The International Information & Library Review (2010) 42, 105e110

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Financial literacy and education: Anenvironmental scan

Molly A. Wolfe-Hayes*

Knowledgeware Systems, Inc., 2525 Mill Race Road, Frederick, MD 21701, USA

Abstract The article provides an environmental scan of financial literacy activities and infor-

mation resources. The complex intermingling of economic policies with perceived need forimproved financial literacy are touched on. Organizations providing financial literacy andeducation are identified with their corresponding agendas and available information resources.Reviews of effectiveness of sample financial education programs for adults and K-12 aredescribed. The community is seen as the locus for increasing the availability of financial educa-tion for both adults and children, and gaps in best practices are identified.ª 2010 Elsevier Ltd. All rights reserved.

Introduction

The recent global financial crisis accelerated awarenessof the need to improve financial literacy among thepopulation. As policy makers and organizations at alllevels are beginning to devote current and futureresources to financial education, the public requiressome perspective on: the underlying issues, the agendasof the participating organizations, the complexity of thesituation, and what works to promote financial literacy.The intent of this article is to provide decision makers anoverview for potential translation into their planningprocess. Most of the examples and information providedrelate to activities within the United States; however,the problems are common throughout the nations of the

* Tel.: þ1 301 698 8727; fax: þ1 301 698 8909.E-mail address: molly.wolfe@comcast.net

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world and the approaches are typical in developedcountries.

The situation

The recent global crisis and its devastating consequencesthroughout the world are discussed in many sources fromvarious perspectives. Although Wikipedia, the Free Ency-clopedia is not an authoritative reference, the summaryunder the heading Financial Crisis of 2007e2010 provides anexcellent overview. The causes were complex, encompassa mix of policy, greed, and financial illiteracy culminating inpoor financial decisions on the part of individuals. Theinterest in financial literacy predates this crisis, but itsseverity and global nature may represent a “teachablemoment” of heightened motivation to improve knowledgeabout personal money matters. A simple histogram fromthe Google search engine (Fig. 1) shows developing interestin this topic during the 1990s and rapid growth throughoutthe first decade of the new century.

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106 M.A. Wolfe-Hayes

A review of financial crises throughout history (Furceri &Mourougane, 2009) indicate that the root causes aremacroeconomic in nature–including, the monetary policy,regulatory environment, excessive expansion of credit,emerging market economics, commodity bubbles, andother systemic imbalances. All factors are institutional,national, or global in nature. Although improved individualfinancial literacy may not influence the occurrence ofa crisis, it would likely dampen the impact on the individ-ual’s financial situation. The individual cannot control themacro-level issues. Yet survival of any individual within thecurrent economic maelstrom, whatever the cause, requiresabove average acuity and monetary discipline to handle thecycles without incurring major financial damage. Theunderlying hope: by improving the individual’s ability infinancial literacy, people will demand more efficient insti-tutional programs and economic systems..

The interconnected macro-level issues of economic andpolicy decisions are beyond the scope of this article. Mostof the developed countries around the world are spendinghuge stimulus resources to stabilize the financial systemsand reducing the interest rates for banks to borrow with theintent of encouraging them to provide more loans to stim-ulate businesses. Limited credit and high foreclosure ratesstill impact the individual.

To bring in a note of levity to a very serious situation,a Washington columnist recently suggested a new stimulusplan (Pearlstein, 2009), tongue in cheek (or maybe not):Use $53.5 million to develop the economic literacy ofCongress by hiring personal economic trainers for each of

the lawmakers as they make decisions regarding thegovernment’s response to the economic crisis.

Although Pearlstein makes a good point, understandingthe economic and regulatory issues is beyond reasonableexpectations of the financial literate. The lawmakers makedecisions with unintended results creating financial crises,and developers for financial literacy programs mustrespond to the educational needs that will protect andprevent individuals from experiencing the crisis on indi-vidual levels.

Extent and complexity of the financial illiteracyproblem

Financial literacy can be regarded as merely a subset ofinformation literacy, and simply refers to the individual’sability to make informed judgments and effective decisionsabout the use and management of his or her money.However, there is nothing simple about creating theknowledge, capability, and decisions that must become anintegral part of an individual’s life in order to have andexercise such abilities.

A recent survey conducted by the Jump$tart Coalition(Mandell, 2008) found that the financial literacy of highschool students has fallen to the lowest level ever andthat college graduates are “close to being financiallyliterate”. However, with only 25% of young Americansgraduating from college, the other 75% will lack the skillsto make beneficial financial decisions throughout theiradult lives.

Financial literacy and education 107

Because an individual’s standard of living is a function ofboth financial resources and the ability to use thoseresources efficiently, the widespread situation of peoplewith fewer resources who also lack the ability to use themefficiently is disturbing. It is no great surprise to learn thatcurrent financial crisis began with sub-prime mortgagesthat were marketed primarily to those with less income,educationdand presumably less financial literacydthanthose who were eligible for prime mortgages. Financialliteracy clearly has ongoing macroeconomic ramifications.

A survey establishing a baseline of financial literacy inthe United Kingdom (Financial Services Authority, 2006)found similar disturbing results. Among these findings arethat people aged 18e40 are less financially capable, on theaverage, than their elders. Many people are taking oninappropriate risks through poor choices or lack of aware-ness, and the greatest demands are placed on those leastequipped to deal with them. Because one in twelve peoplein the United Kingdom do not have access to a bank accountof any kind, such households have limited financial choicesand incur higher costs.

In the United States, between 10 and 13% of house-holdsdprimarily low-to-moderate-income, minorities, andrecent immigrants do not have bank accounts. The dispar-ities encountered by people with financial literacy chal-lenges are “underserved” just as those without access toquality health care. Programs for improvement necessitateaddressing the problem from the national level as well asthe individual literacy level, whether health care or finan-cial capability is the issue.

Over the past two decades, lawmakers have increasinglyused the tax code to funnel money to special groups ofpeople for either political gain or economic development.Credits subsidize families with children, college studentsand purchasers of hybrid cars to name a few. Some of thesetax credits not only reduce the tax but are also refundable,thus providing money to many who have not paid anyincome tax during the year. This amounts to deliveringsubsidies through the tax system. In some cases, the“refund” from the tax preparation may be the majority ofthe family’s income for the year, provided frequently to the“unbanked” as a credit card. It would require incrediblefinancial competency and discipline to stretch this overa year.

When addressing financial education for an individual,one must also consider the emotional elements inherent inthe decisions regarding money. The numerous books on thepsychology of money give some credence to the impact ofemotions on financial decisions. One recent book (Krueger& Mann, 2009) states that we don’t simply earn, save,and spend money; we give money meaning it doesn’t reallyhave. Each person has his or her money story, a subcon-scious tale we continuously tell ourselves about whatmoney means to us and what is says about us. Developers ofeducational programs to build financial capability must beaware that our “money story” may continue to affect ourdecisions throughout our life and, where possible, factorthis in.

With these complexities in mind, it is not surprising thatthe ten recommended research priorities (Schuchardt etal., 2009) from the National Research Symposium onFinancial Literacy and Education included at least four that

addressed concepts of socialization factors, socioeconomicstatus, coping strategies, and psychological factors. Thesymposium was convened to identify critical researchquestions relevant to improved outcomes-based financialeducation and to inform public policy.

Who is involved in financial literacy andeducation programs

Given the critical nature of the established need forfinancial education, it is not surprising to find hundreds oforganizations now involved in financial education andfinancial literacy activities. The United States establisheda Federal Commission addressing the issue and members ofCongress have submitted related bills. Many states havepassed initiatives, and the Federal government has grantprograms in place to mobilize communities across thenation. Financial literacy and education continues to be anarea for serious scholarly work as well.

In 2003, Congress established the Financial Literacy andEducation Commissionda keystone effort to address issuesof fair and accurate credit transactions. However, theCommission’s basic mission encompasses all aspects of theneed for and challenges associated with improving thefinancial literacy and thus, the financial well being of theNation. The enacting legislation designated participatingagencies, and among these are the Federal bankingagencies and the Departments of Education, Agriculture,Defense, Labor, Health and Human Services, and Housingand Urban Development. Their involvement acknowledgesthe complexity of the problem and the coordinationrequired for solutions.

In 2006, the Commission published A National Strategyfor Financial Literacy (Financial Literacy EducationCommission, 2006). The document identifies some back-ground research and ongoing programs, as well as recog-nizing the challenges. The individual chapters address 13different areas ranging from Savings to Home Ownership,and Retirement to Credit.

As a major step toward building the awareness ofavailable resources (a major strategy area), the Commis-sion implemented a clearinghouse for financial literacymaterial with the web site www.MyMoney.gov. This sitelinks and integrates the abundance of information andcontent from the government sites of the 20 memberagencies that constitute the Commission. Governmentsources make up most of the content, and they coveralmost any financial literacy topic in modest depth.Resources provide information on daily money manage-ment issuesdincluding budgeting, taxes, saving/invest-ing, and credit. Topics also address planning for life’sevents, such as home ownership, starting a small business,paying for education, retirement, and avoiding financialfraud and scams. The various Federal Reserve Banks alsooffer excellent Internet resources, including a Guide toFinancial Literacy Resources (U.S. Federal Reserve Bank ofSan Francisco, 2002). The Federal Reserve Education website (http://www.federalreserveeducation.org/PFED)also offers useful advice on avoiding fraudulent offers intheir consumer banking and consumer protectioninformation.

108 M.A. Wolfe-Hayes

Communities and community-based organizations alsoplay an important role in improving financial literacy.Financial education grant programs include the following:

� The U.S. Department of Education funded the Councilfor Economic Education (CEE) to expand and developprograms through its network of state councils and 200university-based centers, and to encourage local andstate education agencies to apply as subgranteesoffering a variety of programs to advance the cause ofeconomic and financial literacy.

� The U.S. Department of Health and Human Services,through its Administration for Children & Families,funds projects to help low-income families acquirea first home, capitalize a small business, or enroll inpostsecondary education or training. In conjunctionwith the funds, all projects provide basic financialmanagement training and supportive services.

� The U.S. Department of Housing and Urban Develop-ment sponsors agencies through the country to counselcitizens about financial literacy, home buying, avoidingforeclosure and fraud, and other financial issues.

� U.S. Department of the Treasury, through the Commu-nity Development Financial Institutions Fund (CDFI)provides grants supporting a range of financial educa-tion and counseling services to prospective home-buyers, with the goal of increasing their financialknowledge and decision-making capabilities (http://www.cdfifund.gov/who_we_are/about_us.asp). TheCDFI Fund focuses on providing credit, capital, andfinancial services to underserved populations.

The Commission also supports the National FinancialEducation Networkda website database where state andlocal governments post the programs and services offered(http://www.flecnationalnetwork.org).

International leadership organizations have also addedimproved financial literacy to their repertoire of programs.The Organisation for Economic Co-Operation and Develop-ment (OECD) hosts a workshop in Bangalore, India that seeksto advance and elevate the policy dialog on financialeducation and literacy in the international arena andparticularly in India and Southeast Asian Nations. OECDestablished the International Gateway for Financial Educa-tion (www.financial-education.org) as part of its overallcomprehensiveproject onfinancial education. It has sectionsdevoted to financial education activities by country(government and private sector), by sector, and by theme. Itprovides news events, information on tools, methods andevaluation, research and statistics, and programs for tar-geted groupsdincluding the general public, vulnerable andunderserved people, women, investors, teachers anddisseminators, and youth. A review of this site only empha-sizes the contagion of the global economic crisis, the inter-dependencies among nations, and the blurring of theboundaries between economics and individual finances.

Financial education initiatives

The content and resources provided by the various financialeducation activities appear to focus on two separate

themes: (1) the proper use of various products and servicesoffered by the myriad of financial institutions in support ofbasic financial literacy, credit rehabilitation, and long-termplanning or asset building for adults and (2) early preven-tive intervention in the K-12 and college education arena.

On this first theme, Keenan (2004) saw that promotingfinancial literacy was inherent in the mission of thecommunity bank, and noted that it was also a smart way toexpand markets and compete with larger banks. However,such outreach activities are not apparent from a search ofthe home Internet sites of the ten largest U.S. banks. Anytips or “how to” information were directed toward theirown services and products.

One early major initiative was the Money Smart FinancialEducation Curriculum, which was launched by the FederalDeposit Insurance Corporation (FDIC) in 2001. The programwas designed with a dual purpose: (1) to help adults outsidethe financial mainstream build knowledge and positiverelationships with financial institutions, and (2) to providethose financial institutions with a tool to assist in commu-nity outreach and economic development. The MoneySmart curriculum consisted of ten modules that primarilyaddressed the money management competencies necessaryto become a knowledgeable banking customerdforexample the basics of checking accounts, savings accounts,budgeting, and credit, and purchasing a home. Bothcomputer-based instruction and instructor-led versions ofthe curriculum are available (the latter in six languages eEnglish, Spanish, Chinese, Korean, Vietnamese, andRussian). This activity builds on alliances with organizationswithin communities and continues to flourish with successstories and “train the trainers” programs. For additionalinformation, seehttp://www.fdic.gov/consumers/consumer/moneysmart/index.html.

The second major cluster of resources focuses onchildhood and young adult education programs. A majorplayer in this arena is the Jump$tart Coalition for PersonalFinancial Literacy (www.jumpstart.org) with an objectiveto ensure that basic financial management skills areattained during the K-12 education experience. They haveover 75 partnering organizations, are advocates for nationalstandards, and have developed and maintain NationalStandards in K-12 personal finance education to serve asa model framework of an ideal personal-finance curric-ulum. They maintain a status chart for individual statelegislations requiring personal finance instruction sepa-rately or incorporated into other subject matter. One of thePartners, Institute for Financial Literacy (www.financiallit.org), provides training and certification in financial educa-tion with an independent division (www.fin.cert). Twoadditional organizations not associated with Jump$tartCoalition also offer financial education certification,Community Financial Education Foundation (www.communityfef.org) and National Youth Financial EducatorsCouncil (www.financialeducatorscouncil.org).

The focus on activities in the United States is intended toprovide a framework for what is happening globally. Theacademic literature contains many examples of similarfinancial education programs throughout the globaleducational and community systems. One report (FinancialServices Authority, 2006) from the United Kingdom portraysa similar pattern of people having to take increasing

Financial literacy and education 109

individual responsibility for their financial affairs. It notesthat individuals, rather than the state or other organiza-tions, increasingly bear the costs of higher education and ofretirement. This baseline survey addressed five componentsof financial capability: (1) making ends meet, (2) keepingtrack of your finances, (3) planning ahead, (4) choosingfinancial products, and (5) staying informed about financialmatters. In step with this survey, the United Kingdomsimilarly developed a national strategy involving a broadrange of organizations working together, addressing similarproblems and programs to those described for the UnitedStates. The Financial Services Authority (FSA) leads thepartnership, created in 2003, of the Government andfinancial services industry, employers organizations,consumer organisation and the not-for-profit section toimprove the financial capability of people in the UK. Theirefforts are described on their web page http://www.fsa.gov.uk/financial_capability.

What works

The recent financial crisis is not the impetus for thedemand for improved information literacy or the swell offinancial education programs. Major efforts were underwayprior to the onset of the sub-prime mortgage explosion withits disastrous outcomes. Such programs can still beconsidered as relatively new and will require perfectionwith a systematic approach to developing and deliveringeffective learning. Experts have not identified best prac-tices. The planning of time expenditure and other resourcesfor these worthwhile endeavors will require data on theoutcomes of financial education.

With the extent of ongoing activity, one must considerinformation from existing program evaluations or assess-ments. How does one know where to start and what workswith a particular audience? As seen from the previousdiscussion, organizations with a bias or an advocacy posi-tion have provided much of the information available;perhaps one could say they offer a marketing perspective.

Most of the adult education programs have an agenda toincrease the usage of financial services, with the implica-tion that more informed and wider usage of these serviceswill lead to greater financial wisdom on the part of theunderserved populations.

Organizations wishing to initiate financial literacy andeducation programs will need to develop specific desiredoutcomes and how they will be measured. Only then can anevaluation and selection of appropriate resources forimplementation of their activities be made. An increasedawareness may be the first step of the intervention withsubsequent improved practices building on this knowledgeand leading to improved management of one’s fiscalresources. Understanding of all the components necessaryfor a successful program is essential.

Two sample studies seem relevant to this discussion: thefirst focused on adults’ competencies in dealing withfinancial institutions and the second reviews financialeducation within the youth educational system.

In 2007, FDIC reported on a longitudinal evaluation oftheir Money Smart program described above (FederalDeposit Insurance Corporation, 2007). The study included

a pre-training survey, a post-training survey, and a tele-phone follow-up survey. The significant findings showed“that participants were more likely to open depositaccounts, save money in a mainstream deposit product, useand adhere to a budget and have increased confidence intheir financial abilities when contacted six to twelvemonths after completing the Money Smart course than theywere before taking the course.”

The literature review (McCormick, 2009) of youthfinancial education and policy discussed the effectivenessof financial education, and it offered some suggestions forimprovements in efficacy, some promising practices, andidentification of some areas of controversy. The authorasserts that financial educational professionals are moreexperienced with programs for the adult financial educa-tion community than with programs designed for youthfinancial education. The author states that the “need forfinancial education for children and youth is clear andcompelling” (McCormick, 2009, p. 79), they note that theneed is not championed. The missing piece, they say, is thelack of state standards for financial education and actionprograms to integrate such activities into the curricula atall levels.

The National Strategy (Financial Literacy EducationCommission, 2006) provides a list of qualitative measuresto supplement quantitative research to identify elementsof success financial education programs. The eight indica-tors relate to the program content, delivery, impact andsustainability and will serve as a guide for developing orenhancing programs that achieve a greater impact. Theseindicators are:

� Focus on basic tenets� Tailored to target audience� Local distribution� Participant follow-up� Specific program goals� Demonstrable impact� Replicability� Built to last

The Treasury Department uses these eight indicators torecognize, through its John Sherman Award for Excellencein Financial Education, programs that are making a differ-ence in financial literacy.

Conclusion

A quick scan of various trend forecasts indicates increasedurbanization and globalization. In the United States, offi-cials estimate that minorities and immigrants will consti-tute a growing proportion of the population. Expertsforecast increased debt and volatility for financial futures.These trends suggest a continuing and long-term need forfinancial education.

The programs above intermingle economic developmentand financial education goals, as is the case with many ofthe government programs. Legislation drives guidelines andmoney availability as well as providing a framework for theoperations, controls, and policies for financial institutionsof all kinds (i.e., mortgage, insurance, credit unions,

110 M.A. Wolfe-Hayes

bankers, and brokers). Most financial education programsfor adults focus on the financial products/services of theoffering organisation and are targeted to the “under-served”, those identified in surveys as having the lowerfinancial literacy. The grants for counseling offered bygovernment agencies are a part of their core mission, andagendas for individual financial literacy and supportingeconomic policies intertwine.

Although agencies and advocates have developed andpromoted information resources at a national level, thelocus for changing an individual’s financial acuity takesplace at a community level. Communities must provideopportunities for change through two pathways: (1) coun-seling and education for the most at-risk adults, and (2)promotion and incorporation of effective financial educa-tion throughout the K-12 and college-level programs. Theacademic literature covers both routes, with the counselingand social service researchers focusing on the adults andthe more traditional educational community studying the K-12 and college financial education activities. A bettersynthesis of the scholarly research would benefit thedevelopment of best practices for both of these audiences.

Guidelines on how to implement community financialeducation programs would enhance these activities. Howdo we work best within the community structure to trans-late the organizational agendas into programs that enableindividuals to manage their finances? Do we need to borrowan approach from other social areas, such as technicalassistance practices? What evaluations have been doneregarding impact and outcome using the various resourcesavailable?

As a potential community program developer, the authorfound the abundance of literature and web resourcesoverwhelming. People trying to enhance financial literacywould welcome a translation of research results into plainlanguage with appropriate links to curriculum and programmaterials. A great challenge is how to get the attention ofcommunities and educational systems that are faced withtheir own financial crises. Perhaps the financially literate

could do the most to boost financial literacy by becomingmore informed on the economic issues and more important,by demanding that elected officials demonstrate a degreeof economic literacy. After all, the decisions of the peoplewe vote into positions of power influence the financialsecurity of us all.

References

Federal Deposit Insurance Corporation. (2007). A longitudinalevaluation of the intermediate-term impact of the “MoneySmart” financial education curriculum upon consumers’behavior and confidence. Federal Deposit InsuranceCorporation.

Financial Services Authority, London, UK. (2006). Financial capa-bility in the UK: Establishing a baseline.

Furceri, D., & Mourougane, A. (2009). Financial crises: Past lessonsand policy implications. OECD Economics Department WorkingPapers, No. 668. OECD Publishing. doi:10.1787/22677318564.

Keenan, C. (2004). Financial literacy: how it adds up to goodbusiness. Community Banker, 13(3), 36e41.

Krueger, D., & Mann, J. D. (2009). The secret language of money:How to make smarter financial decisions and have a richer life.New York, NY: McGraw-Hill.

Mandell, L. (2008). The financial literacy of young american adults:Results of the 2008 National Jump$tart Coalition Survey of HighSchool Seniors and College Students.

McCormick, J. (2009). The effectiveness of youth financial educa-tion: a review of the literature. Journal of Financial Counselingand Planning, 20(1), 70e83.

Pearlstein, S. (2009, February 6). Wanted: personal economictrainers. Apply at capitol. The Washington Post. http://www.washingtonpost.com Retrieved from.

Schuchardt, J., Hanna, S. D., Hira, T. K., Lyons, A. C., Palmer, L., &Xiao, J. J. (2009). Financial literacy and education researchpriorities. Journalof FinancialCounsel andPlanning, 20(1), 84e95.

U.S. Federal Reserve Bank of San Francisco. (2002). Guide tofinancial literacy resources.

U.S. Financial Literacy and Education Commission. (2006). Takingownership of the future: The national strategy for financialliteracy. Washington, DC.