Media Backgrounder Financial Literacy

7/31/2019 Media Backgrounder Financial Literacy

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Media Backgrounder: Analysis of the definition, awareness, andcurrent issues surrounding financial literacy

By: Catherine Harper

Public Relations WritingSeptember 29, 2010

Introduction

Financial literacy in the United States has been a particular topic of interest in the pasttwenty years during the rise and fall of the economy, particularly during the recent failingof the sub-prime mortgage market and growing recession. In the face of such hardeconomic times, scholars, scientists and economists alike have ventured to find what levelAmericans apply and hold financial literacy in their personal transactions. Recently, studieshave shown that financial literacy is decreasing in adults as well as adolescents and college

students.

What is financial literacy?

The Journal of Consumer Affairs defines financial literacy as conceptualized as havingtwo dimensions- understanding (personal finance knowledge) and use (personal financeapplication (Huston 2009).

The 2009 FINRA National Financial Capability Survey applies this definition of financialliteracy to matters of savings and planning ahead for rough economic times, retirementand childrens education; management of financial products such as credit cards,

mortgages, retirement accounts, stocks, bonds and mutual funds, and risks preferences; aswell as financial knowledge and decision making including self-perceptions of financialknowledge, measuring financial literacy, obtaining credit reports, checking credit scores,and understanding financial contracts.

What is the problem with financial literacy?

While many Americans have needed to save and cut back in harsh times of recession,studies have proven that most people will claim to know their finances and defend theirfinancial literacy while their bank statements and personal expenditures do not reflect thisideology. As stated in the FINRA Investor Education Survey in 2009, there is a cleardisconnect between financial statements and self-perception.

The disconnect stems from the dropping in financial literacy rates and growing financialproblems which have been occurring from a period of time starting in the 1990s. TheJumpstart Coalition performed a study in 2008 showing American financial literacy scores

that have dropped about 9% in 12 years, with financial literacy at a score of57.3% in 1997

and 48.3%in 2008. The waning financial literacy score shows that while many Americans


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would like to think they are confident in their daily expenditures and savings, this is notalways the case.

The financial problems most Americans face stem from the complicated financial systemthat we see today, integrated into a long and lengthy system for saving and investing in

mortgages and other such financial products, and a much larger financial market. TheFINRA survey states, The price tag for many components of the American dream

including purchasing a home or funding a childs college educationhas risen since the

1980s and 1990s. Especially with respect to college tuition costs, that trend promises

to continue. For financial literacy, however, it is a downward sloping trend.

The FINRA National Survey held true that in 2009 almost half of Americans had troublekeeping up with their expenses and bills and a quarter had reported overdrawing theirchecking account due to a lack of savings. Lack of savings became a trend in 2009 asshown by a Capital One bank survey entitled Americas Financial IQ Survey ShowsBoth Understanding and Gaps, which showed that 47% of the survey participantsadmitted to putting less money into savings and dipping into savings to cover day-to-dayexpenses. As to the overall financial literacy of Americans, in that the definition offinancial literacy depends on ones ability to save their money for rainy day periods,many Americans were not saving and are thus were not financially literate.

On another side of the issue and quite the opposite effect, more and more reports ofhousehold expenditures exceeding income reached the surface in 2009 and 2010. TheFINRA survey reported that over the past year, household expenses (not including thepurchase of a new car or other big investments) have been greater than income for morethan one of every 10 Americans (12 percent) and about equal to income for 36 percent ofAmericans. However, according to a Cardtrak survey in January 2010, credit card debt has

been decreasing due to consumer willingness to cut back their debts on credit cards. 55% ofconsumers said that they were making a proactive effort, and 69% of those consumersresulted in higher credit card interest rates from their efforts.

Another issue with financial literacy among Americans lies among the younger adolescentsand those entering the financial world, whom, shown by the National Survey of FinancialConditions, appeared to exhibit much less confidence in the area than older people. Thesurvey by the Jumpstart Coalition showed a 48.3% average on financial scores in highschool students as opposed to 62.2% in college students. As stated by the survey,

Concepts like income tax, withholdings, insurance, the economy, investments and even

basic checking accounts are difficult for young teenagers to absorb because most of thesubject matter is abstract and lacking in immediate relevance. In Charles Shwabs 2008

book Parents & Money, statistics showed that only about one in three parents (34%) havetaught their teen how to balance a checkbook, and even fewer (29%) have explained howcredit card interest and fees work.

However, in a 2010 survey by the College Savings Foundation, 75% of high schoolstudents nearing graduation said that it is their responsibility to pay for their college funds,


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and 45% of these students have already begun saving for college with about $1,000-5,000.These same students would benefit from knowing much more about financial literacy,savings, and future goals in finances, and yet literacy rates are at an all time low in youngpeople.

What are groups doing about the issue about financial literacy?

In 2003, Congress formally recognized April as a month dedicated to Financial Literacy,proposed by the Jumpstart Coalition for Personal Financial Literacy in 2000.

In 2009, 24% of credit unions offered services including Financial Counseling andFinancial Education, 13% held Financial Literacy workshops, 8% had a First TimeHomebuyers Program, and 4% hosted an in-school branching program.

Leo MacNeil, SVP of Community Relations at Harbor One Credit Union, stated, During

these challenging economic times, collaboration is essential to effective community

outreach and success. While this has always been so, this painful recession has forced

most community-based organizations to find synergy through collaboration and reduce

the cost of redundancies in services. Harbor One Credit Union, through its MultiCultural

Banking Center and other initiatives, has been a leader in bringing agencies together for a

creative and effective discourse on the benefits of collaboration.

MacNeil is not the only one actively involved at credit unions enhancing awareness in the

community. For Dawn Ambuehl-Sadek, Community Education Director at FCU, the

process of educating in financial literacy is a multi-step task which spans multiple

avenues.

Start one at a time. I started with seminars, built that program, then moved into the

online, social media channel. It is a long process. There is more we can do, but you have

to start with one thing, perfect it, then move on to the next, Sadek said.

On top of a dedication on credit unions and banks to educate their members on the nature

of their finances, Congress took an initiative on financial issues in 2008 with its Dodd-

Frank Wall Street Reform and Consumer Protection Act, which reaches to the problem of

financial illiteracy by creating a consumer financial-protection agency that protectsconsumers from unstable banks as well as other elements of the financial market, as well

as the authority to review and streamine financial literacy programs, according to an

article by James Surowiecki in theNew Yorkerentitled Greater Fools.

What are groups not doing about the issue of financial literacy?

According to an assessment by the Washington Financial Literacy Work Group of the


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Senate Bill in 2008 towards financial literacy, there were three missing components whichwere not entirely set about in clarity in the bill, these being:

1. To identify current state funded efforts to support financial literacy,

2. Assess whether there are opportunities to create a centralized location of

information regarding these existing state efforts, and

3. Identify whether there are opportunities for expanding partnerships with other

community entities also providing financial literacy services

While credit unions have recently increased their financial literacy services as well as anincrease in state-mandated organizations providing these services across the nation, itremains to be seen in what detail these mandates hold for the enhancement of financialliteracy of Americans.

What do local opinion leaders state on the subject of financial literacy?

Randy Walton, president of the San Marcos School Board, stated, One of the biggest

gifts we could give ALL our students in SMUSD, whether college-bound or not, is an

education in basic economics and financial literacy. Lately, we have all learned more

than we wanted to know about bad debt and frozen credit markets and such, but it has

reinforced the need to teach kids the fundamentals about taxes, markets, and, most

important, personal finance, including credit and debt.

The Financial Literacy Coalition of Central Texas released a comment stating, The

mission of the Financial Literacy Coalition of Central Texas (FLCCT) is to foster

community prosperity by enhancing the knowledge and skills Central Texans need for

improved financial decision-making. Our vision is to be recognized as a trusted,

unbiased, and credible source of personal financial education. The goal of FLCCT is to

educate.

The Financial Literacy Coalition of Central Texas is located in Austin, Texas at 1600 B.

Smith Road. They are a non-profit organization that offers courses on financial literacy

for both adults and adolescents. For more information visit their website:

http://www.flcct.org/

Conclusion


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The effects of overspending, under-saving, and under-educating on the nature of financial

literacy span far wider than the knowledge of a group or population of Americans,

extending rather to the economic future of the nation as a whole.

As the Jumpstart Coalition survey states, The current financial crisis began with sub-prime mortgages that were marketed primarily to those with less income, education, and

presumably less financial literacy than those who were eligible for prime mortgage.

Financial literacy clearly has ongoing macroeconomic ramifications.

In our nations effort to right the debts and mortgages that have gone wrong contributing

to the recession, it would seem that financial literacy in Americans is one of the greatest

obstacles we as a nation face in righting this wrong for future generations.

Studies:

1. [Financial Brand: Does Financial Literacy Work? April 8, 2010.]http://thefinancialbrand.com/11235/does-financial-literacy-work/

2. [360 Financial Literacy.com. Summary of the New Financial Reform Law.]http://360financialliteracy.com/Topics/Credit-and-Debt/Credit-Cards/Summary-of-the-New-Financial-Reform-Law?fpath=103

3. [FINRA Investor Education Foundation: Financial Capability in the United

States. December 2009.]http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdf

4. [Tissue, Chris. Happy Financial Literacy Month! April 6, 2010.]http://www.creditunions.com/blog.aspx?id=3607

5. [Huston, Sandra J. Measuring Financial Literacy. June 1, 2010.]http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01170.x/pdf

6. [CardTrak.com, Card Cutback, December 15, 2009.]

http://www.cardtrak.com/news/2009/12/15/card_cutback]

7. [Capital One,America's 'Financial IQ' Survey Shows Both Understanding and
http://thefinancialbrand.com/11235/does-financial-literacy-work/http://360financialliteracy.com/Topics/Credit-and-Debt/Credit-Cards/Summary-of-the-New-Financial-Reform-Law?fpath=103http://360financialliteracy.com/Topics/Credit-and-Debt/Credit-Cards/Summary-of-the-New-Financial-Reform-Law?fpath=103http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdfhttp://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdfhttp://www.creditunions.com/blog.aspx?id=3607http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01170.x/pdfhttp://www.cardtrak.com/news/2009/12/15/card_cutbackhttp://thefinancialbrand.com/11235/does-financial-literacy-work/http://360financialliteracy.com/Topics/Credit-and-Debt/Credit-Cards/Summary-of-the-New-Financial-Reform-Law?fpath=103http://360financialliteracy.com/Topics/Credit-and-Debt/Credit-Cards/Summary-of-the-New-Financial-Reform-Law?fpath=103http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdfhttp://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p120535.pdfhttp://www.creditunions.com/blog.aspx?id=3607http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01170.x/pdfhttp://www.cardtrak.com/news/2009/12/15/card_cutback


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Gaps,April 13, 2009,http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-

newsArticle&ID=1275563&highlight ]

8. [College Savings Foundation, The State of College Savings Survey Finds

Parent Confidence Crashing As They Rely on Loans, Shift Debt Burden to Their

Children,September 17, 2009,

http://www.collegesavingsfoundation.org/pdf/CSF2009StateofCollegeSavingsPR

9-17-09LOGO.pdf]

9. [Charles Schwab, Schwab Parents & Money Survey Offers Prescription for

Raising Financially Healthy Kids, March 26, 2008,

http://www.businesswire.com/portal/site/schwab/index.jsp?

ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&n

ewsLang=en]
http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle&ID=1275563&highlighthttp://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle&ID=1275563&highlighthttp://www.collegesavingsfoundation.org/pdf/CSF2009StateofCollegeSavingsPR9-17-09LOGO.pdfhttp://www.collegesavingsfoundation.org/pdf/CSF2009StateofCollegeSavingsPR9-17-09LOGO.pdfhttp://www.businesswire.com/news/schwab/20080326005384/enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=enhttp://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle&ID=1275563&highlighthttp://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle&ID=1275563&highlighthttp://www.collegesavingsfoundation.org/pdf/CSF2009StateofCollegeSavingsPR9-17-09LOGO.pdfhttp://www.collegesavingsfoundation.org/pdf/CSF2009StateofCollegeSavingsPR9-17-09LOGO.pdfhttp://www.businesswire.com/news/schwab/20080326005384/enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=enhttp://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=en

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Media Backgrounder Financial Literacy