And the Survey Says? A Case Study of Financial Education in Chicago

DR. SMITH: And to introduce our next speaker, I'd like to bring up to the podium Mr. Art Murton. Art Murton is the Director of Insurance and Research for FDIC. Mr. Murton.

MR. MURTON: Thank you very much, J. I have the privilege of introducing our next speaker, Dr. Angela Lyons. We've heard a lot about Money Smart. We're very proud of it at the FDIC. One of the things that Chairman Powell always reminds us is we should try to measure how effective our efforts are, and this next presentation speaks to that.

Dr. Lyons is an Assistant Professor at the University of Illinois at Urbana Champaign. Her research there focuses, among other things, on financial education, and she's the co director of the University of Illinois' Center for Economic Education. Professor Lyons received a Ph.D. in Economics from the University of Texas at Austin, and I'd like you to join me in welcoming Angela Lyons. Thank you.

DR. LYONS: I want to thank the FDIC for inviting me to talk today. Last week, I had the honor of testifying before Congress on the importance of financial education for students, and I feel that it's an honor to be here today to talk about the importance of financial education for another very important segment of the population, the unbanked.

Before I start, I wanted to give you just a quick little bit about my background, because you heard Professor and Researcher. And sometimes you're thinking oh, my gosh, are we going to see tons of numbers up here. It's like going on 4:00 in the afternoon. No, I wanted this talk to be a very practical discussion for all of you today. I'm going to quickly give you some of the key findings, but what I really wanted to do, is that I know that a lot of you guys out there have your own financial programs and initiatives going on. And I wanted to take what we've learned from the evaluation from the Money Smart Program, and share with you some of the challenges that we've seen, and what we've gained from that, so that you can take that back and think about your own programs and initiatives. And, hopefully, you will find this helpful.

About two years ago, I received a call from Michael Frias from the Chicago office [of the FDIC], and he asked me if I'd be interested in helping to evaluate the Money Smart Program. An evaluation team was put together, and thinking back about those initial meetings that we had, I'm thinking I really don't think we had any clue what we were getting ourselves into.

The challenges that we faced in terms of the time and resources that were involved to do an extensive program evaluation, especially the labor intensity. I bring this up because I know that a lot of you are not for profit organizations. And I know the challenges that you're facing in terms of how do we show program impact with the programs and initiatives we've got going on out there. And I hope in sharing some of these things that that will help you as you think about your own programs.

So real quick, I do want to thank a couple of groups here. I want to thank the Women's Bureau at the U.S. Department of Labor, and the Department of Agricultural and Consumer Economics. They helped to provide financial support for this study. And then I also want to thank the Money Smart Evaluation Committee in Chicago, because without their time and energy, this research would not be possible.

Like all of us sitting here I mean, the theme here is that we've got this growing concern for the unbanked, that they're inadequately prepared for today's financial marketplace. We've got numerous programs and initiatives out there that have been created to empower the unbanked with financial knowledge, and to encourage them to enter mainstream banking.

Very few of these programs have conducted an extensive program evaluation. I know Dory mentioned the FLLIP Program. That's one of the few in the country, and along with the Money Smart Program, that I'm aware of that has conducted an extensive program evaluation. Many of these programs, as Clara had mentioned, are saying these are how many people are going through the programs. This is how many accounts were opened. And I hope that I can give a new kind of perspective on what we need to be thinking about in terms of program success for the unbanked.

So the Money Smart Program my guess is that most of you guys are familiar with the key objectives of this program. Just to highlight them real quick to provide individuals with tools necessary to evaluate and make their own financial decisions, to financially empower and encourage the unbanked to be banked. And then, to foster community stability and vitality.

The objectives of the Chicago evaluation, which is where we focused our evaluation efforts when we sat down as an evaluation committee, we wanted to investigate the account activity and financial behaviors of the Money Smart participants, so where were they currently at with what they were using? And then to examine the effectiveness of Money Smart in moving the unbanked to banked. And that's primarily what is the role of financial education. And then we wanted to provide an evaluation model that other researchers could use to follow and evaluate their own educational programs.

To date, Money Smart participants in the Chicago area have included Welfare to Work participants, Spanish speaking immigrants, Chinese immigrants, public housing residents in Chicago, and continuing education students at community colleges. This has been a very long road. We've been working on this project for two years, and so what I want to do real quick before I get to some practical application points is, first of all, tell you what's the history behind this evaluation project, where are we at now, and where are we going to go from here.

So where have we been? We collected data from select sites in Chicago, beginning in May 2002, and then we ended in February of this year. We collected surveys from 408 program participants. We had to drop a number of those due to the fact that there was just key missing observations, and missing information. And a lot of this was because of insecurity in providing financial information on a survey.

What we're working with is a sample of 338 observations. There were three key components to this evaluation. Like Dory, we conducted a pre and post evaluation so they would come into the program that first day. We'd give them a pre evaluation. Upon leaving and graduating from the program, they would then receive a post evaluation. We also collected information from the Money Smart instructors, and input from community banks.

To give you just a quick look at the information that was collected with this survey, with the pre evaluation, we collected savings and checking account information, their usage of alternative financial services, their borrowing behaviors, and some general financial knowledge. Did they know how to write a check? Did they know what APR was?

With the post evaluation, we collected some demographic information, we looked at their anticipated banking behaviors, and the impact of the program. From the instructors, there was some variation in what was taught across the different sites in Chicago, so we collected some information in terms of what specific lessons from the curriculum were taught. And then also, did the participants have any contact with community banks? Did a banker come in and talk to them? Did they take a tour of a bank? So we also collected that.

With respect to how we measure program impact, we had some very general statements on the survey that asked as a result of participating in the Money Smart Program, do you feel more financially knowledgeable? Do you feel that you can manage your finances better? And do you feel that you can use what you've learned from the program on your own? And then finally what we did, was we asked them and this was in particular for the unbanked is that if you did not have an account at the beginning of the program, did you plan to open an account? And if you did, why? And if you didn't plan to, why not?

So where are we at now? The findings. There's clear evidence from this survey that the Money Smart Program has succeeded in encouraging the unbanked to want to open an account. And what I mean by to want, is that we don't actually know if they did. But we do know whether or not they indicated that they planned to open an account.

Of those in the survey that were unbanked, 80 percent of those reported that they planned to open an account. Now we do need to be cautious about that figure because of the fact that this could be because they loved the program. They were excited and motivated by the end of it, and so we don't know, again, how many actually opened accounts at the end of the program.

The other thing is that there were distinct ethnic differences. And I don't think this should surprise anybody in the room. That of those who were unbanked, African Americans were more likely to plan to open an account, and Hispanics were least likely.

Some other interesting information that came out of this is that, when the unbanked were asked their reasons for why or why not they planned to open an account, this was following the program, it was interesting that those who had planned to open an account were communicating that they felt like they were financially prepared. It's like we went through this program. We lacked the financial knowledge. Now we've got it. Now we're ready to think about they were saying things like long term financial security, very forward thinking, thinking about long run financial goals, savings for an education, for a house.

When we looked at those who went through the program who said they didn't plan to open an account, it was not because they were indicating that they had a negative experience with the program. In fact, as we're going to see with the next slide, there was overwhelming positive support for the program at the end. The sense was that we went through the program. We've got the knowledge now, but we're still not in a position where we're financially prepared to even open an account. But we know what we need to do in order to get to that point. A lot of them were saying we still just can't afford it. We're unemployed. We still don't trust banks. That theme has come up again and again.

So if we look at in terms of attitudes and some of the responses, it's not surprising that participants who strongly agree that they were more financially knowledgeable and better able to manage their finances, these individuals were significantly more likely to report that they plan to open an account. However, and I brought this up before, that planning to open an account doesn't mean that they did. And it also, perhaps, doesn't mean that they should. And I'm going to talk about that in a little bit.

So just some more key findings in terms of financial constraints, not surprisingly again, played a predominant role in preventing the unbanked from opening an account. Over 70 percent of unbanked participants cited financial constraints as the main reason for not having an account. And we kind of mentioned this before, is that program participants who planned to open an account were more financially prepared to open and maintain a healthy account than those who weren't.

So at this stage, this is more where I get into the practical application. I mean, I went over those results really quickly. I mean, there's a huge report that I'm going to cite some sources at the end if you'd like to get a copy of that. There's also a research paper, but I really wanted to spend some time right now talking about what we learned from all of this.

I think the first key observation, because I remember the evaluation committee sitting around a table with a group of community bankers, and they were telling us that yes, there were these accounts that were opened. But after six months, many of them closed. And so there was a little bit of depression, but I started thinking about this from the standpoint that I don't think we should think about this as this wasn't successful. I think we need to think about how we're defining success with these programs for the unbanked.

Success, the best measure may not be the number of accounts that are opened, but instead, with this financial education did we provide them the necessary skills and tools so that they can make that decision on their own when they leave the program. And in my mind, that's the better measure of success.

Another key observation that we gained from this is that, if the key objective of programs like Money Smart are to get the unbanked banked, then it's absolutely critical that we start identifying who the unbanked participants are that we can get banked. And what I mean by this, is that a lot of researchers will constantly say that this is such a heterogeneous population, how can we specifically target this? We talked about some of the characteristics of the unbanked today, but the thing is that we're not I almost want to say we're putting the cart before the horse.

We developed all these programs and initiatives, and now they're out there. But now we're like trying to identify who this target population is. And I guess I'd like to say that we've heard two themes today. One is like on this financial education path, and one is on the products and services, targeted to whoever we're trying to identify as this unbanked population. And through the research that I've done with the Money Smart Program, I've made some observations that probably are not going to surprise you. But I think if we kind of think about things in terms of the unbanked in three categories, I think it might help us to further think about our evaluation. So the next slide kind of breaks down these three groups.

The first group is those who are in a financial position to open and maintain a healthy account, but who did not have the knowledge needed when they entered the program, to enter the mainstream financial system, these individuals clearly, there's a strong role for financial education.

The next group is those individuals who are in a marginal position to open an account, but need the right product. And we talked a lot about the toasters today in terms of what we can do to get them banked.

The third group and I might get some tomatoes thrown at me on this one is, those who are unable to open and maintain a healthy account regardless of knowledge and/or product. I mean, the reality that I have really seen with the Money Smart Program is that there is a group of the unbanked, that no matter what we do, they are just not in a financial position to open at a bank. That's not to say that financial education cannot be successful. I've seen huge success with the Money Smart in terms of things that I've heard from the instructors, that they walked away knowing that right now it's not right for me, but I know that this is what I have to work towards for me to get into that position.

You know, I don't know if you want to frame it with these three groups or something else, but this helps us with a starting point to say okay, within these groups what are the characteristics of the first group? What are the characteristics of the second group? So we can start doing more targeted programming for financial education. And also, in terms of products and services. So I really would encourage you within your own programs to think about who you're targeting, who they are demographically. And in terms of these categories, what you can do to meet their needs.

Which brings me to the third observation, which is programs such as Money Smart are not a one size fits all program. And I mean this in a very positive light from the standpoint that there have been numerous groups and organizations that have gone through the Money Smart Program in the Chicago area. City Colleges, which is the community college system in Chicago, they have had just huge success. Community colleges, at least what I've seen in Illinois, they have been incredibly effective at reaching limited resource audiences with financial education, bringing in the numbers. But some of the key things that have come out of that in talking with instructors there, is that Money Smart needs to take that next step, needs more on savings and investing, more on credit management, credit cards, using credit cards responsibly.

And I know, too, that there has been talk in terms of making this connection in high schools and things like that. I mean, we need to think about whatever program or initiative you have going on, really think about who that audience is for. And sometimes, in many cases, that program is the best program for that particular audience. And if you're taking it to another audience, you want to think about ways that you can tweak that or enhance it.

I know another observation that I have made out of this, is that and this kind of came also out of testifying last week before Congress, and also attending a conference recently at the Federal Reserve Bank of Chicago on Asset Development for Limited Resource Audiences was that there's another key area where there's been success, and that is with the critical connection between students and parents, especially for the Hispanic community.

I've heard a lot of stories where it's been incredibly effective to bring, banking into the school and Hispanic community, and they're taking that home to get kids to bring their parents to events after school or in the evening. And so I would encourage you to think about, too, the role of taking this down to the schools and prevention in bringing this forward.

So with that I want to say we've come a very long way with this. And I know that so many of you guys in the audience have programs and initiatives. With Money Smart, I mean this has been a two year effort. We're still looking at things, a cooperative partnership with a number of organizations. And so I want to leave you guys with some thoughts about where do we go from here? Just again, more targeted programming with financial education, but not only with financial education. We want to think about these products, mainstream services and products, and alternative services and products.

And I think you might be thinking okay, alternative. I'm not thinking of that as predatory lending. I mean, I'm thinking of that as other things outside of a traditional savings and checking account. And I think for that marginal group, we do need to think about alternative services and products.

We also need to think again about specifically who these people are, a critical examination of program participants. I know we had a significant drop out rate in the program, and that was a lot of times due to the organizations we were working with, especially Welfare to Work Programs, where once they got a job they left the program. That's a challenge, and we need to think about if that's going to be happening in the groups that we're working with, who's dropping out, who's staying in, and what are we going to do about that?

Also, this is really key. An effective financial education program for the unbanked requires a combination of innovation and cooperation from local banks, community based organizations and policy makers. All of you guys are sitting there thinking that's really obvious. We had a real struggle with this in Chicago, in terms of bringing the banks on board. And some of it was the fact that what happened was they were seeing that accounts were being opened, and then they were closing six months later. So you want to think about it. This works best when you've got everybody on board, and you want to think about ways that we can do that.

I just want to leave you guys with one little personal story; which is, yesterday I had my wallet stolen here in D.C. at Union Station. I was panicked there for a little bit, and then I kind of thought about the irony of all of this which I feel a little unbanked right now. I had to close all my credit card accounts, shut down some of my bank accounts because within 20 minutes they were already charging things to my stuff. It was unbelievable.

Then I was thinking about alternative financial services. How am I going to get back? I need to fly, and I have no I.D. But I guess for the last 24 hours, this has really hit home to me what it feels like to be unbanked. And I guess what I just want to leave you guys with is that what I've gone through in the last 24 hours is really a far cry from what the unbanked go through every day. And I think I'm just going to leave you with that, and I'm going to put up right now real quick some reference lists. The first one is the report that has the Money Smart findings. The second one is a research paper, and the last one is if you're looking for tools and resources about evaluating your own program, this might be helpful. So if you want to contact me, I'd be more than happy to send them via e mail to you. Thank you.

Q&A for Dr. Lyons:

DR. LYONS: Oh, thank you.

DR. SMITH: Knowledge as collateral. Yes, here's one here. All right.

AUDIENCE MEMBER: I think that I saw in the summary of the evaluation that there was a difference between the programs that were volunteer run versus those that had paid staff. And I was wondering if you could talk a little bit more about that, particularly with the Asian American community, particularly with all the languages that are spoken. And if there's not some infrastructure there, I just wondered if you

DR. LYONS: Basically, what she's referring to is the fact that we work with a number of organizations. Some of them, the instructors are paid, some of them are volunteering to do this. And, I mean, there's a large time demand on people, and for those that are volunteering, it was a lot more of a struggle for us to get the survey information, for us to know exactly what was being taught in the classes. This is another one of those lessons that you can learn from this.

Those that were getting paid were much more conscientious in getting us back surveys, in providing us information. It's all about incentives. And even those that were paid, they're underpaid, so that's a very good point. Thank you.

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