Financial Capability, Center Stage

> Posted by Jeffrey Riecke, Communications Associate, CFI

Financial capability is cornerstone to financial inclusion. After all, without the knowledge, skills, and attitudes to make good financial decisions, the utility of accessible financial services is greatly compromised. However, financial capability levels need addressing, even in countries that have relatively high services penetration such as the United States. Thankfully, the urgency is increasingly recognized, for example, through efforts such as Financial Literacy Month in the U.S. About a decade ago, April was designated as a month to call attention to financial literacy, and in 2012 the shift was made to include attitude and behavior change: President Obama proclaimed Financial Capability Month. To celebrate, here’s a rundown of where the United States stands with financial capability, and a few public and private efforts aimed at improving this financial inclusion area.

According to the National Foundation for Credit Counseling, about 40 percent of American adults report keeping close track of their spending and about 35 percent have a budget. In terms of effective money management, consumer debt in the U.S. totals more than $2 trillion. In perhaps the most alarming statistic of all, half of Americans indicate that they have less in savings than they would need to live for one month in an emergency and a quarter have less than they need for two weeks. Roughly 65 percent of American adults have not ordered a copy of their credit report in the past year and about 30 percent don’t know their credit score. When asked to grade their level of financial proficiency, 40 percent of Americans give themselves either a C, D, or F.

But Americans do recognize the importance of financial capability. Eighty percent of adults indicate that they would benefit from advice and answers from professionals on basic finance questions. Many would like to speak with financial education service providers, such as credit counselors, followed by banks, and then financial planners.

In support of financial capability, the U.S. government offers resources on both and the Consumer Financial Protection Bureau’s (CFPB) website. On MyMoney, a service of the government’s Financial Literacy and Education Commission, children and youth can engage with informational materials, games, and fun facts about money, saving, and planning for the future. The site offers teachers and educators curricula, lesson plans, guidance, and tools for teaching financial capability. Also shared on the site is a library of research, articles, and datasets on financial capability.

CFPB’s site offers guidance on services like mortgages, credit cards, and student loans. Along with advice tailored specifically for students, it provides content for older Americans and veterans. Mirroring the interactive consumer complaints database, the site features a portal where you can ask the CFPB financial questions.

Recently the government established the President’s Advisory Council on Financial Capability for Young Americans. Created about a year ago, the Council advises the President and the Secretary of the Treasury on how to promote financial capability for children and youth in schools, among family, and in their communities. The Council’s work focuses on a number of areas, including building public-private partnerships that advance financial capability resources and practices, supporting ongoing research, and developing pilot financial capability programs in schools.

A notable example of a school-based financial capability initiative is the Kindergarten to College program of the city of San Francisco. The program provides a college savings account and an initial $50 deposit to every kindergarten student in the city. Held at Citibank, the accounts incorporate incentives to encourage students and parents to save. In turn, the public schools in San Francisco include financial subject matter in the K-12 math curriculum, integrating the savings accounts as teaching tools. In addition to offering the means to build savings and gain meaningful financial skills and experiences, the program also helps enroll many families in the formal banking system. A total of 13,000 accounts have been opened through the program since it began in 2010.

Beyond public initiatives, many financial services providers are recognizing that their close proximity to clients gives them a unique opportunity to help build financial capability. The Financial Services Roundtable, an advocacy group for the financial services industry works with member companies and non-profit partners to develop and implement financial resources in their local communities. A few examples of these resources are Chase’s “Financial Education Library,” featuring multiple-language financial education workbooks, MasterCard’s “Priceless Pointers” interactive web tools, and Citi Community Development’s financial education curriculum for K-8 students, available in both English and Spanish. For the full list of resources, click here.

Image credit: Tom Woodward

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