For those of us who toil in the fields of financial literacy, the long-elusive piece of our otherwise rewarding work has been to demonstrate that our efforts are actually making a difference. Which is why a white paper being pre-released today by Lisa A. Donnini, PhD entitled “Improving Americans’ Financial Literacy: Educational Tools Work” is so important.
Many studies have shown that financial literacy improves the knowledge level of the intended audiences but what they do with that knowledge is another matter all together. We all know we should wear seatbelts and exercise more. Not all of us do. Who would admit to not acting wisely? It’s not that people overtly mislead. In many cases they genuinely believe they’ve made substantive changes with their money management, even if they really haven’t.
In her paper, co-authored by KayAnn Miller and Kitch Walker, Dr. Donnini documents positive behavioral change from financial literacy. Using data provided by Wells Fargo, Dr. Donnini’s paper shows that first time credit cardholders with Wells Fargo who completed our financial literacy tutorial had dramatically better financial behaviors. She uses hard data – not self-reported – that demonstrates reduced late fees, lower bankruptcy rates and better FICO scores for those who took the tutorial. Her findings include:
- Customers who completed the online education program demonstrated a 51.2 percent improvement in bankruptcy rates compared to customers who did not log on and go through the educational program.
- The 60-day delinquency rate for the customers who completed the education program was 45.1 percent better than those who didn’t complete the program.
- The increase in FICO scores for the customers who completed the program was 240 percent better than the increase for those who did not.
- The percentage of cardholder accounts with a late fee was 22.8 percent less for those who completed the education program than those who did not.
- Average revolving monthly balances among online-education participants was 20 percent less than that of those who didn’t take the lessons, even though use of their credit cards increased, pointing to more responsible credit use among this group.
This treasure trove of data could be the Holy Grail that financial literacy researchers have been searching for these many years.
Dr. Donnini’s paper will be released tomorrow at the Financial Literacy and Education Summit that is being co-hosted by the Federal Reserve Bank of Chicago and Visa. You can read the report before it’s released here.
Posted by: Jason Alderman, Visa Corporate Relations on April 3, 2011 at 7:35 pm