1. Kim Davis, PhD, NCC, AFC Assistant Professor of Consumer Science Texas State University @ San Marcos

2. Individuals and families Banking and finance companies Government agencies Grassroots consumer and community interest groups Universities and schools

3. For consumers to effectively use the broad spectrum of financial products and tools to effectively manage personal finances Cash flow management Appropriate selection of financial products Consumer protection Pervasive and influences everyonegender, race, age, socioeconomic lines

4. Defining what we are all talking about! What is financial literacy? Financial education? No national standard Core content or competencies Assessment of success or behavioral change No standards for educators teaching personal finance (Hira & Schuchardt, 2008)

5. Defining what we are all talking about! Numerous perspectives of personal finance Economics Sociology Psychology Adult learning

6. Family and Consumer Sciences Research Journal Financial Services Review Journal of Consumer Affairs Journal of Family and Economic Issues Journal of Financial Counseling and Planning Education Journal of Financial Planning Journal of Personal Finance

7. Social Exchange Theory (Homans, 1958) Adult Learning Theory (Mezirow, 1981) Human Ecological Model (Bronfrenbrenner, 1979) Family Management System (Deacon & Firebaugh, 1988) Lifecycle Hypothesis of Savings (Ando & Modigliani, 1963) Behavioral Lifecycle Hypothesis Theory of Reasoned Action and Theory of Planned Behavior (Thaler & Shefrin, 1981) Transtheoretical Model of Change (Nickols, 2008)

8. Effectiveness of Financial Education Adults participating in education programs are more likely to use a formal spending plan. Sample of U.S. military personnel Participants in high school financial education are more likely to: Have a savings account and save regularly, Pay fewer bank fees Read money management articles Pay off credit card balances Indicates positive behavioral change (Bell, Gorin & Hogarth, 2009)

9. Effectiveness of Financial Education (cont.) Savings behaviors of people in states with a literacy mandate show no difference in savings rates from before the mandate to after. U.S. Census data Indicates positive behavioral change (Cole & Shastry, 2009)

10. Effectiveness of Financial Education (cont.) States with high school financial education tend to see saves at higher rates. Sample is unclear Instrument designed by researchers for unrelated purpose Indicates positive behavioral change (Bernheim, Garrett & Maki, 2001)

11. Effectiveness of Financial Education (cont.) Studied impact of high school financial planning curriculum on behavior, knowledge, and self- efficacy National sample of teens using the curriculum Immediately prior and 3 months out from exposure Significant changes in: Behavior Knowledge Self-efficacy Indicates positive behavioral change and knowledge (Danes, Huddleston-Casas, & Boyce, 1999)

12. Effectiveness of Financial Education (cont.) Jump$tart Coalition for Personal Financial Literacy (Mandell & Klien, 2009) Year199820002002200420062008 % Passing 57.351.950.252.352.448.3 Sample Size 15327234024407457756856

13. College 2008 administration of the same instrument proved more promising Average score was 62.2%, sample size of 1080 Nearly 15 percentage points above the 48.3% average of high school seniors (Mandell & Klien, 2009)

14. Current thought and theory Promise of Consumer Sovereignty Welfare-enhancing choices can be taught (Willis, 2008) Comparison Sex education Alcohol and drug prevention education Health and wellness education

15. Behavioral finance Beginning Researchers Amos Tversky (1937-1996) Taught at Stanford University Psychologist Daniel Kahneman (1934) Teaches at Princeton University Psychologist Richard H. Thaler (1945) University of Chicago Business Finance Works attempt to explain irrational human economic choices.

16. Behavioral finance Every financial decision should result from a rational calculation of its effect on our overall wealth.

17. Behavioral finance PrincipleAnchoring ExplanationClinging to a reference point (fact or figure) which should have no bearing on one's judgment or decision; knowing the logical relevance to the decision at hand Example(s) Fixed on a figure when selling, even when the value has increased or dropped Brand loyalty We are biased to information that confirms our beliefs Remedy Look for information that contradicts your beliefs No substitute for rigorous critical thinking Get second opinions Disregard acquisition value when selling Dont be swayed by list prices (make an offer)

18. Behavioral finance PrincipleMental Accounting ExplanationValuing some dollars less than others and more readily wasting them; separating money into accounts based on a variety of subjective criteria such as source, storage and purpose Example(s) Spending gifted or found money more readily Gifts or tax returns Spending more readily when using plastic Burying small purchases into larger ones (e.g. new car extras, upgrades on a new home, extended warranties) Remedy Deposit gifted or found money into a savings account before spending Convert the amount of the expense into $/hour cost Break down large purchase into its parts and question the extras Pay with cash instead of plastic

19. Behavioral finance PrincipleHindsight or Confirmation Bias ExplanationEncountering a situation with a preconceived opinion Example(s) A person believes that some past event was completely predictable Someone is more likely to look for information that supports the original idea rather than seek out information that will contradict it One-sided information skews frame of reference Remedy Find a dissenting voice of reason

20. Behavioral finance PrincipleInnumeracy ExplanationIgnorance of the importance of key mathematical concepts in making sound financial decisions Example(s) Inflation - choosing conservative investments and becoming more vulnerable to inflation Probability - being insurance poor Bigness bias – neglecting small numbers that make a big difference over time (e.g. regular checking verses savings or investing) Remedy Invest or save regularly and for the long term Raise insurance deductibles Pick up spare change dropped

21. Behavioral finance PrincipleGamblers Fallacy – Related to Innumeracy ExplanationErroneous belief that the onset of a random event is likely to happen again while past events do not change probability Example(s) Believing that every losing pull of a slot machine arm puts a person one pull closer to a win Remedy Understand that in the case of independent events, the odds of a specific outcome on the next chance is exactly the same

22. Behavioral finance PrincipleHerd Instinct or "Heard It Through the Grapevine" ExplanationConforming to the behavior of others; mimicking the actions (rational or irrational) of a group Example(s) Buying because others are buying, or selling because others are selling Acting on tips Conforming because of social pressure Believing a large group couldnt be wrong Remedy Avoid the "hot" thing or fad Tune out the noise – disregard most financial news Be a long-term value investor

23. Behavioral finance PrincipleOver-confidence / Over-optimism ExplanationYoure probably not as smart as you think you are. Tendency to over-estimate one's abilities, knowledge and skills Example(s) Too optimistic about when you will implement strategies Think you are in better shape than you are Assign success to "skill" and failure to "bad luck" Remedy Get a second opinion Add 25% to anything you do (time or money) Keep in mind that fund managers with the best information available still miss the mark in achieving good returns

24. Behavioral finance PrincipleLoss Aversion or Sunk Cost Fallacy ExplanationPeople feel twice as strongly about the pain that comes from a loss than the pleasure that comes with an equal gain Inability to forget money already spent makes us too ready to throw good money after bad Example(s) Holding on to losers, and selling a winner Failing to realize that its not what things were worth in the past thats important, but how much theyre worth now. Keeping expensive shoes that dont fit Remedy Forget the past – evaluate the future Remember: Someone else might benefit from your loss.

25. Behavioral finance PrincipleDecision Paralysis ExplanationHaving a preference for the status quo; avoiding changing or making proactive decisions Example(s) Staying in a low-paying job when a better one could be obtained Leaving money in a bank rather than investing Neglecting refinancing a mortgage when interest rates drop Remedy ACT Autopilot your investments through direct deposit

26. Behavioral finance PrincipleEndowment Effect ExplanationTendency to fall in love with what one owns; over- valuing what belongs to an individual relative to the value he or she would place on the same possession or circumstance if it belonged to someone else; tendency to place an inordinately high value on what is "mine" Example(s) It is broken, will not work but belonged to your great, great grandmother Memories Tend to focus on the positive qualities of the options under consideration Remedy Remember you will make new memories

27. Sound pedagogy in general Self-Efficacy Theory Belief that one is capable of performing in a certain manner to attain certain goals Focusing on one's assessment of his/her abilities to perform specific tasks in relation to goals and standards rather than in comparison with others capabilities. Additionally, it builds on personal past experiences of mastery.

28. Sound pedagogy in general Social Learning Theory Ecological model for behavior change Focuses attention on both individual and social environmental factors as targets for interventions Directed at changing … interpersonal, organizational, community, and public policy The theory assumes that appropriate changes in the social environment will produce changes in individuals Support of individuals in the population is essential for implementing environmental changes

29. Characteristics of the educator Ability to connect to audience Enthusiasm Knowledge of content Active teaching (demonstrates relevance) Pace of instruction Clear communication Questions effectively High expectations