Financial Education; Financial Education, Financial Training and Students
Workplace Education Programs
As employers have shifted from offering employer-driven defined-benefit
retirement plans to employee-directed defined-contribution plans, many
individuals have of necessity assumed greater responsibility for planning for
their financial needs in retirement.
Many employers have instituted
training seminars to help employees assess their needs and evaluate their
options for the future.
A study by Fannie Mae found that employers most often initiated financial
education for reasons associated with their 401k programs to increase
participation and contribution levels, to comply with related regulations, and
to avoid potential liability for losses.1 The study profiled programs
on long-term financial and retirement planning at Weyerhaeuser Company and
United Parcel Service (UPS). The Weyerhaeuser program was begun in 1984, and the
UPS program in 2000; both are strongly supported by management and are offered
at regular intervals.
The programs consist of one- or two-day workshops
tailored to particular age groups. Employees receive extensive resource
materials, including workbooks that incorporate explanations of the companies
benefits in the context of broader financial planning strategies.
The
Weyerhaeuser program takes a holistic approach, covering non-financial topics
such as health and quality of life in the workshops. The UPS program augments
written resource materials with a web-based service to help employees develop a
personal financial action plan and computer software to provide information on
such topics as budgeting, managing debt, saving, insurance, and wills.
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Employee response to workplace financial education programs and the results
of studies of the influence of such training on employee financial behavior have
generally been favorable.
One study found that employees who attended
training workshops subsequently increased their participation in 401k plans.2
Another study drew a similar conclusion, with more than half of those
participating in counseling sessions and workshops changing at least one
financial behavior.3 In a study evaluating the effectiveness of
financial education offered by a chemical production company, 75% of employees
reported deriving a sense of benefit from workplace-sponsored training; they
believed that they had made better financial decisions after attending the
workshop and were overall more confident in making investment decisions.4
Other researchers conducted a telephone survey of a national sample of
individuals aged thirty to forty-eight to examine the effects of employer-based
financial education on savings, both in general and for retirement.
Retirement accumulation, by nearly all measures, was found to be significantly
higher for respondents whose employers offered financial education.
In
addition, rates of participation in 401k plans for both respondents and spouses
were higher in the presence of employer-sponsored financial education.
The
study found a significant relationship between financial education and the rate
of total saving; however, there was essentially no relationship between
financial education and total wealth accumulation.5
Studies of workplace-sponsored financial training have also focused on benefits
to employers.
The study at the chemical production company, for example,
found that financial wellness was positively correlated with worker productivity
(as measured by supervisors performance ratings) and worker health (as a
function of absentee records).6
Results of Surveys of General Financial Training Programs
While studies generally find a positive correlation between financial training and the achievement of specific goals, the results of surveys measuring the acquisition of more general, more comprehensive financial literacy are less clear cut. A 1995 telephone survey of a nationally representative sample of individuals aged thirty to forty-nine to measure the long term effects of financial curricula in high schools across the country found that state-mandated financial education resulted in both increased exposure to such information and improved asset accumulation when participating students reached adulthood.7
A more recent study, based on data from the 1999 Freddie Mac Consumer Credit
Survey, concluded that specific and detailed knowledge of financial affairs had
little effect on behaviors and outcomes, and that confidence and a broad
understanding were more important predictors of successful financial outcomes.8
The study also found that consumers appear to benefit from practical and applied
learning: The major source of learning for all groups was a difficult financial
experience. The researchers concluded that teaching financial literacy in the
abstract appears to be ineffective and that providing consumers with ready
access to information on an ongoing basis may better help households having
minor financial difficulties avoid exacerbating their situation through
unproductive behaviors.
Other surveys have sought to measure the short term effects of financial
training targeted at secondary school students. One such survey was a 199798
evaluation by the National Endowment for Financial Education (NEFE) of its High
School Financial Planning Program.9
The survey compared
students responses to questions about their financial behaviors, financial
knowledge, and confidence levels in managing financial matters before and after
participating in the program. Nearly 30 percent of the students reported that
they started saving after participating in the training, and 15 percent
indicated that they began saving more. In addition, 37 percent of the students
stated that they had better skills for tracking spending, 47 percent believed
that they were more knowledgeable about the cost of credit, and 38 percent
indicated that they were both better informed about investments and more
confident about managing money after participating in the program.
While the NEFE survey results indicate that general financial literacy training
can be useful for students, at least for a short period after the training,
scores on a test administered to high school seniors by the Jump$tart Coalition,
a nonprofit financial education advocacy group, present a less clear view of the
relationship between training, knowledge, and confidence. Over a period when
attention to public school training in personal finance was increasing, average
scores on a multiple-choice test of seniors knowledge of the basics of personal
finance were declining from 57 percent in 1999 to 52 percent in 2000 to 50
percent in 2002.10 In fact, students in the 2002 study who had
received an entire semester of training scored a bit worse on the test than
those who had not, and students in states having a statewide training
requirement scored worse than those in states having no requirement. Notably, in
the 2002 survey, students who had participated in an interactive stock market
game as part of their training scored better on the survey (52 percent) than did
students overall and better than those who had received other types of training.
Despite the low average score, 65 percent of the students tested in 2002
indicated that they felt somewhat sure or very sure of their ability to handle
their finances.
Source: Federal Reserve Bulletin November 2002, Pages 451 - 453
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