Financial Competencies in

Practice

Jeanne M. HogarthDivision of Consumer & Community Affairs

Federal Reserve Board

The analysis and conclusions set forth in this presentation represent the work of the authors and do not indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff. Mention or display of a trademark, proprietary product, or firm in the presentation by the authors does not constitute an endorsement or criticism by the Federal Reserve System and does not imply approval to the exclusion of other suitable products or firms.

Developing learner-driven educational

opportunitiesWhat do consumers know?

What do they need to know?

What do consumers do? What should they do?

What do consumers want to do– what are their goals?

What are your program goals?What are the resources?How do people want to learn?

Financial Education Needed

(data from 2003)

Spending& saving

None

Investments

Spending & investment

Saving & investment

General – all 3 topics

Basic – all 3 topics

Financial Management Building Blocks(Rutgers Cooperative Extension)

Family Economics Financial Education(University of Arizona)

DRAFT Core CompetenciesCore Competency Knowledge Action/Behavior

EARNING • Gross versus net pay• Benefit and taxes• Education is important

• Understand your paycheck• Learn about potential benefits and taxes• Invest in your future

SPENDING • The difference between needs and wants

• Develop a spending plan• Track spending habits• Live within your means• Understand the social and environmental impacts of your spending decisions

SAVING

• Saved money grows• Know about transaction & liquid accounts• Know about financial assets (checking and saving accounts, bonds, stocks, mutual funds)• How to meet long-term goals and grow your wealth

• Start saving early; Pay yourself first• Understand and establish a relationship with the financial system• Comparison shop; Balance risk and return• Save for retirement, child’s education, and other needs; Plan for long-term goals; Track savings and monitor what you own

BORROWING• If you borrow now, you pay back more later

• The cost of borrowing is based on how risky the lender thinks you are (credit score)

• Avoid high cost borrowing; Plan, understand, and shop around• Understand how information in your credit

score affects borrowing• Plan and meet your payment obligations• Track borrowing habits• Analyze renting versus owning a home

PROTECT• Act now to protect yourself from potential catastrophe later

• Identify theft/fraud/scams

• Choose appropriate insurance Build up an emergency fund Shop around• Protect your identity Avoid fraud and scams Review your credit report

Earning

KnowledgeGross versus net payBenefit and taxesEducation is

important

Action/BehaviorUnderstand your

paycheckLearn about

potential benefits and taxes

Invest in your future

Spending

Knowledge The difference

between needs and wants

Action/behavior Develop a spending

plan Track spending habits Live within your

means Understand the social

and environmental impacts of your spending decisions

Saving

Knowledge Saved money grows Know about liquid &

transaction accounts Know about financial

assets (bank accounts, bonds, stocks, mutual funds)

How to meet long-term goals and grow your wealth

Action/behavior Start saving early--pay

yourself first Understand & establish a

relationship with the financial system

Comparison shop; Balance risk and return

Plan for long term goals (e.g., save for child’s education, retirement

Track savings and monitor what you own

BorrowingKnowledge

If you borrow now, you pay back more later

The cost of borrowing is based on how risky the lender thinks you are (credit score)

Action/behavior Plan, understand, and

shop around; Avoid high cost borrowing

Understand how information in your credit score affects borrowing

Plan and meet your payment obligations

Track borrowing habits Analyze renting versus

owning a home

ProtectingKnowledge

Act now to protect yourself from potential catastrophe later

Identify theft, fraud, scams

Action/behaviorChoose appropriate

insurance; Build up an emergency fund; Shop around

Protect your identity; Avoid fraud and scams; Review your credit report

How to use these in your programs

Assessment for learner-driven experiences What are their goals? Who needs what content? What level of content?

Tracking progress Stages of behavior change Lerner goals Program goals

How will we know if we’re

making a difference?

Information is not education Need to change behaviors

Credit scores go upSavings rates go upBankruptcies go downSelf-anchoring measures

Subjective Measures of Making a Difference

Satisfaction with life and lifestyleAttitudes -- feel confidentFeel prepared for events -- getting

married, home buying, having kids, taking vacations, college education, home repairs, car buying, retirement

Thank you!

Any questions?