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, email@example.com