FLRC Year 2 Projects
Below is a list of all 14 CFS projects in 2011 under Financial Literacy Research Consortium.
For an overview of the projects, access the Year 2 Projects Overview.
CFS-1 (Testing)
Increasing Retirement Savings by Working Women: Understanding and Reducing Contribution Differentials
Lead Researcher
Karen Holden, UW-Madison (kcholden@wisc.edu)
Additional Project Team Members
Shelly Schueller and Margery Katz, WI Department of Employee Trust Funds
Understanding savings choices and bolstering women's participation in workplace-based savings programs.
Abstract:
Women as a group save less money for retirement than men due in part to their shorter work careers, lower earnings, and investment choices. Among contributors to the Wisconsin Deferred Compensation Program (WDC), women's average account balance lags men's by over $15,000. At all ages, women save less than men. This project seeks to understand patterns of savings and investment choices among pension-covered workers with the goal of developing, piloting and evaluating education materials that encourage women to increase savings through employer-provided options. We examine participation in the WDC by full-time State of Wisconsin employees, all of whom are covered by the Wisconsin Retirement System (WRS). We use WRS and WDC administrative data to examine differentials in contributions, participation patterns, and fund choice among WDC participants, assessing differentials across and within gender, age, salary/wage, and employer. Next we draw a sample of WDC participants and non-participants to examine the participation decision. We propose a survey to discover the effect of non-WDC savings options. We will conduct focus groups of WDC participants and non-participants to obtain information on the WDC participation decision.
CFS-2 (Measurement)
Using the Right Yardstick: Assessing Financial Literacy Measures and Validating How Well Measures Predict Future Financial Well-Being for Low-Income and Vulnerable Populations
Lead Researcher
Jason Seligman, Ohio State University (Seligman.10@osu.edu)
Additional Project Team Member
Max Schmesier, Division of Consumer & Community Affairs, Federal Reserve Board of Governors
Do existing measures of financial literacy accurately predict and reflect the financial capacity of vulnerable populations and how can we better assess financial literacy of various populations?
Abstract:
With the shifting of responsibility for retirement planning and risk from employers to employees, the growth of 401(k) plans and the recent financial crisis, researchers, policy makers and practitioners have become increasingly concerned with the financial literacy of the U.S. population. Along with this interest has come a need to develop measures of financial literacy in order to evaluate interventions to improve financial literacy and examine the implications of financial literacy for financial well-being. However, the measurement of financial literacy is in its infancy. Questions to assess financial literacy have only recently been included in major secondary data sets, and the limited data on financial literacy and financial outcomes has largely led to simple cross-sectional analysis to validate these measures as predictors of financial well-being despite the strong likelihood of endogeneity. Moreover, questions used to assess a responden'¿s level of financial literacy that ask about knowledge of compound interest, inflation, and portfolio allocation/risk, may be salient in different ways across segments of the population. Of particular concern is the relevance of these questions for measuring financial literacy among low-income populations who rely more heavily on Social Security benefits, and encounter very different forms of financial decisions and financial products than upper/middle income households. This project seeks to examine whether existing measures of financial literacy are predictive of resilience to the recent financial crisis, to assess the validity of existing measures of financial literacy for vulnerable populations, and to identify alternative questions that may better assess financial literacy for various populations.
CFS-3 (Targeting)
Save, Spend or Pay Down Debt: Responses of low-income households to cash transfers
Lead Researcher
Nandita Verma, MDRC (Nandita.Verma@mdrc.org)
Additional Project Team Members
Cynthia Mille and Gilda Azurdia, MDRC
J. Michael Collins and Karen Walsh, UW-Madison
Identifying and analyzing savings behavior of 3,000 New York City families and helping these low-income families find ways to save when presented with a lump sum payment.
Abstract:
Using a unique dataset of 3,000 families in NYC taking part in the Family Rewards conditional cash transfer (CCT) experiment, we are able to observe low-income families over time, including use of banking, savings and debt products. The decision to save or pay off debt varies among families receiving lump sum payments from the program. These data may reveal who chooses to save for the future, fund current consumption, or pay off past debt. Using Family Rewards data, we can observe how these choices vary by factors such as age of adults and children, race, household type, education of adults and children, immigrant status and employment, as well as proxies for financial capacity including the use of alternative financial services, benefits access and use, understanding of program features and problems in attempts to claim payments. The analysis will use data collected over three waves of interviews with parents and from various administrative datasets. Given the number of programs and policies that similarly provide lump sum payments without constraints on how recipients use the money, this project could develop valuable insights regarding the financial behaviors of vulnerable, low-income populations, as well as suggest ways in which lump sum payments can provide savings opportunities.
CFS-4 (Testing)
Understanding 50 years of Financial Choices: Making the Wisconsin Longitudinal Survey a Richer Research Resource on Financial Capacity and Literacy
Lead Researcher
Pamela Herd, UW-Madison (pherd@lafollette.wisc.edu)
Additional Project Team Member
Robert Hauser, UW-Madison
The Class of 1957: measuring financial literacy skills and financial outcomes in late life to improve financial literacy and identify opportunities for meaningful and helpful interventions amongst the population.
Abstract:
The Wisconsin Longitudinal Study (WLS), a sample of 1 in 3 Wisconsin high school graduates, their spouses, and their selected siblings from the class of 1957, has been ongoing for over 50 years. This survey allows for a wealth of analyses exploring life course predictors (e.g. childhood background, childhood cognition, late life cognition, schooling, work, and personality) of financial literacy in old age. While the entire survey is a rich source of potential data to establish life course predictors and potential interventions for financial literacy outcomes among older people, the following two aims are critical for many analyses regarding financial literacy. The first aim involves adding a financial literacy instrument for the full sample of graduates and siblings. The second aim involves developing, collecting, and processing consent forms to be signed by WLS respondents which will allow Social Security administrative data to be linked to the WLS. These data will allow for explicit connections between earnings trajectories, financial literacy skills, and financial outcomes in late life, in addition to outcomes by type and timing of Social Security benefit receipt. These data will provide us with the capacity to identify key predictors of financial literacy skills in late life. Understanding these predictors will allow us to generate interventions across the life course to improve financial literacy skills amongst the population.
CFS-5 (Measurement)
Field Experiment on the Impacts of Financial Planning Interventions for Recent Homebuyers
Lead Researcher
Stephanie Moulton, The Ohio State University (moulton.23@osu.edu)
Additional Project Team Members
Cazilia Loibl, The Ohio State University
Anya Savikhin, The University of Chicago
J. Michael Collins, UW-Madison
Providing on-line financial planning to low and moderate-income families and individuals during a critical financial event: purchasing their first home.
Abstract:
This project will develop, pilot, and evaluate replicable, evidence-based financial planning strategies for low and moderate-income households in a randomized field experiment. Our goal is to integrate interactive online technology with individualized coaching to test their effectiveness during a teachable moment: the purchase of a first home. Through a unique partnership with the Ohio Housing Finance Agency a pilot group of 600 homebuyers will be randomly assigned to varying combinations of financial planning interventions to be completed during the first year after home purchase. This project combines interactive technology with a teachable moment to design replicable financial literacy interventions that can target a large number of potentially underserved households. This project is the first randomized field experiment of technology-based financial literacy interventions. The randomized approach will overcome self-selection biases typically present in evaluations of financial education and will allow for the identification of the relative impact of interactive online technology and individualized financial telephone counseling and coaching.
CFS-6 (Testing)
Tax Refunds and Savings Behavior: Developing Soft-Commitment Opportunities
Lead Researcher
Damon Jones, The University of Chicago (damonjones@uchicago.edu)
Additional Project Team Member
Aprajit Mahajan, Stanford University
Using tax time to increase savings amongst low and moderate-income families: When given the option to save the refund ahead of tax time, what will happen?
The Earned Income Credit and Child Tax Credit are vital income support programs, amounting to over three months of regular pay for many low and moderate-income families. These credits are generally received through the annual tax refund. At that time, recipients are faced with a menu of options that include placing the refund in a savings vehicle such as a Treasury bond or matched savings account. This project aims to cast light on this savings decision and improve the welfare of low and moderate-income families. In particular, we will test whether tax filers are interested in making a commitment ahead of time to saving the refund. This soft-commitment study will allow formal tests for self-control problems, impatience, and hyperbolic discounting behavior. First, by offering varying amounts of instant and delayed savings incentives, we will measure the relative value placed on immediate versus delayed gratification, and by extension, the degree of impatience present in the target population. Second, by allowing tax filers the opportunity to pre-commit, we will estimate the degree to which individuals are aware of their future impatience and desire to curb self-control problems. The results may inform income tax refund-based products that leverage commitment devices to overcome barriers to saving.
CFS-7 (Testing)
Encouraging the Use of the Retirement Savings Contribution Credit Through VITA Sites
Lead Researcher
Jonathan Spader, Abt Associates (jonathan_spader@abtassoc.com)
Additional Project Team Members
Jackie Lynn Coleman, Center for Economic Progress
Emily Holt, Abt Associates
Encouraging the use of the Saver's Credit among low and moderate-income individuals to save on taxes and save for retirement while making the Saver's Credit more accessible and available.
Abstract:
The project will develop, implement, and evaluate a pilot program to encourage the use of the Saver's Credit among clients of a large scale VITA site during the 2011 tax season. The pilot program will be developed by a coalition including Center for Economic Progress, Abt Associates, and a large VITA site recruited by Center for Economic Progress. The pilot will include: outreach and recruitment of employers and small business owners to provide clients who would most benefit from the Saver's Credit, development of informational materials on the Saver¿s credit for VITA clients, establishment of mechanisms for making retirement contributions through participating employers and/or financial institutions, and development and implementation of training for tax preparers to implement the pilot. The project will include a process evaluation to document the successes and failures encountered in implementing the pilot and an outcome analysis of the use of the Saver's Credit at the selected site relative to comparison sites reporting to CEP. The goal of the evaluation would be to recommend improvements to the pilot program for larger scale implementation in subsequent years, which would be subject to a more robust evaluation.
CFS-8 (Targeting)
Cognition and Financial Literacy: Distinguishing Effects of Age-Related Declines from Early-Life Differences
Lead Researchers
Pamela Herd, UW-Madison (pherd@lafollette.wisc.edu)
Karen Holden, UW-Madison
Identifying the impact of cognitive decline on financial literacy skills and providing insights into interventions to help maintain financial literacy skills in later life.
Abstract:
There is growing evidence that cognition, broadly impacts financial planning and outcomes. It also seems clear that cognitive ability influences actual investment choices and wealth outcomes among older people. But while we know that cognition affects financial literacy, planning and outcomes, we do not know how age-related cognitive decline affects these behaviors. We will explore the impact of cognitive decline on these financial literacy skills as individuals age. The Wisconsin Longitudinal Study (WLS) provides a unique opportunity to explore this question because the data include IQ scores from when the sample was in high school in 1957. This allows us to estimate aging-related cognitive decline from cognitive variation across the sample due to initial cognitive differences. We will then explore what might mediate the impact of cognitive decline. For example, is education, both in terms of quantity and quality, protective? Do social supports help mediate the effects of this decline? These mediators, in particular, can provide insights into potential policy interventions to help maintain individuals' financial literacy skills even in light of cognitive declines that are associated with aging.
CFS-9 (Testing)
Impact of financial counseling on financial stability: Analysis of the New York City Financial Empowerment Center Model
Project Leader
Cathie Mahon, New York City Office of Financial Empowerment (CMahon@dca.nyc.gov)
Additional Project Team Members
Monica Martinez, New York City Office of Financial Empowerment
Kristin Morse, Director of Program Development and Evaluation for Mayor Bloomberg¿s Center for Economic Opportunity
J. Michael Collins and Karen Walsh, UW-Madison
Do financial counseling services help participants make lasting behavioral changes and improve their financial capacity and security?
Abstract:
The New York City Department of Consumer Affairs (DCA) Office of Financial Empowerment (OFE) proposes to analyze the impact of financial counseling on low-income individuals¿ net worth and credit scores. Both of these financial indicators are critical to a secure retirement; the former to aid in post-working years consumption and latter to ensure access to wealth-building credit throughout the life cycle. Unfortunately, many low-income households have negative net worth and most have very poor credit scores. In New York City, 825,000 adults have no bank accounts, and the average credit score in the Bronx, our poorest borough, is only 576. OFE proposes a study of low-income individuals who have received financial counseling through New York City's Financial Empowerment Centers to identify whether counseling services help clients make sustained behavioral changes, and estimate the financial impact of these services over a longer time period. While the true impacts may not be seen for several years, follow-up surveys at 6-12 months would give a strong indication of whether changes will be sustained over time.
CFS-10 (Targeting)
Public Libraries as Financial Literacy Providers
Lead Researchers
Catherine Arnott Smith, UW-Madison (casmith24@wisc.edu)
Kristin R. Eschenfelder, UW-Madison
Building capacity of libraries and librarians to serve the financial literacy needs of their patrons.
Abstract:
Libraries are a major source of internet access by low-income, jobless, or transient populations who are also likely to use additional library resources to answer questions on financial issues. Studies have shown people go to the library to find financial-related information (Gibson, Bertot, & McClure, 2009). But financial information has attributes that make it challenging for libraries to manage, librarians may feel inadequately prepared to answer financial questions, and patrons may avoid financial questions because asking them may require revealing private information (e.g., needing food stamps). This study will critically assess completed public library financial literacy projects under the ALA's SmartInvesting@yourlibrary program which is jointly administered with the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. Data collected will include the evaluation reports of each completed project and follow up interview data from a subset of project managers. The second part of this study will assess the degree to which libraries in Wisconsin serve the public's financial literacy needs. The results of this study will inform the education of future librarians and the development of library professional continuing education/training materials with the hope of increasing the capacity of libraries to serve the financial literacy needs of their patrons.
CFS-11 (Measurement)
Measuring Financial Literacy and Welfare Through the Lens of a Lifecycle Model
Lead Researchers
Ananth Seshadri, UW-Madison (aseshadr@ssc.wisc.edu)
John Karl Scholz, UW-Madison
Measuring how a lack of financial information and access to information impacts financial capacity.
Abstract:
This project will quantify the empirical importance of financial literacy by calculating the deviation between the model predictions for optimal wealth accumulation and data on observed wealth holdings in the Health and Retirement Study. These literacy measures arising from the model have a distinct advantage we can use these measures to analyze the impact of policy changes. Further, it is well suited to analyzing the welfare consequences that arise due to the lack of financial ability. The solution to our model will imply certain decision rules. While most Americans clearly cannot solve complex dynamic programming problems, it may be the case that more effective rule-of-thumb guidance can be developed that deviate less from the full-fledged dynamic optimization problem than current rules of thumb. With this understanding, we can then work on communicating those aspects that are especially important.
CFS-12 (Targeting)
Financial Well-Being Among the Disabled: The Role of Transaction Accounts
Lead Researcher
Alexander Strand, Social Security Administration (Alexander.Strand@ssa.gov)
Additional Project Team Member
J. Michael Collins, UW-Madison
Abstract:
Payments from the Social Security Administration (SSA) provide a major source of income for many disabled individuals including annuity payments (from DI) and/or income support payments for low-income and low-resource persons (from SSI). The effective size of the payments, however, is sometimes reduced by a transaction cost. Transaction costs can be particularly high for individuals who live in a household that does not have a transaction account at a bank. Previous research has shown that people who cash a paper check from SSA pay $6 on average and a meaningful portion pay more than $20. In addition, payment recipients who use check-cashing services may also use other services outside of the mainstream financial sector, such as payday loans and pawn shops. The federal government has initiated multiple efforts to reduce the need for financial services outside of the mainstream financial sector. While earlier efforts to encourage banks to offer low-cost transaction accounts did not lead to widespread use, more recent efforts to encourage payment recipients to receive the payment on a debit card have had a higher rate of use. This study will produce more accurate estimates of the proportion of the disability payment-receiving population that is unbanked and estimate the proportion of the unbanked disability payment-receiving population that prefers not to use electronic forms of transactions.
CFS-13 (Testing)
Field Studies of Online Financial Education for Employees
Lead Researcher
J. Michael Collins, UW-Madison (jmcollins@wisc.edu)
Additional Project Team Member John Hoffmire, UW-Madison
Steve Royko, Precision Information, LLC
Online financial education in the workplace: what is most effective and does it increase savings program participation?
Abstract:
Workplace based financial education is often suggested as a key mechanism to promote greater levels of financial literacy. Workshops and seminars have been shown to have modest effects on participation in voluntary contribution accounts, yet such interventions need to be well timed (typically at enrollment or re-enrollment) and can be costly in terms of logistics, resources and time. Online education provides one alternative that might be conveniently completed at home or at work over a period of time in an interactive fashion, and also at a lower marginal cost than seminars or workshops. This study partners with Precision Information Educated Investor to test the use of online education on knowledge and behavior. The first part of this project will assess data collected in a 2010 experiment with employees of 50 credit unions in Wisconsin and permit causal analysis of the effects of education on knowledge of topics covered and also self reported behaviors and attitudes as well as gather additional data on actual IRA savings rates at participating credit unions. The second phase of this project will work with the Wisconsin Department of Financial Institutions to pilot the random assignment of a more general financial education online education module with employees of schools within a medium sized school system.
CFS-14 (Targeting)
Social Network Sites and Internet Forums: An Investigation of Interactions around Personal Finance in the Online Social World
Lead Researcher
Wendy L. Way, UW-Madison (wlway@wisc.edu)
Additional Project Team Members
Nancy Wong, UW-Madison
Constance Steinkuehler, UW-Madison
Going viral: How the Internet and social media are key to spreading financial information.
Abstract:
The development and use of social media has grown exponentially in recent years. Today, 65% of American teenagers between 12 and 17 use social network sites such as Facebook, Twitter, and Flickr as do 75% of young adults 18-24 and 35% of adults of all ages (Lenhart, 2009). Internet forums, or electronic bulletin boards, facilitate online communication in an even more open context. Researchers have long suspected that friends and family are an important source of information about personal finances (Hogarth, Hilgert, & Schuchardt, 2002) but such findings have traditionally been based on self-report data and have not always represented financially vulnerable populations. This study will address these limitations by utilizing a netnographic approach to explore how individuals communicate with each other about personal finance topics using social media. Capturing the content and quality of personal finance-related information shared through social media is timely given that use of social media will likely expand rapidly, and there is evidence that members of the most financially vulnerable populations, such as racial minorities and those with limited-incomes are among the top users (Lenhart, 2009).