Back to School: The Pursuit of Financial Literacy

Do you feel more financially literate?

It’s a valid question—we’re at the end of Financial Literacy Month, designated as such by the government. So has it worked? Have Washington and the all the state capitals involved moved us to make things better?

Let’s start with the designation itself. Everything about the government is byzantine, of course, and even something as innocuous as encouraging people to become more money-savvy is no exception. Turns out this initiative was actually by a non-profit group back in 200, and the U.S. Senate signed on to a youth-oriented version in 2003, although by that time at least eight states already had their own version. A few years later, the National Foundation for Credit Counseling took up the cause.

In 2006, the Financial Literacy and Education Commission, backed by a lengthy roll call of government agencies and departments, delivered a comprehensive study titled Taking Ownership of the Future: The National Strategy for Financial Literacy. Supported by reams of data and credible subject matter experts, the report lays out a broad series of initiatives and goals that are designed specifically to help individuals enhance their management of financial issues.

The report also serves a perfect snapshot in time, not because it’s obsolete now—in fact, the advice may be even more valid in today’s difficult market—but because it captures the apparent widening gulf between the real and the aspirational. The resources, the desires, and the motives are all there to do things better than we should. And yet. . .

One good example is how much money we put away without spending. The report bemoans the steep decline in this area, pointing out that 35 years earlier, in the mid-’70s, 9.4% of disposable income was set aside for personal savings (some estimates have it even higher.) By 2004, the figure had plummeted to 1.3% (some estimates have it even lower.) Then Chairman of the Federal Reserve Board Alan Greenspan is quoted as saying that while domestic savings will be critically important, actual performance in this area would be dictated by largely by the “behavior of the members of the baby-boom cohort during their retirement years.”

Of course, the year 2006 could be seen as increasingly distant from the dot-com crash at the turn of the century and closer to the financial meltdown that began, at least publicly, in 2008. But where are we now?

Savings got closer to 6% during that period (dubbed the “new frugality”) but went back down to 3.5% late last year. That’s much lower than most retirement groups recommend. In fact, those who get started late in life—say, the age of 45—at the savings game need to put away a good 18% of annual income to assure a comfortable retirement after turning 70.

Can we do this? The current Chairman of the Federal Reserve Board, Ben Bernanke, had an interesting take on this before taking the job: As an economist at Princeton University, he theorized that the problem isn’t Americans saving too little, it’s foreigners saving too much. In particular, excess savings by Chinese individuals caused them to lend money to the U.S. at low rates, which effectively financed American consumption and caused a mountain of debt.

Of course, there’s much more to financial literacy than just personal savings—we need a better handle on everything from home mortgages and health insurance to tax rates and student loans. The irony is that all these issues are playing out on a national stage right now, courtesy of the presidential election.

In sum, the information and resources exist for us to learn more and do better. It’s in our own best interest to make the effort. Otherwise, every month—including those dedicated to helping us become more financially literate—will be like the one that came before.

FI Spotlight: Philadelphia Federal Credit Union

As Financial Literacy Month comes to a close, financial institutions and organizations have enacted various campaigns to educate members and customers across America. The Banking.com staff has been closely watching some initiatives including NCUA’s Twitter campaign and the American Bankers Association’s 16th Annual Teach Children to Save Day, and in May we will reveal how our readers endeavored to help their community from our very own poll.

To better understand the community they serve, Philadelphia Federal Credit Union (PFCU) in Pennsylvania revealed the results of its first annual Financial Literacy Survey. The survey researched the financial knowledge of Philadelphia-area residents, taking particular interest in their saving practices, spending habits and financial attitudes. PFCU’s research revealed that more than one-third of Philadelphians are in critical need of improving their financial condition, indicating they were not able to save any money in the past 12 months. Additionally 45 percent of Philadelphia credit card owners typically carry a balance month-to-month and 79 percent of survey respondents were less than “very successful” at spending within their budget in the past year.

As a result of the survey findings, PFCU is ramping up its educational programs and looking to better cater to its current and prospective members. Banking.com spoke with Philadelphia Federal Credit Union’s Accredited Financial Educator Karl J. Bernhard about the survey findings and what they mean for the institution and financial industry at large.

Banking.com (BDC): What survey statistic did you find most surprising, and why?
Karl J. Berndhard (KJB):
I found it most surprising that more than one-third (37%) of Philadelphians were not able to save any money in the past 12 months. This tells me that Philadelphians are in critical need of learning the skills to better manage their money. In response to this finding, PFCU is expanding its free financial education programming now through May 31 to the public in an effort to instill healthy financial habits.

BDC: For Americans and Philadelphians trying to get their financial condition in shape, what small steps can people take to try and improve their financial health?
KJB:
I always say there are five steps you can take to take control of your finances immediately. The simple steps include – create a budget, track spending, open a savings account, check your credit report and then last but not least, take advantage of financial education that is available to you like PFCU’s free seminars on budgeting, saving, and credit.

BDC: What tools and/or services do you offer to your members to help them budget their money?
KJB
: We offer a Budgeting & Credit Seminar on a regular basis to our members that helps them understand the importance of saving and tracking where their money goes. We give them the tools they need to create a realistic budget and manage their credit.

BDC: With the surge in online and mobile banking, do you believe that having tools available to members 24/7 is helping improve their financial literacy and financial health?
KJB:
It’s certainly making the information more available to them and making it easier than ever for people to track their spending. In addition to offering free 24/7 online banking, we plan to have a mobile app up and running before the end of the year. We also recently launched a Facebook and Twitter page and regularly post and tweet financial tips and advice.

BDC: How have your members reacted to the survey findings?

KJB: I think it is human nature to be curious about how other people are doing financially. This survey for better or worse shows Philadelphians that they aren’t alone. Seventy nine percent of Philadelphians haven’t been very successful at keeping spending within their budget during the past twelve months and 84% of Philadelphians surveyed consider themselves less than very knowledgeable about personal finance.  The good news is there are simple steps everyone can take to improve their financial condition and through our financial education seminars we are making a better financial future accessible.

BDC: What do you predict will be the focus of your financial literacy campaigns and annual survey next year?
KJB:
Good question. I think it will be important to continue to take the temperature of Philadelphian’s wellness on an annual basis so that we can be sure our financial education seminars and other services we provide our members are fulfilling their needs and providing the greatest value. Many of the questions we ask Philadelphians will remain the same. Hopefully the results will improve!

You can read more about Philadelphia Federal Credit Union’s survey here or reach out to them on Twitter

How are you helping customers and members to your financial institution? Tweet at @Bankingdotcom or let us know in the comments below.

Think your FI deserves special recognition? Send information to info@banking2020.com.

The Next Banking Generation: The Mobile Teen

April is Financial Literacy Month, and many organizations and financial institutions are providing information and tips to help consumers take the right steps on money management. One demographic driving numerous campaigns for Financial Literacy Month is the pre-teen and teen demographic, the next banking generation.

A recent infographic developed by Safely shines light on how frequently pre-teens and teens are using mobile devices; 75 percent of 12 – 17 year olds own a cell phone. These teens don’t just have phones to call home in case of emergency — they are heavy mobile users who talk about 835 minutes a month on their phones and receive/send an average of 1,200 texts a month. They are also heavy app users, with an average user downloading 11 apps a month.

As financial institutions and organizations help educate consumers for Financial Literacy Month, it is important to keep in mind the new financial generation is a generation that will approach finances with a mobile perspective. See below for the full information from Safely and more stats on the mobile teen:

How are you helping your financial institution’s youth? Tweet at @Bankingdotcom or let us know in the comments below.

What are your plans for Financial Literacy Month?

As you may already know, April is National Financial Literacy Month and financial institutions everywhere are looking for innovative ways to educate their customers and members. The Banking.com staff took notice of some particularly creative campaigns in the month of April looking to help consumers and financial institutions take advantage of this month’s theme:

We want to know what you’re planning to do this month to help your customers and members? Let us know by answering our poll below.

Have an idea that you’d like to share? Tweet at @Bankingdotcom or let us know in the comments below.

Think your FI deserves special recognition beyond 140 characters? We’re always looking to feature more institutions as one of our FI Spotlights, so send information to info@banking2020.com.