Financial Education: Out Of The Mouth Of An FRB Governor

Financial education is more important than ever. The FDIC was the first regulatory agency out of the chute with its "Money Smart" program. Both consumer advocacy groups and financial institutions have raised concerns that financial management education is a critical element to success in CRA programs for individuals without banking experience. Now, the Federal Reserve Board's Governor Gramlich has gone on record as a supporter of financial education.

In a speech to the Financial Literacy Teacher Training Workshop, held at the University of Illinois at Chicago on May 2, 2002 of this year, Governor Gramlich discussed economic education and stated that the FRB has "always considered them to be integral to our mission."

Most recently, the FRB has identified financial literacy initiatives as a priority. Governor Gramlich listed several reasons for the current importance of providing for financial literacy. First, products are more plentiful and more complicated. Consumers must have more financial sophistication to identify and select appropriate products.

Second, more consumers are increasingly involved with asset-building products. Retirement funds, college savings, and other long-term financial programs require more experience and financial knowledge.

Third, demographic changes create information needs. As Baby Boomers age, they and the generations that follow them will be increasingly responsible for financing their own retirements. Mobility in employment reduces the ability of an individual to rely on a stable pension plan and increases their need to provide for their own retirement.

Finally, consumers need information and financial management skills to identify and prevent fraud and abuse. The more consumers know, the more difficult it will be to take advantage of them. In this situation, knowledge is a very clear form of power.

Governor Gramlich identified several principles that financial educators should take into account in designing and delivering programs. First, financial literacy training works best when tied to a specific goal. The student who wants to buy a house or open and manage a credit account is motivated to learn what is important to be successful in the endeavor.

Second, one course or course series won't be enough. Learning financial management skills is a life-long process. Learning is most effective with specific goals. Goals can be simulated and learning reinforced with case studies that apply the information to situations similar to those the student is likely to encounter.

Third, financial literacy training should be geared toward the specific community. Learning issues such as language, culture, and existing practices should be accommodated in the education program. Both information needs and effective communication techniques will vary from community to community. The content of the program and the design of case studies should speak to the students and illustrate the financial information needs of the specific community.

Fourth, use partnerships. The willingness of people to participate may depend on who sponsors the education. The effectiveness of the training will also depend on the availability of products and services that are included in the education programs. Extolling the virtues of life-line banking isn't effective unless the product is offered - and offered in a time and place that the students can use.

Partnerships can also increase the ability to reach consumers and support the credibility of the program. Governor Gramlich specifically mentioned Neighborhood Housing Services as a potential partner. Partnering with organizations such as NHS and similar grass-roots organizations provides additional opportunities to reach consumers in convenient places, settings, and times.

Fifth, use the workplace. Particularly when the financial institution has ties to an employer (go check out your commercial loan files), that employer may find benefit in offering time and space for financial education and other banking activities. Sixth, use technology. You may have groups you can reach through Internet programs. Technology can also enable you to provide information and courses at times that are convenient to those who work shifts that conflict with banking hours. Any technology use, however, should take ability and access to technology into account. In fact, the most useful education may be on the use of technology.

Finally, Gramlich observed that learning how people absorb financial education must be a priority. The Federal Reserve is conducting surveys on learning techniques. So stay tuned for more information on consumer financial information from the FRB. The full text of Gramlich's speech is available at: www.federalreserve.gov/boarddocs/speeches/2002/20020502

ACTION STEPS

If you haven't already done so, get a copy of "Money Smart" from the FDIC.
Review your community partners and possible partners. Schedule time with them to discuss ways to offer financial education.
Include schools, churches, and community centers in your list of possible partners.
Review the demographics of your community and determine what is needed for financial education, including language and culture issues.