redefining financial capability: earn's model of self-efficacy

Redefining Financial CapabilityApril 21, 2011Follow @EARN on Twitter

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Redefining Financial Capability

Your HostSunaena ChhatryPublic Policy ManagerEARNSunaena@earn.org

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Agenda

• Welcome & Introductions• Presentation by Ben Mangan (30 min)• Q&A (20 min)

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Join the Conversation on Twitter

• We’ll be tweeting key takeaways throughout the presentation on Twitter.

• To participate, visit twitter.com/EARN and include the hashtag #fincap in your message.

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Redefining Financial Capability

PresenterBen ManganPresident & CEO EARNBen@earn.org

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Evolution of Financial Capability

• “Financial Literacy”?

• Growing body of data suggests financial education alone is ineffective

• Influencing behaviors powers change

• “Financial Capability” is apt new term of art

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New Definition of Financial Capability

• CFSI has pioneered an important new definition of Financial Capability:

Cover monthly expenses with

income

Track spending

Planning ahead and saving

Selecting and managing

financial products

Gaining and exercising financial

knowledge

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Defining Financial Self-Efficacy

• “Self-Efficacy” is one's belief in one's ability to succeed in specific situations

• Self-efficacy can play a major role in how one approaches goals, tasks, and challenges

• EARN’s research led to us to adapt the concept with the term “Financial Self-Efficacy”

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A New Dimension for Financial Capability

Cover Expenses

Track Spending

Plan + Save

Select + Manage Products

Use Financial Knowledge

Financial Self Efficacy

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The Research Basis for Financial Self-Efficacy

• EARN analyzed 487 baseline surveys, and 54 surveys at Year 1

• Factor analysis of sets of questions related to:• Financial Knowledge• Financial Problems• Financial Self-Efficacy• All sets of questions internally consistent

• High levels of statistical significance

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EARN’s Predictive Model of Financial Behavior

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Five Key Findings Related to Financial Self-Efficacy

1. Financial Self-Efficacy was the pivotal predictor of fewer financial problems

2. Financial Self-Efficacy grew as financial knowledge grew

3. When financial happiness grew, perceived financial stress decreased

4. Increases in knowledge led to increases in self confidence, leading to more successful outcomes, and increased financial Self-Efficacy.

5. We believe that increasing Financial Self-Efficacy will increase Financial Capability.

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An Uncomfortable Question

Do our current industry standards impede the growth of Financial Self-Efficacy + Financial Capability?

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Evidence and Current Standards Disconnected

Norms + rules for distributing resources to low income people designed for control + fraud prevention – not Financial Self-Efficacy or Financial Capability.

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How Can You Foster Financial Self-Efficacy?

1. Embrace “plain vanilla” savings opportunities

2. Conduct a Financial Self-Efficacy “audit”

3. Foster a culture skeptical of unjustified paternalism

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Financial Self Efficacy in Action

• SERVICES: Financial Coaching most effective when anchored by program designed that lets clients foster Financial Self-Efficacy.

• PRODUCTS: EARN re-launching new offering this year that was redesigned as a result of our research findings

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Implementing Financial Self-Efficacy in DesignEARN Matched Account Example:

Testing use of funds without

restrictions

Optional $

Training

Self Reported Income

Testing for Financial Self-Efficacy and

Financial Capability

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Emerging Research Questions

• What’s in the secret sauce?

• What is the optimal combination?

• Can we “manualize” the inputs?

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Implications for Public Policy

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Collaboration Can Spark Progress

• Many worthy experiments

• Need to advance the science behind assertions with RCTs

• Funders, practitioners and government need to build the case for what works

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Q & A

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Thank You!

Ben ManganPresident & CEOEARNBen@earn.org@BenMangan

Sunaena ChhatryPublic Policy Manager

EARNSunaena@earn.org@Sunaena