redefining financial capability: earn's model of self-efficacy
DESCRIPTION
Popular wisdom suggests that if you want to succeed financially, you need two things: financial knowledge and access to appropriate financial products. This combination is commonly referred to as financial capability. But a groundbreaking paperfrom the EARN Research Institute points out that these two factors only lead to financial success when paired with a third component: financial self-efficacy.The new research illuminates a crucial gap in how most financial education experts believe people manage their money successfully. In light of EARN’s research findings, the definition of financial capability needs to be expanded to include self-efficacy.TRANSCRIPT
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Redefining Financial CapabilityApril 21, 2011Follow @EARN on Twitter
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Redefining Financial Capability
Your HostSunaena ChhatryPublic Policy [email protected]
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If you are unable to hear us speaking right now, call-in using your telephone.
• Dial: 1 (805) 309-0022• Access Code: 294-618-758
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Download paper at www.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 [email protected]
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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 & [email protected]@BenMangan
Sunaena ChhatryPublic Policy Manager
[email protected]@Sunaena