Making the Case for Adult Financial Literacy Vanessa F. Bright, Extension Educator (Field Faculty), University of Maryland Extension Michael Elonge, Extension Educator (Field Faculty), University of Maryland Extension The University of Maryland, College of Agriculture and Natural Resources programs are open to all and will not discriminate against anyone because of race, age, sex, color, sexual orientation, physical or mental disability, religion, ancestry, or national origin, marital status, genetic information, or political affiliation, or gender identity and expression.
Making the Case for Adult Financial Literacy: How Did We Get Here? The financial crisis of 2008 shone a spotlight on the need for improved financial capability in the U.S. Sub-prime lending crisis, excessive credit card and student loan debt, and challenges facing many homeowners is often attributed to predatory practices, but they also result from both the lack of financial knowledge and inadequate access to responsibly designed financial products and services January 2010, President Obama signed the Executive Order creating the President s Advisory Council on Financial Capability with the charge to assist the American people in understanding financial matters and making informed financial decisions.
President Barack Obama Presidential Proclamation March 31, 2011 Americans ability to build a secure future for themselves and their families requires the navigation of an increasingly complex financial system. As we recover from the worst economic crisis in generations, it is more important than ever to be knowledgeable about the consequences of our financial decisions.we recommit to improving financial literacy and ensuring all Americans have access to trustworthy financial services and products.
President s Advisory Council on Financial Capability Final Report January 29,2013 Financial capability is not a stand-alone topic to be isolated from the rest of our lives. Financial capability must be woven into the fabric of our lives into our homes, our schools, our workplaces, our communities, even the design and regulation of financial products and services we use.
Four Major Recommendations: Financial education is a lifelong pursuit that needs to begin in the home with parents educating their children, continue in a child s pre-school years, continue throughout high school in preparation for post secondary education and training, and then persist beyond. The workplace is a critical place to provide financial capability education and well-framed financial choices. Financial capability can be best advanced in the community through the coordinated efforts of local governments, post-secondary institutions, financial services providers, local business leaders and non-profits working together. Financial capability can be viewed as a function of education, enlightened regulation and choice architecture.
The Council Believes that a financially capable population is required to: Restore upward mobility and reduce the widening income and wealth gap. Spark entrepreneurship, which drives job growth; and Have an informed civic dialogue on taxes, entitlements, government debt, and other critical issues facing our country.
Financial Literacy Statistics of Americans America s working households struggle to maintain financial standing. The rate of American households without a 3 month safety net is 43.5% nationally. As household incomes remain stagnant, families are taking on debt to stay afloat. Nationally, 56.3% of all consumers have subprime credit. When it comes to retirement savings, about 32% of adults still do not save a portion of their household s annual income. 21% of individuals surveyed reported that winning the lottery was the most practical strategy for accumulating several hundred thousand dollars of wealth for their retirement A total of 74% of parents have some reluctance to discuss financial topics with their kids.
University of Maryland Extension The University of Maryland Extension offers solutions in your community by bringing research-based programs to you for practical, everyday use. The Money Smart Impact Team is your source for unbiased, financial education. http://extension.umd.edu/finance
Financial Check-up Your Financial Future Today Set financial goals Financial statement Budget and money management Build credit and manage debt Protect wealth with insurance Save and invest
Make Your Goals Smart Goals!
Cash Flow Statement (Net Gain or Loss) Income Expenses Net Gain or Loss Track income and expenses!
Do You Have Money to Burn? Date Item Cost Need or Want?
Step One: Identify Your Income
Step Two: List Your Expenses Expenses Monthly Amount $ Savings and Investments Housing Utilities Telephone Cell Phone Cable Insurance (other than car) Internet Groceries Entertainment Transportation (car payment, gas, repairs, insurance, public) Credit Cards Other Other Total Expenses
Step Three: Compare Your Income and Expenses Income and Expenses Per Month $ Total Monthly Income Total Monthly Expenses Subtract Expenses From Income
Character: Sarah Job: Mobile Phone Sales Monthly Take-home Pay: $3850 Sarah has a well-paying job in mobile phone sales. However, she doesn t like her job very much. Nevertheless, her job pays her bills. Sarah has always loved photography. In her spare time, she takes photographs of nature and people enjoying life. She wishes that she could find a job that would pay her to do what she loves. She graduated from college with a Bachelors in Marketing. Sarah recently got a job offer for a position photographing special events, but the pay is not enough to cover her current bills. Her take home pay at the potential job will be $3000. Her current gross income is $6311 and she takes home $3850 after taxes. Sarah s Goal: To find a way to accept her dream job at the lower take-home rate and still meet her expenses.
What is a Credit Score? Why is it Significant?
Protect Your Financial Future Insurance helps to protect you from a major financial loss. Insurance is simply a promise of reimbursement for a loss in return for a paid premium. You should shop around for insurance products. Insurance is available for all types of risks (e.g., health, disability, auto, home, life)
Insurance Needs throughout Life Scenario Type of Insurance When do you begin this insurance? I hit a car while backing out of my driveway. I fell off a ladder while painting my house and broke my leg. My neighbor injured his back while walking up my steps with a broken rail. auto when car is purchased
Rainy Day Fund
The Power of Compound Interest Year Balance Start Interest Balance at End 0 (Now) $1,000.00 ($1,000.00 10% = ) $100.00 $1,100.00 1 $1,100.00 ($1,100.00 10% = ) $110.00 $1,210.00 2 $1,210.00 ($1,210.00 10% = ) $121.00 3 $1,331.00 ($1,331.00 10% = ) $133.10 $1,331.00 $1,464.10 4 $1,464.10 ($1,464.10 10% = ) $146.41 $1,610.51 5 $1,610.51
What Happens When You Start Saving Early? Average annual rate of return Number of years of contributions JoAnn s IRA (starts at age 22) 9% 9% 9 34 Susan s IRA (starts at age 31) Amount contributed $1,000 per year ($9,000 total) $1,000 per year ($34,000 total) Future value $243,863 at age 65 $196,982 at age 65
Teaching Tools
Financial Education Outcomes
Financial Education Outcomes in Baltimore City (Sample in MD) Targeted Audience: 2009-2013 Residents in: Public Housing - Housing Authority of Baltimore City (HABC) Salvation Army Affordable Housing Corporation (AHC). (N =1,764) is as follows: 85% Housing Authority of Baltimore City (HABC). 10% Salvation Army. 5% Affordable Housing Corporation.
Intent to Change Behavior More likely to pay your credit card bills on time More likely to pay more than the minimum on your credit card(s) More likely to request/review your credit report(s) annually More likely to establish a debt repayment plan More likely to set savings priorities and goals More likely to establish an emergency fund More likely to save regularly or increase savings More likely to track income and spending (expenses) More likely to develop a spending plan (budget) More likely to compare your wants vs. needs More likely to set financial goals Before Class 55% 46% 40% 30% 58% 40% 60% 72% 68% 72% 65% After Class 80% 82% 90% 96% 82% 90% 89% 100% 100% 100% 89%
Yearly Program Impact: Nine-month follow up self-reported survey Year 2009 N =318 2010 N =337 2011 N =796 2012 N =219 2013 N = 94 ( Jan July) Housing Authority of Baltimore Salvation Army City (N=318) (N = 0) 86% practiced budgeting. Tenants at-risk of eviction due to Zero classes conducted default in rent dropped from 80% to 20%. (N = 264) (N = 26 ) 92% practiced budgeting. 90% found subsidized Tenants at-risk of eviction housing. dropped from 100% to 26%. 65% found jobs. (N =777) (N = 54) 95% practiced budgeting. 94% found subsidized Tenants at risk of eviction housing. dropped from 85% to 30%. 80% found jobs. (N=198) (N = 21) 100% practiced budgeting. 99% found subsidized Tenants at risk of eviction housing. dropped from 100% to 5%. 92% found jobs. N = 45 N = 49 100% practiced budgeting. 16 found jobs. Tenants at-risk of eviction 20 found subsidized dropped to 5%. housing. Affordable Housing Corporation (N = 0) Zero classes conducted (N = 47) Tenants at-risk of eviction dropped from 100% to 5%. (N = 35) Tenants at-risk of eviction dropped from 100% to10%. 3 Counselors were trained by Educator to conduct training for their tenants. Counselors are now conducting their own housing programs.
Great Financial Management Starts with Budgeting To get a copy of this tool contact: MElonge@umd.edu
References T. Rowe Price 2014 Parents, Kids & Money Survey Financial Literacy: What Works? How Could it be More Effective? William Gale and Ruth Levine, October 2010 Corporation for Enterprise Development: 2014 Scorecard Deep Dive: Financial Assets & Income President s Advisory Council on Financial Capability, Final Report January 29, 2013 Elonge, M. (2013). Budgeting to Acquire Savings: A 3-Step Approach for Community Educators to Teach Limited Income Consumers. University of Maryland Extension Peer Reviewed Publications. https://www.extension.umd.edu/learn/budgeting-acquire-savings-3-stepapproach