Financial literacy interventions: evaluating the impact and scope of financial literacy programs on savings, retirement, and investment.

Austin, Percy ; Arnott-Hill, Elizabeth

Individuals are taking responsibility for a growing number of financial decisions. Arguably, the most important is preparation for retirement. In this new environment, where individuals have greater responsibility for determining their own retirement income, factors such as general financial knowledge, an understanding of the retirement savings process, and recognition of the need for adequate savings have become critical to successfully achieving one's retirement objectives.

The financial environment that consumers face today has become dramatically more complicated than that of any previous generation (Lusardi 2009). Individuals are offered more borrowing options such as payday loans, debt consolidation loans, and high-interest-rate credit cards. Evidence from several studies suggests that financial illiteracy is widespread (Lusardi 2006), particularly among vulnerable demographic groups (i.e., less educated, low-income, women, and minorities). This lack of financial knowledge is a serious cause for concern given that financial literacy is believed to be an important predictor of retirement planning and other important financial decisions. Creating financial literacy interventions is an obvious and common sense response to the increased complexity of the financial world. Thus the purpose of this paper is to compare the strengths of findings across several studies with different designs and different kinds of statistical analyses, all exploring the same core question: What is the connection between financial literacy and the choices that people make about their finances? Additionally, the purpose of this paper is to evaluate the impact and scope of financial literacy and financial literacy programs on savings, retirement, and investments. Moreover, we seek to specifically examine the link between financial literacy and planning and behavioral changes among minority groups who have participated in financial literacy interventions.

The question of whether minorities, in particular African Americans and Hispanics, are financially prepared for retirement has been examined widely. Previous studies examining the financial position of households have highlighted the fact that the wealth holdings of African-Americans and Hispanics are very low (Hurst, Luoh and Stafford, 1998). Smith (1995) and Lusardi (1999, 2000) further emphasized that many African Americans and Hispanics arrive at retirement with little wealth. Other studies, which have examined portfolio choice or specific assets such as housing, stocks, IRAs and 401(k) s, have further documented that African Americans and Hispanics do not hold many of the assets commonly present in White household portfolios. For example, Haliassos and Bertaut (1995) found that minorities were much less likely to hold stocks than White households, and this remains the case even after accounting for a large set of household and industry characteristics, including income and wealth. Similarly, Charles and Hurst (2002) found that African Americans are much less likely to own a home or apply for a mortgage than Whites.

There are many reasons for this diversity in wealth accumulation. For example, African Americans and Hispanics often have lower educational attainment, lower income, and a greater experience of negative life events. In addition, African Americans and Hispanics also have been shown to possess lower financial literacy than Whites, which is correlated with poor saving and investment behavior (Hilgert, Hogarth and Beverly, 2003; Hogarth and Hilgerth, 2002). The authors found that financial literacy was directly correlated with financial behaviors such as spending properly, saving properly and investing properly for one's retirement. Consequently, lack of financial knowledge in minority communities may contribute to increased debt and bad financial practices; thus, undermining financial well-being in old age.

As awareness of the general population's lack of financial knowledge has increased, many programs have been established to provide various types of financial interventions. Muske & Winter (1999) used one-on-one interviews and one-on-one counseling with the self-designated family financial manager to develop a framework to explain and describe the daily cash flow management processes of families. Clark & Ambrosio (2003) utilized financial education seminars and workshops presented by the consulting services division of TIAA-CREF to influence workers to reconsider their retirement goals and alter their saving behavior. Hershfield, Goldstein, Sharpe, Fox, Yeykelis, Carstensen, Bailenson (2011) utilized an interactive web-based program to demonstrate a new kind of intervention in which people can be encouraged to make more future-oriented choices by having them interact with age-progressed renderings of their own likenesses. The authors showed that individuals who interacted with their virtual future selves exhibited an increased tendency to accept later monetary rewards over immediate ones. Additionally, the Dodd-Frank Act--Section 1013(d)(1)--mandated establishment of an Office of Financial Education to be responsible for developing and implementing initiatives intended to educate and empower consumers to make better informed financial decisions (The Consumer Finance Protection Bureau Annual Report, 2014). The Act also created offices to develop financial education and policy initiatives to support the financial well-being of vulnerable segments of the consumer population such as service members, students, older Americans, and traditionally underserved consumers.

Some studies have found that "nudges" were more effective than more general financial education at improving financial decision making (Thaler & Benartzi, 2004). When referring to "nudges" (Pathak, Holmes & Zimmerman, 2011), the authors drew on insights from behavioral economics and suggest that mechanisms that help individuals to overcome "the last mile challenge" to saving might be more advantageous than interventions that attempt to bring someone from not wanting to save all the way to savings in one attempt. One of their proposed nudges included reminders to save. They believed reminders could bring saving to the top of an individual's mind, serving as a continual flag for why the individual wanted to save in the first place. One increasingly prevalent pro-saving intervention is to increase access to basic formal saving accounts. Recent evidence supports the hypothesis that efforts to expand access to basic accounts can have large, positive effects on household saving, income, and wellbeing (Burgess & Pande, 2005).

Yet other studies illustrated that a large percentage of individuals who participated in financial intervention programs did not have any discernible behavioral changes once the program ended. Some financial interventions improve financial literacy, but not financial behavior (Mandell, 2009); others lead to improved behavior and outcomes without improving financial literacy (Fernandes, 2014); and still others do not appear to be effective at all (Gale & Levine, 2010). Taken together, the literature does not succeed in establishing a clear or definitive answer to the question of whether financial interventions modified an individual's spending, savings, or investing behavior. However, the literature does convincingly make the case that financial literacy is essential to making optimal financial, investment, and retirement decisions. According to Hogarth (2003), most individuals seem to have extremely limited knowledge of financial markets, the level of risk associated with specific assets, and how much they need to save to achieve a retirement income goal. Therefore, the need for financial interventions to improve the level of financial literacy of individuals is an important policy issue facing our society.

Defining Financial Literacy

The terms financial literacy, financial education, and financial knowledge have been used interchangeably in recent research. Current studies indicate that consumers have very low levels of financial literacy. In fact, a study of young people by Lusardi and Mitchell (2010) found that only a small fraction of individuals were able to demonstrate competency in different concepts like interest rates, inflation, or risk diversification. Moreover, Lusardi and Mitchell (2006) stated that "financial illiteracy is widespread: the young and older people in the United States and other countries appear woefully under-informed about basic financial computations, with serious implications for saving, retirement planning, mortgages, and other decisions (pg. 18)." Since the issue is complex, it is important to establish a consistent definition of financial literacy. Various definitions have been proposed. According to Hogarth (2006), the consistent themes running through various definitions of financial education and financial literacy include the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Moreover, Gale and Levine's (2010) definition includes the ability to make informed judgments and effective decisions regarding the use and management of money and wealth. Remund (2010) reviewed over one hundred resources on financial literacy and proposed a conceptual and operational definition of financial literacy as a "measure of the degree to which one understands key financial concepts and possesses the ability to manage personal finances throughout the lifecycle (pg. 8)." To further operationalize this definition, Remund (2010) defined the management of personal finances as budgeting, saving, borrowing and investing. In addition, The National Financial Educators Council (2013) defined financial literacy as having the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual's personal, family and global community goals. As an individual's emotional state is often tied to how much money that individual has at his or her disposal, the NFEC suggested that a psychological component to the working definition is critical. Another unique portion of the NFECs' definition is that it includes a reference to a larger impact than just one's own personal financial situation. "Global community goals" correlate with the NFECs' financial education standards that include social enterprise. The Government Accountability Office (2010) defined financial literacy as the ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a child's education. Still others, such as those provided by Lusardi (2006), emphasize a judgment and decision-making aspect of financial literacy.

The most common aspect of the definition of financial literacy is knowledge, with some definitions merely requiring familiarity (arguably a limited form of knowledge). One of the striking things about the literature is that financial literacy has been variably defined as a specific form of knowledge, the skills to apply that knowledge, perceived knowledge, good financial behavior, and even financial experiences. Because there exist many conceptual definitions of financial literacy, the methods used to measure financial literacy also vary quite substantially.

Measuring Financial Literacy

Early studies to measure adult financial literacy were conducted during the 1990s by private firms (CFA/AMEX, 1991; EBRI, 1995; KPMG, 1996; PSRA, 1996, 1997; Oppenheimer Funds/Girls Inc., 1997; Vanguard Group/Money Magazine, 1997). These studies utilized surveys that consisted of a small number of questions covering material specific to the company's interests (Volpe, Chen, and Liu, 2006). In addition, performance tests and self-report methods have been employed to measure financial literacy (Hung, 2009; Hastings, 2013), The performance tests were primarily knowledge-based, reflecting the conceptual definitions. One of the more comprehensive performance tests is the Jumpstart Financial Literacy Survey, which was administered to randomly selected high school seniors every two years from 1997 to 2006. The exam included 31 questions on income, money management, saving and investment, and spending and credit. It was intended to capture financial competence in a broad set of areas. Lusardi & Mitchell (2006, 2008), Volpe, Kotek, & Chen (2002), and Tufano (2008) also used performance tests to measure the financial knowledge of their program participants. In particular, these tests included questions that evaluated whether respondents displayed knowledge of fundamental economic concepts for saving decisions, as well as whether they possessed competence with basic financial numeracy. Moreover, the tests evaluated respondents' knowledge of risk diversification, a crucial element of an informed investment decision.

Some researchers have employed self-report methods, in which the respondent gauges his or her own financial literacy or financial confidence. Actual and perceived knowledge are often correlated, but this correlation is often moderate at best, and it varies widely. For example, Agnew and Szykman (2005) found correlations between actual and perceived financial knowledge that ranged from .10 to .78 across demographic groups. Similar variations have been documented in non-financial knowledge domains (e.g., Alba & Hutchinson, 2000). Given the inherent challenges in measuring financial literacy (Palmer, 2014; Collins & Holden 2014,), measuring the effects of financial education on wealth, saving behaviors, investing behaviors, and spending behaviors has proven to be a difficult task.

What initiatives exist?

If financial illiteracy is correlated with undesirable financial behaviors, then it would seem logical that increasing financial literacy could improve consumer welfare. Over the past decades, an array of financial interventions has been introduced in the United States for this purpose. These programs range from employer-provided seminars on retirement planning, to state-mandated personal finance classes in public schools, to one-on-one mortgage counseling. Are these programs effective? If so, which types of programs are more effective? What has been done to curb undesired behaviors, such as bad investments and inadequate savings?

As awareness of the general population's lack of financial knowledge has increased, many organizations have begun to provide various types of financial education. Several methods have been utilized to increase financial awareness and change behaviors. Most of the programs directly address saving behavior (Lusardi & Mitchell 2006), investment behavior, or borrowing and retirement preparedness (Clark, 2003), but some are designed to influence behaviors that indirectly affected saving, such as minimizing credit card fees or balancing a checkbook (Hogarth, 2003).

Generally, financial literacy interventions can be classified under three main categories. The first category is considered an individual methodology. This method consists of one-on-one counseling, for example telephone advising, or computer or internet learning. Muske & Winter (1999) used one-on-one counseling with a self-designated family financial manager to develop a framework to explain and describe the daily cash flow management processes of families as well as the family's cash management practices. They found that all the respondents admitted that they made only limited preparations for financial catastrophes and rarely developed specific long-term goals. Additionally, the new Consumer Finance Protection Bureau (CFPB Annual Report, 2014) is reaching consumers through various collaborative initiatives that leverage existing public, private, and non-profit networks and efforts. Here they provide consumers with one-on-one actionable financial counseling and tools at specific important moments in their financial lives, and opportunities to develop the skills to navigate the financial marketplace and manage their financial lives effectively.

The second category is group methodology. This method consists of seminars or presentations, training workshops, workshop series, or courses offered through formal educational institutions. Clark & Ambrosio (2003) discussed the financial education seminars and workshops presented by the consulting services division of TIAA-CREF. These training seminars were aimed at providing program participants with the necessary information to help them make more informed financial decisions. In addition, Loyola University offers Money Matters Workshops and credit-based courses for prospective and current students. In the United Kingdom, the Personal Finance Education Group (pfeg), a collaborative group of government, business and educators, has developed educational material programs for teachers to use in secondary schools, with two primary aims. The first aim is to ensure school leavers have adequate financial skills and the confidence to use them. The second aim is to ensure the teachers have the appropriate level of skills, knowledge and confidence to teach the subject. The pilot program has been successful in having financial literacy integrated into the secondary school curriculum.

The third category uses mass education implemented via the internet. This consists of web-based programs, interactive CD programs, TV programs, newsletters, or papers. Some programs, such as the one developed by Hershfield et al. (2011), encourage people to make more future-oriented choices by having them interact, as we have seen, with age-progressed photos of themselves. The Center for Debt Management is another online resource available that offers assistance, financial information, and resources related to debt and money management. Some of the main features of the site include family debt management assistance, credit counseling services, a financial aid center, a legal resource center, information about credit repair, help with credit and financing, and financial and income resource centers. Additionally, The Dollar Stretcher is another free weekly newsletter and website dedicated to family finances. This particular resource explores different ways to increase family income without reducing lifestyle. Some of the major topics covered in the articles include cash management, credit card and credit repair, debt, insurance, mortgages, IRAs, and budgeting. Moreover, the new Consumer Finance Protection Bureau (CFPB) has developed a broad range of education initiatives to help consumers. The CFPB engages consumers directly through their interactive web-based tool, which was launched in March of 2013 (CFPB Annual Report, 2014). They utilize this online tool to provide answers to over 1,000 questions about financial products and services. Additionally, the new CFPB utilizes social media and a digital library of consumer information. The resources answer questions on topics including mortgages, credit cards, savings, retirement, and how to fix an error in a credit report. Lastly, the Financial Times' Your Money is another free interactive service designed to help consumers manage and maximize their money. This resource concentrates on personal finance issues relevant to everyone. It also offers advice on home buying, retirement, education, travel, saving money, creating wealth, tax, insurance, and loans.

Recently, state and federal governments have begun to offer financial literacy courses and to distribute financial information. For example, the US government established a Financial Literacy and Education Commission which was required by law to undertake certain activities, including running a website and a toll-free number to help disseminate financial literacy information, preparing and circulating financial literacy materials, and promoting partnership activities (www.ustreas.gov/offices/domestic-finance/financial-institution).

Additionally, the Money Smart program, run by the Federal Deposit Insurance Corporation, has targeted adult education, especially those adults outside the financial mainstream (www.fdic.gov/consumers). This program operates by making training modules available to banks and other organizations for use in financial education workshops on subjects such as basic banking, home loans, and credit cards. The Consumer Finance Protection Bureau CFPB is also focusing on helping consumers build the skills to plan ahead. For example, their "Paying for College" set of tools is designed to help students and their families compare what their college costs will be in the future as they decide where to pursue educational goals. In addition, their "Owning a Home" tool is designed to help consumers shop for a mortgage loan by assisting them in understanding what mortgages are available to them and making mortgage comparisons. The CFPB also has a Money Smart for Older Adults curriculum. The curriculum is developed with the Federal Deposit Insurance Corporation, and it includes resources to help people prevent financial exploitation and prepare financially for unexpected life events such as medical emergencies and unexpected deaths (CFPB Annual Report, 2014).

Several regional Federal Reserve Banks have specific literacy initiatives. For example, the Federal Reserve Bank of Cleveland promotes financial literacy throughout its district by holding conferences and workshops for teachers, conducting tours for high school, college, and community groups, sponsoring competitions to increase understanding of the Federal Reserve's role in the economy, and producing publications about the banking system and the national economy. The Chicago Area Project Financial Education program is a hands-on interactive program that teaches the participant how to be a better consumer. Money Smart Week, created by the Federal Reserve Bank of Chicago along with members of its Money Smart Advisory Council, is a week-long event that helps consumers better manage their finances and provide awareness of financial education programs available on topics such as budgeting and using credit wisely. The Chicago Federal Reserve Bank also makes available numerous publications on personal finance and education, and offers a program called "The Fed Challenge" to both high school and college students. The Federal Reserve Bank of Richmond promotes economic and financial education for teachers, students and the general public through programs and partnerships. In addition, The Fed Experience exhibit, located at the Federal Reserve Bank of Richmond, is open to the public. In the exhibit, visitors explore the power of their decisions on their quality of life, the impact of choices on the economy over time, and the role of the Federal Reserve in the economy.

Do Financial Literacy Initiatives Work?

An Examination of Current Literature

Do financial education and financial literacy programs work? Are these programs beneficial to individuals who participate in them? Hathaway and Khatiwada (2008) reviewed results from various types of financial literacy interventions and concluded that current interventions cannot be determined to be effective. The types of programs studied include homeownership counseling, credit card counseling, school-based financial education courses, and workplace-based financial courses. Overall, the results are mixed. Some programs appear to be associated with better financial behavior and outcomes overall, while others seem to achieve better results for specifically targeted financial products or audiences. Some findings seem to contradict others, and some programs look as though they have very little or no impact at all.

However, Hilgert, Hogarth, and Beverly (2003) provided some support for a link between financial knowledge and better financial practices. The authors used monthly survey data from the University of Michigan's Surveys of Consumers to construct indexes that represent the level of households' participation in each of four financial management practices: cash flow management, credit management, saving, and investment. The index values reflected participation rates by individual households in activities attached to each of the four financial management practices. For example, if a household participated in four of five activities related to credit management, the index value would be 80 (4/5 = 80%). The index values across households were highest for cash flow management and lowest for investment. Credit management ranked second while saving came in third. Having established household financial behavior in the first step, the authors next utilized results from a quiz taken along with the households' responses in the Surveys of Consumers to measure a household's "knowledge" of four different financial management practices: credit management, saving, investment, and mortgages. Since three of these practices overlap with measures taken during the first half of their analysis, the authors were able to run correlations between behaviors and knowledge. The authors concluded that greater knowledge about credit, saving, and investment practices was correlated with the corresponding index scores behaviors.

Courchane and Zorn (2005) sought to go beyond basic correlations between knowledge and behavior by attempting to find a causal link. The authors linked financial knowledge to financial behavior, and then linked financial behavior to credit outcomes. The data they collected came from an extensive consumer credit survey, comprehensive demographic data sets held by private marketing firms, and individual credit profiles from Experian. The authors then used a three-step recursive model regression analysis to establish these links. In the first step, the authors estimated two separate regression equations. The results for both equations indicated significantly positive associations between financial knowledge and each of the following: financial experiences, formal educational attainment, presence of financial education in school, income and wealth, experience using credit cards, and monthly credit card payments.

In the second step, the authors estimated behaviors as a function of financial knowledge and additional factors that affect financial behavior. Overwhelmingly, the most important determinant of financial self-control was knowledge. Psychological factors also had an effect, though smaller. Positive feelings (i.e. fewer concerns about money) had a large and positive relationship to financial behavior. Income-related effects were also positive and significant; however, the presence of a financial "safety net" and income relative to parents mattered more than actual income or wealth. In the third and final step, the authors estimated credit outcomes as a function of financial behavior and other factors that affect credit outcomes. Here the authors found no additional impact of literacy on credit outcomes beyond those already accounted for, meaning that literacy impacts credit outcomes indirectly through financial behavior. In addition, they found significant effects from demographic factors (i.e., age, number of children, gender)--in particular, race. Overall, the authors found that data was consistent with the assumptions made by most financial education program administrators--that there exists a significant, positive causal link that runs from financial knowledge to behavior to outcomes.

The results for school-based initiatives also appear to have met some success, though limited. While savings rates and financial planning did show improvement as a result of participation in several programs, and students' self assessments were positive, the causal impact is unclear. According to Bernheim, Garret, and Maki (2001), between 1957 and 1985, 29 states adopted legislation mandating some form of financial education in secondary schools. The authors used a survey from adults between the age of 30 and 49 to study the impact of the mandated consumer education during high school on savings behavior later in life. States that did not have the mandated consumer education program in high schools were used as a baseline. The authors found that, compared to adults in states without these mandated programs, adults in states with such programs had increased rates of savings and wealth accumulation on average during their adult lives.

Gartner and Todd (2005) analyzed a randomized study conducted by the Saint Paul Foundation's Credit Card Project that attempted to show whether online credit education led to responsible behavior among first-year college students. Although they did find that completion of the program correlated with more responsible behavior, the change in behavior between the control and experimental groups was not statistically significant. In other words, this study was unable to find evidence for the effectiveness of online financial education.

Similar to school-based counseling programs, the impact of financial education programs in the workplace is unclear. According to Muller (2002), retirement education increased the probability that persons under the age of 40 will save for their retirement account by 27%, but financially vulnerable groups did not show any increase. In contrast, Lusardi (2003) found that retirement education increased liquid wealth (savings) by approximately 18% and that most of this impact was driven by those at the bottom of the income distribution. The bottom quartile benefited the most from the financial education, as liquid wealth for this group increased by 70%. Furthermore, the author accounted for the presence of pension and Social Security wealth to show that the effect of retirement education on household wealth was still significant when these factors were controlled.

Given that the levels of financial literacy in the United States are low, policymakers and government officials are concerned because of the potential implications of financial illiteracy on economic behavior. As illustrated by a study by Hogarth, Anguelov, and Lee (2005), poorly educated consumers are disproportionately represented among the "unbanked," those lacking any kind of transaction account. Hasting and Mitchell (2010) concluded that, for the population of individuals over the age of 50, those who are more financially knowledgeable were also much more likely to have thought about retirement. Other authors have also confirmed the positive association between knowledge and financial behavior. For example, Calvert, Campbell, and Sodini (2005) found that more financially sophisticated households were less likely to be risk averse and to invest more efficiently. Kimball and Shumway (2006) reported a large positive correlation between financial sophistication and portfolio choice. Moreover, Chang and Hanna (1992) linked consumer financial knowledge or financial literacy with responsible financial behavior. The authors found that increased levels of financial information resulted in more-efficient decisions. Similarly, Perry and Morris (2005) found that consumers with higher levels of financial knowledge were more likely to budget, save, and plan for the future.

The Elements of an Effective Intervention

What would an effective financial literacy intervention look like? According to Fox, Bartholomae and Lee (2005), an adaptable framework should be defined that will accommodate all types of financial intervention programs The authors provide one such framework, which was tested in the Money-Minded intervention. Money-Minded is a suite of financial education resources, developed to help adults, particularly those of low-income, to build their financial skills, knowledge and confidence. The authors describe five major steps they believe should be included when evaluating financial education programs: pre-implementation (and needs assessment), accountability, program clarification, progress towards objectives, program impact. In the pre-implementation stage, the target group should be identified, the needs assessed, and goals specified. The accountability stage involves the collection of information on education and services provided, program cost, and basic information on program participants. The objective here should be to determine who has been reached by the program and in what way; that is, whether the population in need is the population actually served. The program clarification stage should help the program planners review an ongoing program's goals and objectives and assess whether these goals and objectives should be revised. Next, the progress-toward-objectives stage should involve obtaining objective measures of the impact of the program on the participants, and how those impacts relate to program goals. Finally, the program impact stage should involve an experimental approach to assess both the short-term and long-term effects of the program. Information collected in the previous stage (progress towards objectives) helps assess whether there were long-term and short-term effects. According to the authors, there was scarce evidence of evaluation of financial literacy programs at the final stage (program impact) because most financial education programs do not include impact evaluation as a component of their program design.

Discussion

In recent years, the financial life of the typical American family has become increasingly complex. For the past decade, individuals, including business owners, investors, politicians, educators and the federal government, have researched the issue of financial literacy. This increased concern has been particularly focused on the necessity of individuals saving for retirement. In addition, the increased complexity of financial products and services has made it more important but also more difficult to make informed investment and saving decisions. According to Glaser and Walther (2013), although the financial literacy movement has gained momentum, there remains little reliable, conclusive research about whether financial literacy campaigns and financial literacy initiatives or programs work (i.e. whether they result in sustained changes in behavior and improved financial outcomes). Changing an individual's financial behavior and not just increasing an individual's financial knowledge is essential for a person to reach financial goals and achieve financial well being. Research indicates that individuals with below average levels of financial literacy or extremely low levels of financial literacy suffer from that lack of knowledge at every stage of their lives (Hastings, 2012). Additionally, people who have a lower degree of financial literacy tend to borrow more, accumulate less wealth, and pay more in fees related to financial products (Hastings, 2012). According to Madrian and Skimmyhorn (2012), these individuals are far less likely to invest. Moreover they are more likely to experience difficulty with debt, and less likely to know the terms of their mortgages and other loans. The price of this lack of financial awareness is unfortunately high. Individuals incur avoidable charges and fees from things like making late credit card payments or paying only the minimum amount due, overspending their credit limit, and using cash advances.

When financial decisions have consequences beyond the immediate future, individuals' economic success may depend on an individual's financial literacy. While there are some who disagree, most researchers believe that improving financial literacy and increasing financial education is not only a necessity for our country and the world, it is absolutely vital (Lusardi, (2009). There is hope that, with well-designed interventions that work to improve financial literacy, researchers might bring about positive impacts on the economy and increase the financial health of the society. Behavior modification is also important as it is required to address major modern cultural issues such as people qualifying for loans they simply cannot afford, having low credit scores, and having high interest rates. A key point to remember is that financial literacy must be a collective effort. It is unfair and unrealistic to expect that state programs, government programs, or employee seminars alone can or should shoulder the burden of improving financial literacy for everyone.

Future Directions

Given these findings, one clear direction for future research would be to undertake more robust evaluation methodologies that rigorously separate the opportunity to receive financial education and improve financial literacy from observable and unobservable household characteristics. In particular, studies adopting an experimental design can help isolate the specific effects of financial literacy interventions and mitigate many of the biases that cloud interpretation of the effectiveness of these programs. Furthermore the need to inform the average consumer about predatory practices of financial institutions and other corporations is vital. According to 2010 Census data, 37 million people in the United States speak Spanish as their primary language at home (United States Census Bureau, 2010). Recognizing the need for Spanish language resources, interventions or programs should be tailored to financial decision-making circumstances, challenges, and opportunities for specific populations, including service members, veterans, students, older Americans, lower-income and other economically vulnerable Americans is an important item that needs exploration (Consumer Finance Protection Bureau Annual Report, 2014). Interventions like CFPB en Espanol, which is a website that provides Spanish-speaking consumers a central point of access to the Bureau's most-used consumer resources available in Spanish, are critical.

Acknowledgements

The authors would like to thank the US Department of Education for their generous support of the Minority Retirement Security Center (MRSC) at Chicago State University. In addition, we would like to thank the other faculty mentors in the MRSC, Dr. Aref Hervani and Dr. Philip Aka, for their expertise and feedback.

References

Agnew, J., Szykman, L., Utkus, S., & Young, J. (2009). Literacy, Trust and 401(K) Savings Behavior. Center for Retirement Research at Boston College.

Alba, J., & Hutchinson, J.W. (2000). Knowledge calibration: What consumers know and what they think they know. Journal of Consumer Research, 27, 123-156.

Bartholoma, S., & Lee, J. (2005). Building the Case For Financial Education. Journal of Consumer Affairs, 39, 1, 195-214.

Benartzi, S., & Thaler, R. (2004). Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy, 112, 1, S164-S187.

Bernheim, B. D., Garrett, D. M., & Maki, D. M. (2001). Education and saving: The long-term effects of high school financial curriculum mandates. Journal of Public Economics, 80, 435-465.

Burgess, R., & Pande, R. (2005). Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment, American Economic Review, American Economic Association, 95, 3, 780-795.

Calvent, L., Campbell, J., & Sodini, P. (2009). Measuring the Financial Sophistication of Households. American Economic Review, 99, 2, 393-98.

Chang, R. Y., & Hanna, S. (1992). Consumer Credit Search Behaviour. Journal of Consumer Studies and Home Economics, 16, 1, 207-227.

Charles, K., & Hurst, E. (2007). Conspicuous Consumption and Race. Quarterly Journal of Economics, 124, 2, 425-467.

Chen, H., & Volpe, R.P. (1998). An Analysis of Personal Financial Literacy among College Students, Financial Services Review, 7, 2, 107-128.

Chen, H., & Volpe, R.P. (2002). Financial Literacy, Education, and Services in the Workplace. B>Quest (Business Quest): A Journal of Applied Topics in Business and Economics [Online]. Retrieved June 2014 from http://www.westga.edu/~bquest/2005/workplace.pdf.

Clark, R. L. & d'Ambrosio, M. C. (2003). Ignorance is not bliss: The importance of financial education. TIAA-CREF Research Dialogue, 78, 1-14.

Clark, R. Morrill, M., & Allen, S. (2012). The Role of Financial Literacy in Determining Retirement Plans. Economic Inquiry, 50, 4, 851-866.

Collins, J., & Holden, K., (2014). Measuring the Impacts of Financial Literacy: Challenges for Community-Based Financial Education. New Directions for Adult and Continuing Education Special Issue: Financial Literacy and Adult Education, 2014, 41, 79-88.

Consumer Finance Protection Bureau (2014). Annual Report. Retrieved July 2014 from http://files.consumerfinance.gov/f/201407_cfpb_report_financial-literacy-annual-report.pdf.

Courchane, M., & Peter, Z. (2005). Consumer Literacy and Creditworthiness. Retrieved June 2014 from http://www.chicagofed.org/cedric/files/2005_conf_paper_session3_courchane.pdf.

Fernandes, D. (2014). Financial Literacy, Financial Education and Downstream Financial Behaviors. Forthcoming in Management Science.

Fonseca, R., Mullen, K., & Zamarro, Z. (2012). What Explains the Gender Gap in Financial Literacy? The Role of Household Decision Making. Journal of Consumer Affairs, 46, 1, 90-106.

Gale, W., & Levine, R. (2010). Financial Literacy: What Works? How Could It Be More Effective? Retrieved June 2014 from http://www.brookings.edu/research/papers/2010/10/financial-literacygale-levine.

Gartner, K., & Todd, R., (2005). Effectiveness of Online 'Early Intervention' Financial Education for Credit Cardholders. Proceedings of the Federal Reserve Bank of Chicago, 962.

Glaser, M., & Walther, T. (2013). Run, Walk, or Buy? Financial Literacy, Dual-Process Theory, and Investment Behavior. Proceedings of the FMA International Conference, 2-25.

Haliassos, M., & Bertaut, C. (1995). Why Do So Few Hold Stocks? The Economic Journal, 105, 432, 1110-1129.

Hancock, J. (2002). Insights into Participant Investment Knowledge and Behavior. Financial Services. Eighth Defined Contribution Plan Survey, 3-14

Hasting, J., Madrian, B., & Skimmyhorn, W. (2013). Financial Literacy, Financial Education and Economic Outcomes. The National Bureau of Economic Research. Working Paper No. 18412.

Hastings, J., & Mitchell, O. (2011). How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors. University of Michigan Retirement Research Center. NBER Working Paper. No. 16740, 1-13.

Hershfield, H. E., Goldstein, D. G., Sharpe, W. F., Fox, J., Yeykelis, L., Carstensen, L.L., & Bailenson, J. N. (2011). Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self. Journal of Marketing Research, 48, S23-S37.

Hilgert, M., Hogarth, J., & Beverly, S. (2003). Household Financial Management: The Connection between Knowledge and Behavior. Federal Reserve Bulletin, 17, 309-322.

Hogarth, J., & Hilgert, M. (2002). Financial Knowledge, Experience and Learning Preferences: Preliminary Results from a New Survey on Financial Literacy, Consumer Interest Annual, 48.

Hogarth, J., Anguelov, C., & Lee, J., (2005). Why Don't Households Have a Checking Account? Journal of Consumer Affairs, 38, 1, 1-34.

Hurst, E., & Charles, K. (2002). The correlation of wealth across generations. National Bureau of Economic Research, NBER Working Paper No. 9314.

Hurst, E., Luoh, M., & Stafford, F. (1998). The Wealth Dynamics of American Families: Brookings Papers on Economic Activity, 1, 267-337.

Kimball, M., & Shumway, T. (2006). Investor Sophistication, and the Participation, Home Bias, Diversification, and Employer Stock Puzzles, Mimeo, University of Michigan.

Letkiewicz, J. (2012). Self-Control, Financial Literacy and the Financial Behaviors of Young Adults. Dissertation Abstracts International, 1-147.

Lusardi, A., & Allessie, R. (2012). Financial Literacy, Retirement Planning, and Household Wealth. The Economic Journal, 122, 560, 449-478.

Lusardi, A., & Mitchell, O. (2007). Financial Literacy and Retirement Preparedness. Evidence and Implications for Financial Education, Business Economics, 35-44.

Lusardi, A., & Mitchell, O. (2008), Planning and Financial Literacy. How Do Women Fare? American Economic Review, 98(2), 413-417.

Lusardi, A., & Tufano, P. (2008). Debt Literacy, Financial Experiences, and Overindebtedness, mimeo, Harvard Business School.

Lusardi, A., Mitchell, O. S., & Curto, V. (2010). Financial literacy among the young. Journal of Consumer Affairs, 44(2), 358-380.

Maarten C.J., & Rooij, V. (2012). Financial Literacy, Retirement Planning and Household Wealth, Economic Journal, Royal Economic Society, 122(560), 5, 449-478.

Mandell, L. (2008). Financial Education in High School: Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, Chicago: University of Chicago Press, 257-279.

Mandell, L. (2009). The Impact of Financial Literacy Education on Subsequent Financial Behavior, Association for Financial Counseling and Planning Education.

Meier, S., & Sprenger, C. (2013). Discounting financial literacy: Time preferences and participation in financial education programs. Journal of Economic Behavior & Organization, 95, 159-174.

Mullen, K. (2012). What Explains the Gender Gap in Financial Literacy? The Role of Household Decision Making. Journal of Consumer Affairs, 46, 1, 90-106.

Muske, G., & Winter, M. (1999). Cash flow management: A framework of daily family activities. Financial Counseling and Planning, 10(1), 1-12.

Nari R. (2013). The Retirement Savings Crisis: Is It Worse Than We Think? National Institute on Retirement Security. 1-30.

Palmer, K. (2014). How to Measure your Financial Literacy. US News and World Report. Retrieved July 2014 from http://money.usnews.com/money/blogs/alphaconsumer/2014/06/20/how-to-measure-your-financial-literacy.

Pathak, P., Holmes, J., & Zimmerman, J. (2011). Accelerating Financial Capability among Youth: Nudging New Thinking. New America Foundation Global Assets Project. Retrieved June 2014 from http://www.newamerica.net/sites/newamerica.net/files/policydocs/ AcceleratingFinancialCapabilityamongYouth.pdf.

Perry, V. G., & Morris, M. D. (2005). Who is in control? The role of self-perception, knowledge, and income in explaining consumer financial behavior. The Journal of Consumer Affairs, 39, 2, 299-313.

Remund, D. (2010). Financial Literacy Explicated: The Case for a Clearer Definition in an Increasingly Complex Economy. Journal of Consumer Affairs, Special Issue: Financial Literacy, 44, 2, 276-295,

Schmeiser, M., Seligman, S., & Jason S. (2011). Using the Right Yardstick: Assessing Financial Literacy Measures by way of Financial Well-Being. Center for Financial Security. 2-31.

United States Census Bureau. (2010). American FactFinder. Retrieved July 2014 from http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml.

West, J. (2012). Financial Literacy Education and Behavior Unhinged: Combating Bias and Poor Product Design. International Journal of Consumer Studies, 36, 5 523-530.

Percy Austin Department of Mathematics and Computer Science

Elizabeth Arnott-Hill * Department of Psychology, Chicago State University

* Address for correspondence: Elizabeth Arnott-Hill <earnott@csu.edu>