The Educational Desires of The Educational Desires of Financially Distressed Credit Financially Distressed Credit

Counseling ClientsCounseling Clients

William C. Bailey, University of ArkansasBenoit Sorhaindo, InCharge Institute of America

E. Thomas Garman, Professor Emeritus, Virginia Tech

Presented to the Association of Financial Counseling and Planning Education

Scottsdale, AZ - November 22, 2002

Statement of the ProblemStatement of the Problem

• Most Americans report they need additional financial education

• Research indicates that all can benefit from financial education

• Employees

• Employers

Financial services providers know little about the education needs of severely financially distressed individuals

Previous Research on Previous Research on Financial LiteracyFinancial Literacy

• Jump$tart Coalition for Financial Literacy

• Survey of Graduating High School Seniors – 1997--57.3% mean correct score– 2001—50.2% grade of “F” on average

• Americans for Consumer Education– Random telephone survey of 801 seniors– 36.6% mean score on 13-item multiple choice test– Survey has ±3.5% margin of error rate

Changes in Today’s Financial Changes in Today’s Financial EnvironmentEnvironment

• Personal finances are becoming much more complex compared to years ago– Changes in types of mortgages, investment vehicles, and

insurance– Changes in banking and saving industries

• Treasury Secretary Paul H. O’Neill, stated that it is very understandable that the average consumer can be uncertain and ill-equipped to handle all of the issues associated with home mortgages, paying for an automobile, and making investment selections that range from stocks and certificates of deposit to “who knows what else” (Department of the Treasury, April 23, 2002)

• One result is the newly created Office of Financial Education in the U.S. Treasury Department

Adults are Seeking Additional Adults are Seeking Additional Financial EducationFinancial Education

• Traditional books and other written materials pour off the presses to inform and educate adults about personal financial issues

• Media has targeted a variety of audiences for financial education, ranging from budgeting to retirement planning– Newspaper, radio, and television programs– Audio and video tapes– Internet sites– Distance education programs

Workers are Seeking Financial Workers are Seeking Financial Education from Their EmployersEducation from Their Employers

• Research has determined that a comprehensive approach to financial education in the workplace has beneficial results for workers, their families, and their employers (Bayer, Bernheim, and Scholz, 1996; Kratzer, Brunson, Joo, and Garman, 1998)

• Research also indicates that personal finance education in the workplace can improve job productivity (Garman, Leach, and Grable, 1996; Joo

and Garman, 1998).

Many Families are Financially Many Families are Financially DistressedDistressed

• More than 2.5 million individuals and families in 2001 sought assistance with financial problems from NFCC accredited agencies

• However, the research literature reveals little about credit counseling clients

• Research indicates that credit reports improve as a result of debt counseling (Staten, Elliehausen, and Lundquist, 2002)

MethodologyMethodology

• The present study was part of a larger mail survey sent to clients of a national non-profit credit counseling organization.

• In 2000, a sample of 1,800 was drawn from a population of 4,000 current clients.

• Twenty percent (N=355) of the households who received a questionnaire returned it.

• Eighteen months later, in January 2002, a second questionnaire was sent to those who responded originally.

Methodology (Continued)Methodology (Continued)

• Regarding the 2002 data collection– 300 of the 355 questionnaires were delivered.

– 180 usable questionnaires were returned, for a return rate of 51 percent.

– The questionnaire included one question asking, “I could benefit from additional information and/or education in the following areas?” with 13 choices plus “other.”

– 160 responded to that question and 132 identified at least one financial topic in which they desired additional information or education.

Results Description of SubjectsDescription of Subjects

• Of the 160 survey respondents, 68% were female

• The mean age was 37 years

• 49% were either married or living with a partner

• Median annual income was $30,001 to $40,000

• Educational attainment– 43% had a high school education– 28% had some college– 30% had a bachelor’s degree or higher

Additional Financial Education Additional Financial Education Topics DesiredTopics Desired

 

Topics Percentage

Budgeting and Money Management

48%

Saving for Future Needs 48%

Saving for Retirement 37%

Lowering Credit Payments 31%

Understanding IRA and 401K Plans

24%

Understanding Credit Reports

24%

Reducing Income Taxes 21%

Additional Financial Education Additional Financial Education Topics DesiredTopics Desired

Avoiding Costly Financial Mistakes

20%

Understanding Credit Scores

19%

Reducing Checking Account Fees

16%

Understanding Rights as a Borrower

13%

Selecting the Right Insurance Plan

10%

AdditionalAdditional Analysis Analysis

• Several statistical tests were conducted to determine if there were differences by demographics among the desired financial education topics– No significant difference by gender– No significant difference by age (6 categories)

• There were two differences in topics desired by education – Those with some college were more likely to desire

information about “avoiding costly financial mistakes” than either high school graduates or college graduates (F=3.14, p=.046).

– The results were the same among education groups wanting to “understand rights as borrower” (F=3.15, p=.048).

Significance Difference by Significance Difference by Income on Four ItemsIncome on Four Items

Item F-Ratio and P Value

Reducing Checking Account Fees

F=3.38 (p=.004)

Lowering Monthly Credit Payments

F=2.32 (p=.036)

Saving for Future Needs F=2.24 (p=.042)

Understanding Credit Reports

F=2.20 (p=.046)

DiscussionDiscussion

• Little is known about credit counseling clients

• The financial education needs of credit counseling clients may or may not be similar to a more normal population of credit users, because of the generally high levels of financial illiteracy in the American

population

Discussion continuedDiscussion continued

• In three previous studies of financial education (Anderson, Kerbel, and Xiao, 1997; Joo and Garman, 1998; Kim, Bagwell, and Garman, 1998) determined that the majority of individuals wanted additional financial education

• In those studies, a variety of additional financial education topics were desired ranging from the basics of budgeting to investing and estate planning

Educational Topics Desired in Educational Topics Desired in the Three Other Studiesthe Three Other Studies

• Retirement and investment education were always rated first, and then followed by credit and budgeting issues.

• Other topics, such as tax planning, funding college education for children, selecting life and health insurance, and related topics, tended to be rated

third

Two Important Differences Two Important Differences Between StudiesBetween Studies

• Credit counseling clients wanted basic knowledge first, followed by a desire for additional education on retirement and investment planning– Previous studies had the reverse order

• There was a high rejection rate for additional financial education by debt counseling clients—about 25% said “no“ to desiring any additional education– Previous studies had fewer than 10% say “no” to

desiring additional education

RecommendationsRecommendations

• These findings support the need for more basic financial education for credit counseling clients.

• Research should be conducted to find out the delivery mechanisms most desired by different types of people.

• Adult educators are encouraged to create and deliver basic financial education programs on credit and money management.

RecommendationsRecommendations

• Programs should be marketed so that those with household incomes below the national median become aware of and use the educational opportunities.

• Research should determine if financial education changes personal financial behaviors and personal financial well-being.

• Schools and employers need to get the message about the need for basic financial education, and change, so people, employers, institutions, and society as a whole can reap the benefits of a financially literate population.