Why Is Saving and Investing Education Important

1
Why Is Saving and Investing Education Important?
2
Overview

• Increasing financial responsibilities for
  consumers
• Are families financially fit?
• Warning signs
• Financial education

3
Increasing Consumer Responsibilities

• Over 92 of pensions today are defined
  contribution plans, not defined benefit plans.
• Over one-third of college students have a credit
  card before they enter college.

4
The Financial World Has Become More Complex

• The Internet has increased the number of
  financial services offered to consumers.
• Credit-scoring technology has improved.
• There has been an increase in the number of
  financial products that are offered.

5
People Are Involved in the Financial Markets

• Millions of small investors have increased their
  net worth by participating in the stock and bond
  markets.
• Millions of other investors depend on income from
  owning stocks and bonds.

6
Are Families Financially Fit?

• Results of the Survey of Consumer Finances
  published in the Federal Reserve Bulletin,
  January 2003

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Family Income and Net Worth

• Median family income adjusted for inflation rose
  9.6 1998-2001.
• Median family net worth rose 10.4 1998-2001.
• The number of families holding corporate equities
  directly or indirectly rose from 1998 to 2001.

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Family Saving

• Families are saving somewhat more today than in
  the past.

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Percentage of Families Who Saved (Federal Reserve
Bulletin, 2003)
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Top Reasons for Saving (Federal Reserve Bulletin,
2003)
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Value of Top Financial Assets of All Families by
Type of Asset (Federal Reserve Bulletin, 2003)
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Family Debt

• From 1998 to 2001, liabilities of families grew,
  but assets grew more rapidly.
• Families debt-to- assets ratio improved
  some-what.

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Amount of Debt of All Families (Federal Reserve
Bulletin, 2003)
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Warning Signs

• There are, of course, signs of financial danger.

15
Unbanked Households (Federal Reserve Bank of
Chicago)

• About 10 million households are unbanked.
• Over 57 of unbanked households are minority
  households.
• About 37 of African American households are
  unbanked--they have no checking or savings
  accounts.

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Have You Seen Places Like This?
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Non-Mainstream Financial Services

• Unbanked households depend on
• Check-cashing outlets
• Short-term lenders
• Pawnshops
• Payday loans
• Rent-to-own stores
• Unbanked families pay higher fees for using these
  financial services and face higher risk losses
  due to dealing in cash.

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Who Is Unbanked?

• People who are unbanked tend to
• Be of lower income
• Be younger
• Have less education
• Be employed

• People who are banked tend to
• Have a credit card
• Be older

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High School Students

• Most 18-year-olds can obtain credit cards in
  their own name.
• Credit-card companies have become more aggressive
  at marketing to young people.

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College Students (GAO, 2001)

• Two-thirds of college students have a credit
  card the average is 3 cards per student.
• About 64 pay off the balance each month.
• The average credit-card debt for students who
  carry a balance is 2,200-2,800.
• In 2001, 100,000 people under age 25 filed for
  bankruptcy, 6.9 of all bankruptcies, an increase
  of 51, 1991-1999.

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Financial Education

• In recent years, financial education has gained
  attention from many groups
• Federal Reserve System
• Banks
• Consumer groups
• Government agencies

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Its Hard to Learn What You Are Not Taught

• Financial education is a growing national
  priority.
• Stock market simulations and games are very
  popular.
• But young people cant learn financial skills
  unless they are taught explicitly.

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Parents

• Parents think students should learn about
  managing money at an early age.

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When Should Children Learn About Money? (2004,
NWM)

• 60 of parents with oldest child age 5-7 thought
  that before elementary school, under the age of
  5, was the most appropriate age to start
  teaching kids about money.
• Parents with oldest child age 11-13 thought
  later in elementary school, 2nd 5th grade,
  was the most appropriate time (43 thought this
  was the best age).

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Financial Education (Federal Reserve Bulletin,
2003)

• Several studies of financial education programs,
  especially those with specific objectives such as
  maintaining a mortgage or increasing savings,
  have succeeded in improving financial behavior.