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Tahira K. Hira 1 in America: Implications for China July 2007 Importance of Financial Literacy in America: Implications for China-an emerging global economy Dr.Tahira K. Hira Professor and Executive Assist. to the President 1750 Beardshear Hall Iowa State University, Ames, Iowa 50010

Tahira K. Hira1 Iowa State University Financial Literacy in America: Implications for China July 2007 Importance of Financial Literacy in America: Implications

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Page 1: Tahira K. Hira1 Iowa State University Financial Literacy in America: Implications for China July 2007 Importance of Financial Literacy in America: Implications

Tahira K. Hira 1

Iowa State University Financial Literacy in America: Implications for China

July 2007

Importance of Financial Literacy in America: Implications for China-an

emerging global economy

Dr.Tahira K. Hira

Professor and Executive Assist. to the President

1750 Beardshear Hall

Iowa State University, Ames, Iowa 50010

Page 2: Tahira K. Hira1 Iowa State University Financial Literacy in America: Implications for China July 2007 Importance of Financial Literacy in America: Implications

Tahira K. Hira 2

Iowa State University Financial Literacy in America: Implications for China

July 2007

OUTLINE

1. Implications of Financial Literacy2. Major Trends3. Role of Consumer Debt4. Shift in Responsibility from Government/

Employer to Individuals5. Major Components of Financial

Education6. Sources of Financial Literacy Information7. Promoting a Financial Literate Friendly

Environment

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Financial Literacy is“The ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It is the effective use of information in the decision making process that separates the more literate from the less literate decisions.”

-The U.S. Financial Literacy and Education Commission, 2005

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Major Trends That Require Financial Literacy

Changing Demographics

Changing Economic Environments

Shifts from Financial Responsibilities to Individual Finances

Sources and Complexities of Financial Products and Services

Role of Technological Advancements in Financial Education

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Changing Demographics -U.S.Age:

Family Status:

Education:

Ethnicity:

Economic:

76 million baby boomers on the verge of retirement in the U.S.

Rise in single parent families are leading to a rise in child poverty rates.

Adults age 25 and over represent 43% of all post secondary school enrollments.

By 2050, the minorities in the US will represent 40% of the population.

By 2010 baby boomers will start to retire and rely heavily on social security

• Source-Merrill Lynch as of 2001

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Changing Demographics -China

Age:

Family Status:

Education:

Economy:

Chinese over the age of 65 will increase from 7% of the population in 2000 to 20% over the next three decades.

Because of the one-child policy launched in 1979,one child or no child houses are on the rise. As of 1980, 250 million births have been prevented.

2002-19% of the population attended a two-year college - only 6% attended in 1988. In 2002, 19% of the population attended a two-year colleges. Only 6%

attended in 1988 and 8% attended in 1995

In 2006, the Chinese economy had growth rate of 10.4%, andtransformed China into the world’s fourth largest economy. 400 million have been lifted out of poverty and family incomes

in urban areas are increasing.

China’s banking system is maturing and more credit is becoming available.

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Changing Economic Environments

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Iowa State University Financial Literacy in America: Implications for China

July 2007

United State’s Income

• Median Household income in 2006:

– $46,000 USD

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Iowa State University Financial Literacy in America: Implications for China

July 2007

United States Saving Rate

In 2006, The U.S had a negative 1% saving rate. The lowest it’s been since 1933.

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Borrowing: United State’s Overall Debt

Total debt is 48 Trillion $161,287 per person

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Iowa State University Financial Literacy in America: Implications for China

July 2007

$12.8 trillion outstanding

household debt in 2006

Mortgage Debt: $9.7 trillion

Credit Debt: $2.4 trillion Including auto loans Credit Card debt:

Avg. credit card debt per household with at least

one card was $9,205.

Borrowing:United States Household Debt

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Iowa State University Financial Literacy in America: Implications for China

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The annual disposable income of urban households has continuously increased in the last two decades. In constant 2002 values, the per capita annual disposable income in urban China increased 82%:

China’s Income

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Iowa State University Financial Literacy in America: Implications for China

July 2007

China’s Saving Rate

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Iowa State University Financial Literacy in America: Implications for China

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Borrowing: China’s Debt

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Iowa State University Financial Literacy in America: Implications for China

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Borrowing:China’s Household Debt

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Shift in Responsibility for Financial

Well-being

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Expectations of Retirements

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Major Components of Financial Literacy Education

Cash Flow Management Banking Managing Credit Card Use Managing Overall Debt Managing Financial Risks Savings and Investing Retirement Planning Estate Planning

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Sources of Financial Education

Family Educational Institutions Non Profit Organizations Government Agencies Business

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Iowa State University Financial Literacy in America: Implications for China

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Role of Family in Proving Financial

Education

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Non-Profit and Governmental Organizations Providing Financial Education

National Endowment for Financial Education

Jump$tart USDA/Extension and CSRESS Treasury Dept. of the United States

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Businesses Providing Financial Education

VISA www.mymoneyskill.com

Prudential “Investing in your Future”-China’s Women’s Program

Paradigm Learning/Intellexis China “Zodiak®: The Game of Business Finance and Strategy”

Wall Street Journal The Wall Street Journal: Complete Personal Finance Book

(paperback) By: Jeff D. Opdyke

Merrill Lynch Special Needs Financial Services

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Iowa State University Financial Literacy in America: Implications for China

July 2007

Role of Technology in Financial Education

Communication Tool More people are being reached via the internet concerning new financial educational

programs and services

Articulating communication styles to fit certain demographics

Specialized Marketing Fitting the product or service to the individual’s needs

Providing target markets with a variety of products

Individual Control New developments give consumers more options and greater flexibility on the products

and services they want to use

Individuals must take responsibility on becoming aware of products available and how to use properly them

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Iowa State University Financial Literacy in America: Implications for China

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Technology: Access to Financial Information

Easy 24/7 access to information

Easy information sharing across institutions and borders

Nontraditional Learning approaches to teaching and learning

Games Simulations Storytelling Discovery learning techniques

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Iowa State University Financial Literacy in America: Implications for China

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Importance of Literacy

Households: Higher standards of living leads to higher confidence in the home.

Sound planning decisions for retirement, funding children’s education and accumulating more assets.

Communities: Financial service firms will provide better products at better prices because of market pressures by informed consumers.

Stable communities with a stronger, safer banking system.

Nation: Baby Boomers are potentially independent on social security and other

parts of the government’s social safety net, which may pose a very expensive fiscal dilemma for the federal government.

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Iowa State University Financial Literacy in America: Implications for China

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Challenges of Providing Financial Literacy Education

Efforts to increase financial literacy are resource-and-time-intensive

Programs requires well trained educators and advisors

Education must be available to consumers near the time at which they are making an important financial decision i.e., buying a home

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Iowa State University Financial Literacy in America: Implications for China

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Strategies to Enhance Financial Literacy Among all Consumers

Promoting awareness of the importance of financial literacyIncreasing access to information about financial products and servicesCollaborating with educational and community organizationsSupporting research and identifying best practices Providing financial education at the work place to all employees

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Iowa State University Financial Literacy in America: Implications for China

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Lessons Learned and Implications for the United States and

China

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Iowa State University Financial Literacy in America: Implications for China

July 2007

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July 2007

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July 2007

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July 2007

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(2005, Dec. 16). Paradigm Learning and Intellexis China, "Partnership Brings Paradigm Learning's "Zodiak(r) to China: Intelleixis China Will Distribute Paradigm's Flagship Financial Literacy Program". press release, Tampa, Florida and Shanghai, China. Retrieved May 11, 2007 from http://www.prudential.co.uk/prudential-plc/cr/crnews/cr2004/2004-12-26 and http://www.prweb.com/releases/2005/12/preweb323264.htm

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Iowa State University Financial Literacy in America: Implications for China

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Braunstein, S, & Welch, C (2002). Financial Literacy: An Overview of Practice, Research, and Policy. Federal Reserve Bulletin, Retrieved June 18, 2007, from http://federalreserve.gov/pubs/bulletin/2002/1102lead.pdf.

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Qao, Q, Zhai, F (2006, August). Demographic Changes and Household Income in Urban China. Paper prepared for the 29th General Conference of the International Association for Research in Income and Wealth, Retrieved June 6, 2007 from http://www.iariw.org/papers/2006/gao.pdf