basics. Called "Smarter Decisions with Fleet" the ambitious program was the brainchild of Anne Finucane, then FleetBoston's chief marketing officer, who last month was named Fleet president for the North-east and director of strategic issues. She is also responsible for the smooth transition of FleetBoston to its proposed new owners, Bank of America.

Commenting on the need for effective financial literacy programs, Finucane said, "Both the public and private sectors must work together to address the growing national need for financial literacy in America. Companies the size and scope of Fleet are in a position to use unprecedented resources to that effort."

According to Fleet, the multi-faceted program includes the development of educational materials and technology, research, grants, seminars, partnerships with community organizations, and training. More than 170,000 copies of a comprehensive financial literacy book "Making Your Money Work for You" have already been distributed, and a Spanish edition is due out in February.

In Massachusetts, Fleet recently announced a $150,000 grant to the Organization for a New Equality (ONE) for its statewide campaign for Economic Literacy. Founded in 1985 by former U.S. Ambassador to Tanzania, Charles R. Stith, ONE is a multi-racial agency that provides financial education to women and people of color.

FleetBank Financial also awarded a $50,000 grant to Operation HOPE, a nationwide organization seeking to bring economic self sufficiency to inner city neighborhoods. The grant will help fund Operation HOPE's "Banking on Our Future" financial literacy program. In addition, more than 75 Fleet employees will volunteer their time to teach the "Banking on Our Future" program to some 4,500 middle school students in 150 Boston classrooms.
No Re-Inventing the Wheel.

So you see, there are plenty of financial literacy programs out there. How do we use them? "Our Financial Literacy Committee decided early on that we would not re-invent the wheel by creating our own financial education program," said Kevin Kiley, executive vice president of the Massachusetts Bankers Association. "Instead, our goal is much more subtle: to help our member banks in Massachusetts plug into existing financial education programs - basically putting banks together with interested parties in the communities we serve.

"Some of it constitutes evaluating the existing programs but mostly it's an effort to get interested parties together and to make it easier for banks to reach out. As such, we're functioning more as a financial literacy promoter than an educator, and that's where we know we can add real value." The MBA is planning a first quarter financial education conference for its members and has been supporting or endorsing financial education programs such as the state treasurer's Savings Makes "Cents" program for kids and the FDIC's Money Smart curriculum for adults. (Dedicating this issue of Massachusetts Banker to financial literacy is also intended to support the overall effort.)

For more information about how your bank can invest in Financial Literacy, call Kevin Kiley or Bruce Spitzer at the MBA offices, (617) 523-7595.

Reprinted with permission of the Massachusetts Bankers Association from the Massachusetts Banker, first quarter 2004. May not be reprinted without express written permission from of the Massachusetts Banker, 73 Tremont St., Suite 306, Boston, MA 02108.

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