Knowledge and a Helping Hand Improve Financial Wellness
FOR IMMEDIATE RELEASE
July 23, 2013
What helps people improve their financial wellness? After many years of teaching financial education, I believe that it often requires both new knowledge and confidence in one's ability to change. In today's world, people are asked to make challenging financial decisions and many people lack the financial knowledge to make these decisions.
FINRA Foundation's Financial Capability Survey results show we need to help people increase their financial knowledge. I found this survey to be especially interesting as it asked people just five questions. Many times when I read a survey designed to measure financial literacy I think the questions measure knowledge of financial jargon and not literacy, but the Financial Capability Survey questions are different. In a related paper, Annamaria Lusardi and Olivia S. Mitchell state, "A set of basic concepts sits at the heart of financial decision-making. Those concepts include: (i) numeracy and an understanding of interest rates and interest compounding; (ii) an understanding of inflation; and (iii) an understanding of risk diversification." I agree that these are concepts we all need to understand.
In Illinois, 63% of the survey participants answered three or less of the five financial literacy questions correctly. Would you like to take the quiz? Here are the questions:
1) Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have? More than $102; Exactly $102; Less than $102; Do not know.
2) Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today? More than today; Exactly the same; Less than today; Do not know.
3) If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship? Rise; Fall; Stay the same; No relationship; Do not know.
4) A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less. True; False; Do not know.
5) Buying a single company's stock usually provides a safer return than a stock mutual fund. True; False; Do not know.
Education can help people learn about finances, and education can take place in many ways such as reading newspaper articles, taking a class, or listening to the radio. People need more than simple information to improve their financial wellness; often people also need confidence and strategies to change behaviors. This type of help can be more difficult to find than educational information. People need a helping hand – a mentor – to take on the overwhelming challenges of improving their financial situation.
University of Illinois Extension is rolling out a new program to help people with their finances: Money Mentors. We are currently looking for volunteers who would like to learn how to help others with basic money management. These volunteers will work with individuals who ask for help with their personal finances. And the volunteers will also work in the community to help improve financial literacy.
Money Mentor volunteers will receive approximately 30 hours of training in money management, financial mentoring, and community resources from U of I Extension Educators. Following the training, each volunteer agrees to complete 50 volunteers hours annually in financial mentoring and community outreach. During the year, 12 hours of continuing education is also expected. Money Mentors meet monthly for continuing training as well as planning projects. If you're interested in learning more about Money Mentors, call the University of Illinois Extension office at 217 442-8615.
Are you wondering how you did on the quiz? Here are the answers to the Financial Capability Survey: Question 1) More than $102; 2) Less than today; 3) Fall; 4) True; 5) False. For an explanation of the answers, and more information about the survey, go to the FINRA Investor Education Foundation National Financial Capability Study website at http://www.usfinancialcapability.org. Learning, especially about finances, is a continuing experience.
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Source: Kathy Sweedler, Extension Educator, Consumer Economics, firstname.lastname@example.org