Personal Financial Literacy: A National Needs Assessment

: A National Needs Assessment Research Report - 2002 Prepared for By John J. Usera, Ph.D. Institute for Educational Leadership & Evaluation Chiesman Foundation For Democracy, Inc. 1641 Deadwood Avenue Rapid City, SD 57702

Table of Contents Acknowledgments... 1 Executive Summary... 2 Overview... 5 Methodology... 5 Theoretical Framework... 6 Demographics... 7 Findings... 11 Financial Literacy Quotient (FLQ)...11 General Beliefs (GBS)... 12 Practice & Skills (PSS)... 21 Specific Knowledge (SKS)... 28 Conclusion... 33 Appendix A... 34 Acknowledgment... 34 Appendix B... 35 Researcher Background - John Usera, Ph.D.... 35 2002 Institute for Educational Leadership & Evaluation, All Rights Reserved ii

Acknowledgments The following evaluation report was supported by Consumer Credit Counseling Service of the Black Hills and the American Center for Credit Education in Rapid City, South Dakota. The success of this report required the efforts of a group of individuals dedicated to helping people become better managers of their personal finances. Participating Consumer Credit Counseling Service Agencies: CCCS of Alaska CCCS of the North Coast CCCS of Central Oregon CCCS of the Tri-State Family Support of Fairchild CCCS of Greater Wyoming CCCS of Montana CCCS of Southern Nevada CCCS of the Mid Ohio Valley, Inc. CCCS of Racine CCCS of the Black Hills CCCS of the Sacramento Valley Anchorage, Alaska Arcata, California Bend, Oregon Evansville, Indiana Fairchild AFB, Washington Gillette, Wyoming Great Falls, Montana Las Vegas, Nevada Parkersburg, West Virginia Racine, Wisconsin Rapid City, South Dakota Sacramento, California CCCS of Mid-Willamette Valley, Inc. Salem, Oregon CCCS of San Diego & Imperial Co. San Diego, California CCCS of Sioux Land CCCS Family Services The Village Sioux City, Iowa Wilmington, North Carolina Fargo, North Dakota IELE 2002 Page 1

Executive Summary This study was initiated in order to determine the profile of an individual experiencing financial problems seeking assistance from a credit counselor or personal financial manager. In creating this profile, it was necessary to determine some basic demographic background, learn what the person knew about personal finances, and determine the level of actual practice. There were 5,981 self-selected respondents from 17 credit counseling sites across the United States that completed the Financial Literacy Questionnaire. The respondents were 60.9% female with an average age of 36.3 years. The majority of the respondents were White (70.6%) with 10.5% Black, 2.8% American Indian, 9.9% Hispanic, and 2.2% Asian. The majority of the respondents completed a high school education (58.2%), while 19.3% had completed four years of college or more. Thirty-nine percent of the respondents were married, 36.6% were single, and 16.7% were divorced. The survey instrument asked 15 questions to obtain a Financial Literacy Quotient (FLQ). This FLQ was divided into three subscores: General Beliefs (GBS), Practice & Skills (PSS), and Specific Knowledge (SKS). The scores are a means to measure the level of understanding and application of personal financial management. Each score and subscore had a range from 0 to 100. Some of the results of the scoring were: The mean FLQ score for all the respondents was 70.3 with a range from 25 to 100. Half of the respondents scored below 71.7. The mean FLQ score for the female respondents was 69.7 and for the male respondents it was 71.3. The mean GBS for all the respondents was 80.9 with a range from 25 to 100. Half of the respondents scored below 78.6. The mean PSS for all the respondents was 64.7 with a range from 25 to 100. Half of the respondents scored below 65. The mean SKS for all the respondents was 62.6 with a range from 25 to 100. Half of the respondents scored below 60. Some of the major findings based upon the scoring and further analysis of the data include: The youngest age group (15 to 25) had a 3.9% lower average FLQ score than the highest scoring age groups (26 to 45) and the oldest age group (66 plus) had a 6.2% lower average FLQ score than the highest scoring age groups. IELE 2002 Page 2

The White ethnic group mean FLQ score was statistically significantly higher than the other ethnic groups. This group s mean score was 5.9% above the other ethnic groups. Married and divorced respondents scored statistically significantly higher on the Financial Literacy Questionnaire than other marital status categories. The married and divorced groups mean scores were 7.6% above the other marital status groups. Individuals with a higher education level scored statistically significantly higher on the Financial Literacy Questionnaire than other educational levels. The respondents with a master s degree or higher had a mean score 10.3% above the other educational levels. The General Beliefs Subscore (GBS) asked questions about common sense financial practices. Do late payments impact seeking a home loan? Should you keep enough in your savings account to cover three months of expenses? Some of the major findings based on GBS were: The youngest age group (15 to 25) scored statistically significantly lower than the other age groups. The youngest age group s mean subscore was 3.1% below other age groups. The White and Black ethnic groups mean score was statistically significantly higher than the other ethnic groups. Both groups mean subscores were 6.2% above the other ethnic groups. Married respondents scored higher on the GBS than the other marital status groups. The married group had a mean score 14.4% above the other marital status groups. Widows had the lowest subscores. Respondents with a higher education level scored the highest on the GBS while elementary school completers scored the lowest. There was a separation of 9.8% in the average score between the two groups. The Practice & Skills Subscore (PSS) asked questions about the actual practice of personal finance. Questions in the area asked about the practice of paying bills, budgeting, reading credit reports, and setting financial goals. Some of the major findings based on PSS were: The American Indian ethnic group scored higher than the other groups in the PSS. The American Indian group scored 4.4% higher than the other ethnic groups. There was no significant difference among the marital and age groups for the PSS. IELE 2002 Page 3

Respondents with a higher education level scored 8.4% higher on the PSS than the elementary school completers who had the lowest score. The Specific Knowledge Subscore (SKS) measures the level of knowledge about specific financial management facts. Questions in this area ask about bankruptcy, interest rates, car payments, and credit reports. Some of the major findings based on SKS were: The age group, 36 to 45, scored the highest on the SKS, while the youngest age group, 15 to 25, scored the lowest by 12.1%. The married respondents scored the highest on the SKS while widows scored the lowest by 10.6%. The White ethnic group scored the highest on the SKS while the Asian ethnic group scored the lowest by 7.6%. This research study found strong evidence to support the need for personal financial literacy education and counseling. The average person seeking assistance in managing credit or other related personal finance areas has some basic personal financial literacy. The mean scores for the Financial Literacy Quotient and three subscores obtained in this study support this profile. The reason why a person seeks assistance is because knowledge and practice were not matched. Individuals experiencing money problems have difficulty with credit management, budgeting, and knowledge of credit guidelines. This study shows that highly educated respondents had an excellent knowledge about credit, but had a deficiency in the skills of budgeting and credit management. There were many people who had budgeting skills, but lacked knowledge about credit management. In some cases individuals needed a course on personal financial management, while others need some guidance counseling on how to apply what they know about personal finances. This study supports the importance of promoting and encouraging individuals to learn how to be good personal finance managers. Regardless of age, education, marital status, or ethnicity, education and counseling were two interventions needed by the majority of the individuals seeking assistance for financial problems. One intervention alone may not be sufficient for seeking assistance or improving an individual s personal financial management skills and knowledge. IELE 2002 Page 4

Overview This study was conducted to develop a profile on the level of understanding of personal financial management by individuals seeking financial counseling and related services. This research supports the need for personal financial education and identify some of the areas effective educational programs must address. The Financial Education Needs Assessment was commissioned to match need with educational and counseling strategies. The survey technique was employed because it provides a quick and accurate manner in which to get information about the individuals knowledge of personal finance in the United States. The questionnaire was designed collaboratively by the staff of the American Center for Credit Education, personal financial management counselors and instructors, and the Institute for Educational Leadership & Evaluation. The expectations and attributes of this questionnaire included questions about the respondent s demographics, personal beliefs about personal finance, and knowledge about credit and budgeting. The results of this study were presented to the American Center for Credit Education staff and to credit counselors. The sharing of the results from this study will provide evidence and support for a personal financial literacy and educational program such as Credit When Credit Is Due. Also, it will serve as a baseline study to compare future needs assessment studies. Some studies have been completed to show the benefits of workplace financial education, but no national study has been done to substantiate a broad base need for financial education. 1 Methodology A self-selected sample of 5,981 potential consumer and finance counseling clients were surveyed at 17 office sites throughout the United States. As part of the intake and information process, before the client met with financial management counselor, the client was asked to complete a 15-item questionnaire about personal financial management. The instrument was designed to be completed within ten minutes with a minimal amount of explanation and instruction. All questionnaires were completed anonymously and with no reference to a specific person or potential client. The questionnaires were sent directly to the Rapid City office, coded and entered into a database. The collected data was analyzed using the Minitab Statistical System. The 1 Kratzer, C., Brunson, B., Garman, E., Kim, J., and Joo, S. (1998). Financial Education In The Workplace Results of A Research Study. Journal of Compensation & Benefits, 14(3), pp 24-27. Malach, A. (2001). Home Ownership Education and Counseling: Issues in Research and Definition. Philadelphia: Federal Reserve Bank. IELE 2002 Page 5

analyses included the construction of frequency distribution tables and testing for independence and association of categorical data between two or more variables at the = 0.05 level. Statistical tests included chi-squared tests for goodness of fit and independence of responses to a set of demographic data. The procedures were designed to obtain high statistical power based on sample size, significance (alpha level), and observed effect. The statistical power for this study was computed to be 0.85 at an alpha level of 0.05. In order to assure that proper interpretation and use of the information gathered through this survey was achieved, calculations were performed for validity and reliability coefficients. Validity refers to the appropriateness, meaningfulness, and usefulness of the specific inferences made from the survey results. It is an integrated evaluative judgement of the degree to which empirical evidence and theoretical rationales support the adequacy and appropriateness of the inferences and actions based on the assessment techniques employed. 2 Reliability refers to the consistency of measurement, the extent to which the results are similar over different forms of the same instrument or occasions of data collecting. Reliability coefficient for this questionnaire was computed to be 0.79 using the Kuder-Richardson formula (KR21). The coefficient of validity was calculated to be 0.81 using Cronbach methods. 3 Theoretical Framework The Financial Literacy Quotient (FLQ) is a score that reflects the level of competency regarding personal financial management by an individual completing the Financial Literacy Questionnaire. A perfect score on the Financial Literacy Questionnaire would be 100 with an acceptable FLQ score being 80 or higher. The FLQ is divided into three subscores: General Beliefs, Practice & Skills, and Specific Knowledge. The maximum score for General Beliefs is 100 with an acceptable subscore being 80 or higher. The General Beliefs subscore focuses on items that reflect general knowledge about personal finances that could be obtained from experience or course work. The maximum score for Practice & Skills is 100 with an acceptable subscore being 80 or higher. The Practice & Skills subscore reflects an individuals actual practice in managing finances or having good management practices in place. The maximum score for Specific Knowledge is 100 with an acceptable 2 3 Messick, S. (1989). Validity. In J.H. McMillan & S. Schumacher, Research in education (p. 235). New York: Longman Publishers. Cronbach, L.J. (1971). Test Validation. In R.L. Thorndike (Ed.), Educational measurement (2 nd edition). Washington, D.C.: American Council of Education. IELE 2002 Page 6

subscore being 80 or higher. The Specific Knowledge subscore reflects information about personal finances that requires knowledge obtained from providers, educational sources, or direct experience. The analysis of this data provides the financial counselor, financial educator, and the consumer with information about what is needed in order to be a good personal financial manager. The respondents in this study had taken the first step to seek assistance about some area of personal finances. The questionnaire was used to determine the level of personal financial literacy the potential client may or may not possess. This information is helpful in determining the type and level of resources a credit counseling or education center may need to have in place if it is to meet adequately the needs of the potential clients. The questionnaire results must be evaluated in the context of the potential clients and what skills or knowledge they already possess as they seek additional counseling assistance. The FLQ is designed to help the credit counseling centers determine the needs that exist and to ascertain what services might be needed in order to serve clients. It has been substantiated that credit counseling services, personal financial literacy education, and debt reduction programs are beneficial. But a profile of the potential client has not been developed to date. This questionnaire is a step in that direction. The results of this study should give the providers valuable information to make decisions about meeting the financial management needs of all their clients. Demographics The respondents were located in 14 states with the largest number of respondents in the 26-35 year old age category (n = 1,798; 30.1%). The average age for the sample was approximately 36.3 years. The gender composition of the respondents was 60.9% female and 39.1% male. Table I Age Distribution of Respondents Age Male Female n p n p Total Percent 15 to 25 484 20.9% 771 21.3% 1,255 21.1% 26 to 35 690 29.8% 1,096 30.3% 1,786 30.1% 36 to 45 594 25.6% 858 23.7% 1,452 24.5% 46 to 55 379 16.3% 574 15.9% 953 16.1% 56 to 65 120 5.2% 214 5.9% 334 5.6% 66 & Older 52 2.2% 103 2.8% 155 2.6% Total 2,319 100% 3,616 100% 5,935 100% IELE 2002 Page 7

Table II shows the educational level of the respondents. Participants were asked to report the highest level of completed education. The majority of the respondents (n = 3,404; p = 58.3%) reported having a high school education or equivalent (GED). Over 19% (n = 1,134; p = 19.4%) of the respondents completed a four-year or post-graduate degree program. Table II Educational Level of Respondents Completed Male Female n p n p Total Percent Elementary School 50 2.2% 64 1.8% 114 2.0% High School 1,358 59.6% 2,046 57.4% 3,404 58.3% Associate Degree 434 19.0% 756 21.2% 1,190 20.4% Bachelor Degree 349 15.3% 571 16.0% 920 15.7% Masters Degree or Higher 88 3.9% 126 3.5% 214 3.7% Total 2,279 100% 3,563 100% 5,842 100% IELE 2002 Page 8

Table III shows the ethnicity of the respondents. Caucasians (White) comprised 70.6% (n =4,138) of the respondents followed by Blacks at 10.5% (n = 615) and Latinos at 9.9% (n = 581). There were 2.0% (n = 119) who did not identify an ethnic group and 2.2% (n = 130) classified themselves as Other. Table III Ethnicity Distribution of Respondents Ethnicity Male Female n p n p Total Percent White 1611 70.6% 2,527 70.6% 4,138 70.6% Black 230 10.1% 385 10.8% 615 10.5% American Indian 60 2.6% 103 2.9% 163 2.8% Hispanic/Latino 240 10.5% 341 9.5% 581 9.9% Asian 99 4.3% 136 3.8% 235 4.0% Other 41 1.8% 89 2.5% 130 2.2% Total 2,281 100% 3,581 100% 5,862 100% IELE 2002 Page 9

Table IV shows the marital status for respondents. Married respondents had the highest rate at 38.9% (n = 2,304) followed by the single respondents at 36.6% (n = 2,166). A higher percentage of males were married, while the reported percentage of married females were equal to the percentage of single females. Table IV Marital Status Distribution of Respondents Status Male Female n p n p Total Percent Single 882 38.1% 1,284 35.6% 2,166 36.6% Married 1,039 44.9% 1,265 35.1% 2,304 38.9% Separated 97 4.2% 223 6.2% 320 5.4% Divorced 277 12.0% 716 19.9% 993 16.8% Widow 18 0.8% 111 3.1% 129 2.2% No Report 2 0.1% 3 0.1% 5 0.1% Total 2,315 100% 3,602 100% 5,917 100% IELE 2002 Page 10

Findings Financial Literacy Quotient The Financial Literacy Quotient (FLQ) is a score that reflects the correct response to a set of 15 questions about personal finance management. A perfect FLQ score is 100. The FLQ documents the level of knowledge, belief, and practice about finances. A low FLQ (less than 80) will show a deficiency in one or more of the three areas assessed in the questionnaire. This assessment can be used to establish individual need for financial education, assistance or direct intervention through a counselor. Figure V shows the distribution of the scores obtained from the respondents to the Financial Literacy Questionnaire. The mean score was 70.3 with a standard deviation of 12.6. The median score (50th percentile) is 71.7 with the first quartile at 63.3 and the third quartile at 80.0. The range of scores for the FLQ was 25.0 to 100. There was a significant difference found among the mean scores of the six age groups (F = 11.96, p < 0.0001). The youngest age group (15 to 25) and the oldest age group (66 +) were statistically lower than the other four middleage groups. The mean score for the lowest age group was 66.8 while the highest age groups (26 to 35 and 36 to 45) mean score was 71.2. IELE 2002 Page 11

There was a significant difference found among the mean scores of the six ethnic categories (F = 16.71, p < 0.0001). The White group had a mean FLQ score of 71.25 while the Hispanic group had a mean score of 67.05. The Asian group also had a low mean score of 67.06. There was a significant difference found among the mean scores for the six marital categories ( F= 8.86, p < 0.0001). The widows mean score was the lowest on the FLQ at 66.0 while the divorced and married groups had the highest FLQ mean scores at 71.42 and 71.37 respectively. There was a significant difference found among the mean scores for the five education levels (F = 24.90, p < 0.0001). The post-graduate degree group had the highest FLQ mean score at 74.29 while the group with only elementary school education had a mean score of 66.61. General Beliefs The Financial Literacy Quotient is divided into three subscores: General Beliefs, Practice & Skills, and Specific Knowledge. The General Beliefs Subscore (GBS) is based on seven (7) items from the Financial Literacy Questionnaire. These items asked about common sense financial practices. For example: Do late payments impact seeking a home loan? ; Should you keep enough in your savings account to cover 3 months of expenses? ; and If you do not have enough money to pay your bills, should you call your lenders right away and tell them? A low GBS (less than 80) would indicate a need for education about basic financial practices. This area of the FLQ focuses on general knowledge about personal financial management that most individuals would have acquired during their life time. IELE 2002 Page 12

Figure VI shows the distribution of the subscores obtained from the respondents to the Financial Literacy Questionnaire. The mean GBS was 80.9 with a standard deviation of 14.7. The median score (50 th percentile) is 78.6 with the first quartile at 67.9 and the third quartile at 89.3. The range of scores for the GBS was 25.0 to 100. There was a significant difference found among the mean subscores of the six age groups (F = 6.86, p < 0.0001). The youngest age group (15 to 25) and the oldest age group (66 +) were statistically lower than the other four middle age groups. The mean score for the lowest age group was 77.6 while the two highest age groups, 26 to 35 and 46 to 55, mean subscores was 81.70 and 81.57 respectively. There was a significant difference found among the mean subscores of the six ethnic categories (F = 17.36, p < 0.0001). The White group had a mean GBS of 81.98 while the Black group had a mean subscore of 80.17. The remaining ethnic groups had mean subscores that range from 76.93 to 79.87. There was a significant difference found among the mean scores for the six marital categories ( F= 5.37, p < 0.0001). The widows mean GBS was the lowest at 70.0 while the married group had the highest GBS mean at 81.75. IELE 2002 Page 13

There was a significant difference found among the mean scores for the five education levels (F = 18.07, p < 0.0001). The post-graduate degree group had the highest GBS mean at 85.00 while the group with elementary school education had a mean score of 76.69. Table V Late Payments Age True False Not Sure n p n p n p 15 to 25 150 2.6% 914 15.6% 185 3.2% 26 to 35 312 5.3% 1321 22.6% 86 1.5% 36 to 45 322 5.5% 1017 17.4% 110 1.9% 46 to 55 200 3.4% 664 11.3% 85 1.5% 56 to 65 77 1.3% 224 3.8% 36 0.6% 66 to 75 38 0.6% 94 1.6% 20 0.3% Total 1,099 18.8% 4,234 72.3% 522 8.9% Additional analysis of the items used to determine the General Belief Subscore indicates some useful trends to assist in counseling and education of clients. One of the items focused on late payments. Table V shows whether the respondents believe late payments on bills are a problem (true), or no problem (false), when seeking a home loan. A chi-square analysis indicated that an association existed between the age of the respondent and the response given ( 2 = 98.9, df = 10, p < 0.0001). Over 72.3% of the respondents stated that late payments would effect getting a home loan. About 10% of the respondents were not too sure how their record regarding bill payments would effect getting a home loan. An association was found between the ethnicity of the respondent and the type of response given ( 2 = 27.61, df = 10, p < 0.033). See Figure VII. The response rate for this item was also dependent upon the respondents completed educational level ( 2 = 19.3, df = 8, p < 0.013). The more education a person had the higher the rate of appropriate response. The range of the selected false response from elementary school to post secondary school was 67.0% to 71.5%. IELE 2002 Page 14

Another item that effected the GBS was the amount of savings required to cover household expenses. Table VI shows the number and percentage of respondents who believed that you should keep enough in a savings account to cover three months of expenses. A chi-square analysis indicated that an association existed between the age of the respondent and the response given ( 2 = 31.93, df = 10, p < 0.001). Over 83.7% of the respondents agreed that their savings account should contain enough money to cover three months of expenses. About 6.2% of the respondents did not agree with the statement. Table VI Savings Account Amount Age True False Not Sure n p n p n p 15 to 25 1004 16.9% 90 1.5% 159 2.7% 26 to 35 1530 25.7% 93 1.6% 170 2.9% 36 to 45 1214 20.4% 103 1.7% 132 2.2% 46 to 55 822 13.8% 55 0.9% 79 1.3% 56 to 65 282 4.7% 14 0.2% 43 0.7% 66 to 75 121 2.0% 13 0.2% 21 0.4% Total 4,973 83.7% 368 6.2% 604 10.2% IELE 2002 Page 15

An association was also found between the ethnicity of the respondent and the type of response given ( 2 = 28.9, df = 10, p < 0.016). The response rate for this item was dependent upon a person s educational level ( 2 = 55.5, df = 8, p < 0.001). Table VII shows the number and percentage of respondents who believed that no more than 25% of a persons income should be used on installment debt. The response was dependent upon the individual s age ( 2 = 180.2, df = 10, p < 0.0001). Over 47% of the respondents agreed that no more than 25% of a persons income should be dedicated to the installment debt. About 44% of the respondents were not sure about the relationship between the amount of a person s income and the amount of installment debt. Table VII Installment Debt Age True False Not Sure n p n p n p 15 to 25 432 7.3% 113 1.9% 702 11.9% 26 to 35 793 13.4% 133 2.2% 857 14.5% 36 to 45 757 12.8% 136 2.3% 551 9.3% 46 to 55 532 9.0% 73 1.2% 346 5.9% 56 to 65 196 3.3% 24 0.4% 119 2.0% 66 to 75 97 1.6% 14 0.2% 40 0.7% Total 2,807 47.5% 493 8.3% 2,615 44.2% An association was found between the gender of the respondent and the type of response given ( 2 = 44.9, df = 2, p < 0.0001). The percentage of male respondents that said the statement was true was approximately 51.0% as opposed to the female response rate of 45.9%. The response rate for this item was dependent upon a person s educational level ( 2 = 87.5, df = 8, p < 0.001). The higher the educational level, the more likely the appropriate response. Over 43% of the high school graduates stated the statement was true while 66.8% of the post graduates stated the statement was true. The response rate for this statement is dependent upon the ethnicity of the respondent ( 2 = 39.3, df = 10, p < 0.008). The highest rate of correct response was given by 49.4% of the White group, 46.7% of the Black group, and 44.4% of the Asian group. Table VIII and Figure VIII show the number and percentage of respondents who believed that if you do not have enough money to pay your bills, you should call your lender right away and tell them. The response was found dependent upon the IELE 2002 Page 16

ethnicity of the respondent ( 2 = 46.5, df = 10, p < 0.001). Eighty-six percent (85.6%) of the White respondents agreed with the statement. The Black and American Indian respondents agreed that you should call your lender if you are not able to pay your bills at a rate of 83.3% and 87.2% respectively. Table VIII Not Enough Money To Pay Bills Ethnicity True False Not Sure n p n p n p White 3,539 60.4% 162 2.8% 436 7.4% Black 513 8.8% 34 0.6% 69 1.2% American Indian 143 2.4% 4 0.1% 17 0.3% Hispanic/Latino 451 7.7% 47 0.8% 81 1.4% Asian 176 3.0% 18 0.3% 39 0.7% Other 111 1.9% 6 0.1% 13 0.2% Total 4,933 84.2% 271 4.6% 655 11.2% IELE 2002 Page 17

Table IX and Figure IX show an association between the gender of the respondent and the type of response ( 2 = 26.2 df = 2, p < 0.002). Eighty-eight percent (88.2%) of the males and 84.1% of the females agreed with the statement that two people can purchase the same item and still pay vastly different amounts. Table IX Purchase of Goods Gender True False Not Sure n p n p n p Male 2,038 34.5% 98 1.7% 175 3.0% Female 3,023 51.2% 155 2.6% 417 7.1% Total 5,061 85.7% 253 4.3% 592 10.0% Table X shows the number and percentage of respondents who believed that when you use a credit card you are borrowing money from a bank. The response was found dependent upon the ethnicity of the respondent ( 2 = 30.9, df = 10, p < 0.001). Sixty-nine percent (69.2%) of the White respondents, 76.3% of the Black respondents, 73.0% of the American Indian respondents, 75.4% of the Latino respondents and 72.9% of the Asian respondents agreed with the true statement. An association was found between the age of the respondent and the type of response ( 2 = 23.9, df = 10, p < 0.039). The older age categories had a higher correct response rate (72.7%) while the 46 to 55 and the 56 to 65 categories had a lower correct response rate of 67.6% and 68.5% respectively. The rate of response IELE 2002 Page 18

was also dependent upon the gender of the respondent ( 2 = 24.5, df = 2, p < 0.001). Seventy-four percent (74.2%) of the males and 68.8% of the females believed that using a credit card was the same as borrowing money from a bank. Table X Credit Card Same As Bank Loan Ethnicity True False Not Sure n p n p n p White 2,837 49.2% 683 11.8% 578 10.0% Black 453 7.9% 74 1.3% 67 1.2% American Indian Hispanic or Latino 119 2.1% 27 0.5% 17 0.3% 426 7.4% 74 1.3% 66 1.1% Asian 164 2.8% 34 0.6% 27 0.5% Other 97 1.7% 13 0.2% 15 0.3% Total 4,096 71.0% 905 15.7% 770 13.3% IELE 2002 Page 19

Table XI and Figure XI show the majority of the respondents believed that an individual s credit history had an effect on the ability to get a job or rent an apartment. There was an association found between the age of the respondent and the type of response ( 2 =40.5, df =10, p < 0.001). The 26 to 35 age category had the highest correct response rate at 91.5%while the older age category had the lowest correct response rate at 77.4%. An association was found between the ethnicity of the respondent and type of response ( 2 = 49.5, df = 10, p < 0.001). Ninety-one percent (90.8%) of the White respondents, 87.4% of the Black respondents, 86.2% of the American Indian respondents, 83.1% of the Latino respondents, and 84.0% of the Asian respondents agreed that a person s credit history has an effect on one s ability to get a job or rent an apartment. Table XI Personal Effect of Credit History (Your credit history has no effect on your ability to get a job or rent an apartment.) Age True False Not Sure n p n p n p 15 to 25 62 1.1% 1042 18.8% 69 1.2% 26 to 35 91 1.6% 1542 27.8% 53 1.0% 36 to 45 76 1.4% 1214 21.9% 65 1.2% 46 to 55 64 1.2% 768 13.8% 49 0.9% 56 to 65 21 0.4% 279 5.0% 14 0.3% 66 to 75 16 0.3% 106 1.9% 15 0.3% Total 330 6.0% 4,951 89.3% 265 4.8% The rate of response to this statement was also found be dependent upon the level of education completed by the respondent ( 2 = 24.7, df = 8, p < 0.001). Over ninety-two percent (92.5%) of the respondents who completed post graduate studies agreed with the connection between credit history and employment while 80.8% of the respondents with an elementary school education agreed with the statement. IELE 2002 Page 20

Practice & Skills The Practice & Skills Subscore (PSS) measures the level of financial management actually used by the respondent. This subscore is based on five (5) items specifically connected to a particular skill or practice. Questions were asked about the practice of paying bills, budgeting, reading credit reports, and setting financial goals. A score of 80 reflects average skill and practice levels. The respondents had a mean PSS of 64.7 (s = 15.4) and a median subscore of 65.0. The range of subscore was from 25 to 100. There was no significant difference found among the mean Practice & Skills Subscores (PSS) of the six age groups (F = 1.03, p < 0.396). The range of the scores were from the youngest age group (15 to 25) at 63.96 to the oldest age group (66 +) at 65.35. There was a significant difference found among the mean PSS of the six ethnic categories (F = 2.95, p < 0.012). The American Indian group had the highest mean PSS at 65.91, while the Hispanic group had the lowest mean subscore at 63.01. The remaining ethnic groups had mean subscores that ranged from 63.45 to 65.64. There was no significant difference found among the mean PSS for the six marital categories (F = 1.46, p < 0.188). The single respondent mean PSS score IELE 2002 Page 21

was the lowest at 64.01 while the divorced group had the highest PSS mean score at 65.55. There was a significant difference found among the mean subscores for the five education levels (F = 9.98, p < 0.0001). The post-graduate degree group had the highest PSS mean score at 67.62, while the group with elementary school education had a mean score of 61.95. Analysis of the Practice & Skills questionnaire items show some discriminating factors about the level of skills individual potential clients have when seeking financial management assistance. For example Table XII shows that a high percentage of the respondents indicated that they pay their bills on time. The next highest rate was given to the statement that they occasionally pay bills on time. There was an association between gender and the statement selected by males and females ( 2 = 21.8, df = 3, p < 0.001). There was very little difference noted in the level of statement selection by both genders when asked, What statement best describes your current bill paying practices? IELE 2002 Page 22

Table XII Bill Paying Practices Statement Male Female n % n % I pay my bills on time. 918 43.7% 1,418 43.0% I occasionally pay my bills on time. 803 38.2% 1,268 38.4% I hardly ever pay my bills on time. 278 13.2% 521 15.8% I do not pay the bills in my household. 104 4.9% 93 2.8% Total 2,103 100% 3,300 100% The respondent s age was associated with the selection of one of the statements ( 2 = 164.5, df = 15, p < 0.0001). The younger age categories, ages 15 to 25, were less likely to pay their bills on time (38.2%), while the older age categories, ages 66 and older, indicated they paid their bills on time (81.34%). The range for the intermediate age categories (26 to 65) was 40.0% to 58.8%. Figure XIII shows that paying of bills on time was dependent upon the completed educational level ( 2 = 42.7, df = 15, p < 0.004). It was noted that the more education an individual had the higher the probability of the respondent to pay his or her bills on time. The post-graduate respondent rate for paying bills on time IELE 2002 Page 23

was 54.8% as compared to the high school graduate rate at 40.6%. The elementary school completers had a response rate of 52.0% for paying bills on time. Table XIII shows there was no association between gender and the respondents selection of a statement that best describes their knowledge about credit reporting ( 2 = 7.04, df = 3, p < 0.071). Approximately an equal percentage of males and females have not seen their credit report (28% versus 27%). An equal percentage of males and females have seen their credit report and it was good (23% versus 22%). There was an association between the age of the respondent and the selection of the statement that best describes what the respondent knew about his or her credit report ( 2 = 344.1, df = 15, p < 0.0001). The older the person the higher the probability of having a good credit report. Fourteen percent (13.9%) of the younger age category (15 to 25) had seen their credit report with a good rating. Thirty-eight percent (38.5%) of the older age category (66 to 75) had seen their credit report with a good rating. In the age range between 26 and 45, 40.2% to 44.3% of the respondents reported seeing their credit report with a bad rating. In the age range between 56 and 75, 13.9% to 31.8% of the respondents reported seeing their credit report with a bad rating. In all of the categories, over one-fourth of the respondents had not seen their credit report. Table XIII Knowledge About Credit Report Statement Male Female n % n % I have never seen a copy of my credit report. 588 28.0% 877 26.9% I have seen my credit report but I did not understand it. I have seen my credit report and my credit record was poor. I have seen my credit report and my credit record was good. 273 13.0% 454 13.9% 751 35.8% 1,230 37.7% 486 23.2% 702 21.5% Total 2,098 100% 3,263 100% An association was noted between the ethnicity of the respondent and the selection of a statement ( 2 = 138.2, df = 15, p < 0.001). The Asian respondent (25.9%), the White respondents (23.5%) and the Latino respondents (23.1%) reported seeing a good credit report. The Black respondents (15.1%) and the American Indian respondents (16.4%) reported a low probability of having a good credit report. IELE 2002 Page 24

Having seen a credit report with a good or bad rating was dependent upon the completed educational level ( 2 = 85.7, df = 12, p < 0.003). It was noted that the more education an individual had the higher the probability of the respondent having a good credit report (24.9% to 32.3%). Sixteen percent (16.0%) of the elementary school and 19.1% of the high school graduates reported seeing a good credit report. In all of the educational level categories the rate of bad credit reports exceeded the good credit reports by a range of 4.2% to 23%. The respondents were asked to select the statement that best described their financial goals (Table XIV). There was an association found between the gender of the respondent and the selection of one of the four statements ( 2 = 21.0, df = 3, p < 0.0001). The majority of the respondents (55.6%) stated that they had some financial goals but were not sure how to make them come true. A higher percentage of the male respondents (9.1%) had a positive feeling about their financial goals as opposed to the female respondents (6.5%). The age of the respondent was associated with the selection of the statement that best describes their situation regarding financial goals ( 2 = 89.8, df = 15, p < 0.0001). The older the respondent the less likely that he or she had any financial goals. In the age category 66 to 75, 22.3% of the respondents reported not having any real financial goals, while in the age category 26 to 35, 6.1% of the respondents reported not having any financial goals. Between the ages of 36 and 65, 8.24% to 12.6% of the respondents did not have any financial goals. An association was noted between the ethnicity of the respondent and the selection of a statement regarding financial goals ( 2 = 35.5, df = 15, p < 0.003). The IELE 2002 Page 25

Asian respondents (9.1%) and the American Indian respondents (10.8%) had the highest probability of not having financial goals. The Black respondents (6.3%), the Latino respondents (7.8%) and the White respondents (8.6%) had a lower probability of not having financial goals. Table XIV Financial Goals Statement Male Female n % n % I do not have any real financial goals. 186 8.9% 261 8.0% I have some financial goals but I do not know how to make them come true. I have some financial goals and I have created a plan to make them come true. I have some financial goals and they are coming true. 1,094 52.2% 1,890 57.7% 625 29.8% 910 27.8% 190 9.1% 214 6.5% Total 2,095 100% 3,275 100% Table XV Monthly Budget Statement I do not have enough money to have a budget. I would like to have a monthly budget, but do not know how to make one. I have a budget for the monthly bills but not for everyday expenses. I have a monthly budget and I use it to plan for all of my monthly expenses. Male Female n % n % 474 23.0% 819 25.3% 568 27.5% 1,037 32.0% 650 31.5% 944 29.2% 372 18.0% 437 13.5% Total 2,064 100% 3,237 100% Having a financial goal was dependent upon the level of education completed ( 2 = 50.5, df = 12, p < 0.016). The higher the level of completed education, the higher the probability of a respondent having successful financial goals. Ten percent (10.3%) of the respondents having successful financial goals had completed an IELE 2002 Page 26

elementary school education, while 9.3% of the respondents with successful financial goals had completed post graduate studies. The respondents were asked to select the statement that best describes their monthly spending plan or budget (Table XV). There was an association found between the gender of the respondent and the selection of one of the four statements ( 2 = 31.8, df = 5, p < 0.001). Forty-one percent (41.0%) of the males did not know how to make a budget or did not think it necessary to make one. Thirty-nine percent (38.8%) of the female respondents did not know or did not think it necessary to have a budget. An association was noted between the ethnicity of the respondent and the selection of a statement regarding budget design ( 2 = 86.6, df = 15, p < 0.001). The Asian respondents (24.5%) and the Hispanic respondents (17.7%) had the highest probability of having a successful budget. The American Indian respondents (13.5%), the black respondents (13.8%) and the White respondents (14.5%) had a lower probability of having a successful budget. The age of the respondent was associated with the making of a budget ( 2 = 75.8, df = 15, p < 0.001). The largest percentage of respondents who reported having no budget or did not know how to make a budget were the 26 to 35 year olds at 55.6% and the 36 to 45 years olds at 56.2%. The smallest percentage of respondents who did not have a budget were the oldest group, 66 +, at 50.0%. IELE 2002 Page 27

Having a successful budget was dependent upon the level of education completed ( 2 = 82.1, df = 12, p < 0.001). The higher the level of completed education (20.4% for post-graduates and 18.6% for the college graduates) the higher the probability of a respondent having a successful budget. The rate of successful budget planning and use was lower for those individuals with less education. Secondary school graduates had a rate of 13.9%. Elementary education completers had a rate at 15.2% and associate degree respondents had a rate at 15.6%. Specific Knowledge The Specific Knowledge Subscore (SKS) measures the respondents level of knowledge about specific financial management facts. This subscore is based on five (5) items specifically connected to a particular skill or practice. Questions were asked about bankruptcy, interest rates, car payments, and credit reports. A score of 80 reflects average knowledge about personal finances. The respondents had a mean SKS of 62.6 (s = 18.1) and a median subscore of 60.0. The range of subscores was from 30 to 100. IELE 2002 Page 28

There was a significant difference found among the mean Specific Knowledge Subscores of the six age groups (F = 22.6, p < 0.0001). The lowest subscores were found in the youngest age group (15 to 25) at 58.68 and in the oldest age group (66 +) with a subscore at 56.90. The highest subscore was found in the age group, 36 to 45, at 64.73. There was a significant difference found among the mean SKS of the six ethnic categories (F = 14.6, p < 0.0001). The White group had the highest mean SKS at 63.83 while the Asian group had the lowest mean subscore at 57.15. The remaining ethnic groups had mean subscores that range from 58.96 to 61.73. There was a significant difference found among the mean SKS for the six marital categories ( F= 12.0, p < 0.0001). The widow mean SKS was the lowest at 57.56 while the married group had the highest mean SKS at 64.38. There was a significant difference found among the mean SKS for the five education levels (F = 17.59, p < 0.0001). The post-graduate degree group had the highest SK mean subscore at 66.74 while the group with elementary school education had a mean score of 58.90. Table XVI and Figure XVII show the number and percentage of respondents who believed that bankruptcy will only stay on your credit record for seven years. The response was found dependent upon the age of the respondent ( 2 = 69.4, df = 10, p < 0.001). This distribution of responses was approximately equal for each response possibility. Thirty-three percent (32.8%) of respondents gave the correct response of false. Table XVI Bankruptcy On Your Credit Record Age True False Not Sure n p n p n p 15 to 25 520 8.6% 335 5.6% 393 6.5% 26 to 35 645 10.7% 630 10.4% 518 8.6% 36 to 45 491 8.1% 540 9.0% 419 7.0% 46 to 55 308 5.1% 353 5.9% 292 4.8% 56 to 65 136 2.3% 94 1.6% 107 1.8% 66 to 75 67 1.1% 27 0.4% 154 2.6% Total 2,167 35.9% 1,979 32.8% 1,883 31.2% IELE 2002 Page 29

There was an association found between the response rate and the person s ethnicity ( 2 = 43.9, df = 10, p < 0.001). Thirty-four percent (34.3%) of the White respondents, 35.2% of the Black respondents, and 30.7% of the Latino respondents agreed that the statement was false. Table XVII Lowest Interest Rate Is The Best Loan Ethnicity True False Not Sure n p n p n p White 639 10.9% 2,644 45.2% 855 14.6% Black 187 3.2% 263 4.5% 161 2.8% American Indian Hispanic Latino 43 0.7% 71 1.2% 51 0.9% 174 3.0% 247 4.2% 158 2.7% Asian 105 1.8% 87 1.5% 40 0.7% Other 36 0.6% 58 1.0% 36 0.6% Total 1,184 20.2% 3,370 57.6% 1,301 22.2% Table XVII shows the number and percentage of respondents who believed that the lowest interest rate on a loan always means the best loan. The response was found dependent upon the ethnicity of the respondent ( 2 = 194.9, df = 10, p < 0.001). Sixty-three percent (63.9%) of the White respondents, 43.0% of the Black IELE 2002 Page 30

respondents, 43.3% of the American Indian respondents, 37.5% of the Asian respondents, and 42.7% of the Latino respondents agreed that the statement is false. An association was found between the educational level of the respondent and the type of response given ( 2 =107.6, df = 8, p < 0.001). The more education completed the higher the percentage of correct responses. Respondents with an elementary school education gave the correct response at a rate of 47.8%, while respondents with a post graduate education gave the correct response at a rate of 75.1%. The response rate was also dependent upon the age of the respondent ( 2 = 41.4, df = 10, p < 0.001). The younger age categories of 15 to 55 years had a higher correct response rate (57.4% to 60.3%), while the older age categories of 56 to 75 years had a lower correct response rate (44.4% to 47.6%). An association was found between the gender of the respondent and the type of response ( 2 = 29.8, df = 2, p < 0.001). Sixty-one percent (61.4%) of the males and 55.0% of the females disagreed that the lowest interest rate always means the best loan. One-third of the respondents (32.8%) were not sure about the ability to surrender their vehicle to get out of a loan if they could not afford the car payments. Table XVIII shows that 58.3% of the males and 48.5% of the females indicated that this was not a true statement. The response rate was dependent upon the gender of the respondent ( 2 =76.4, df = 2, p < 0.001). The response rate for this statement was dependent upon the age of the respondent ( 2 = 99.7, df = 10, p < 0.004). The older the respondent the more likely they disagreed with the ability to surrender a vehicle to get out of a loan. The youngest age category response rate was 41.6% while the older age category had a response rate of 55.6%. Table XVIII Surrender of Vehicle Gender True False Not Sure n p n p n p Male 337 6.1% 1,255 22.8% 560 10.2% Female 482 8.8% 1,626 29.5% 1,245 22.6% Total 819 14.9% 2,881 52.3% 1,805 32.8% The respondents were asked to determine which of the statements in Table XIX describes your right to check your credit report for accuracy. There was an association found between the gender of the respondent and the selection of one of the four statements ( 2 =20.3, df = 2, p < 0.001). The majority of the respondents IELE 2002 Page 31

(72.6%) accepted the statement that could get their credit report upon request if they were turned down for credit based on the report. Table XIX Checking Credit Report Accuracy Statement If you are turned down for credit based on a credit report, the records can be checked for free. Your credit report can be checked at any time for free. Male Female n % n % 1,459 69.6% 2,418 74.5% 564 26.9% 755 23.3% You can not see your credit report. 28 1.3% 32 1.0% All credit records are the property of the U.S. government and your lenders and the FBI are the only ones who can look at them. 46 2.2% 39 1.2% Total 2,097 100% 3,244 100% IELE 2002 Page 32

The respondent s age was associated with the selection of one of the statements ( 2 = 78.4, df = 15, p < 0.001). A high percentage (77.2%) of the respondents, ages 26 to 35, agreed that they could get their credit report free if they were turned down for credit, while the youngest, ages 15 to 25, and oldest, ages 66 to 75, categories favored the other statements (66.3% and 63.3% respectively). Conclusion This research study found strong evidence to support the need for personal financial literacy education and counseling. The average person seeking assistance in managing credit or other related personal finance areas has some basic personal financial literacy. The mean scores for the Financial Literacy Quotient and three subscores obtained in this study support this profile. The reason why a person seeks assistance is because knowledge and practice were not matched. Individuals experiencing money problems have difficulty with credit management, budgeting, and knowledge of credit guidelines. This study shows that highly educated respondents had an excellent knowledge about credit, but had a deficiency in the skills of budgeting and credit management. There were many people who had budgeting skills, but lacked knowledge about credit management. Thus in some cases individuals needed a course on personal financial management, while others needed some guidance counseling on how to apply what they knew about personal finances. This study supports the importance of promoting and encouraging individuals to learn how to be good personal finance managers. Regardless of age, education, marital status, or ethnicity, education and counseling were two interventions needed by the majority of the individuals seeking assistance for financial problems. One intervention alone may not be sufficient for seeking assistance or improving an individuals personal financial management skills and knowledge. IELE 2002 Page 33

Appendix A Acknowledgments The following persons are being acknowledged for their special contributions to the Credit When Credit is Due (CWCID) program and to the research and evaluation process that contributed to this study. Paul Strassels...Author & Inspiration for CWCID Consumer Credit Counseling Service of the Black Hills Board of Directors: Harold Jansen Dennis Schroedter Claudia Vucurevich Nyla Knigge Todd Schweiger Dave Mortimer Angie Einerwold Patricia Link Dave Semerad Nancy Hook Katherine Miller Dennis Whetzal Lisa Anderson Consumer Credit Counseling Service of the Black Hills Staff: Bonnie Spain Pat Allen Theresa Booher Debra Culp Barb Garcia Elaine Grauel Barbara Hamilton Cara Johnson Kristen Levander Bonnie Muzzy Conrad Otterness Julie Stone Nathan Thompson IELE 2002 Page 34

Appendix B Researcher s Background Dr. John Usera served as the principal investigator for the Personal Financial Literacy: A National Needs Assessment Study. Currently he is the President/CEO of the Chiesman Foundation For Democracy. He was appointed to this position in July 1997. His duties as Chief Executive Officer include the oversight of the Foundation s projects, initiation of new and innovative civic education programs, editor of all its publications, and Director of the Institute for Educational Leadership & Evaluation, which promotes educational leadership and performs independent program evaluations of educational and social programs that contribute to the betterment of democratic institutions and organizations. His previous position was Dean of the College of Education and Associate Professor of Science & Mathematics Education at Black Hills State University. Before being appointed Dean in 1993, he held the position of Vice President for Academic Affairs at Lamar University in Orange, Texas and the rank of Associate Professor of Chemistry. He held the position of Dean of Instructional Services for Labette Community College which included oversight of institutional research, library, instructional and administrative technology, and public relations. Dr. Usera has been involved in education on all levels, for thirty years, from elementary school teacher to middle and high school teacher; from community college chemistry and mathematics instructor to a university instructor in the areas of statistics, research design, educational research, and chemistry. He holds a doctorate (Ph.D.) in chemistry from Kansas State University, a masters degree (M.A.) in analytical chemistry and a masters degree (M.S.) in mathematics from the University of South Dakota. His undergraduate degrees (B.S. and B.S.Ed.) are in chemistry, mathematics and secondary education from Black Hills State University. As President of the Chiesman Foundation he serves on the Kids Voting South Dakota Board, Badlands Head Start & Early Head Start Board, American Indian and Rural Nursing Board, Black Hills State University Chiesman Endowment for Promoting Democracy Committee, Rapid City Diocese Synod 2002 Committee, and the Catholic Social Services Board. Some examples of recent programs evaluated by the Institute for Educational Leadership & Evaluation under the leadership and authorship of Dr. Usera include: Girl Neighborhood Power (1999, 2000, 2001, and 2002). Youth & Family Services, Rapid City. Health Connections (2000, 2001, and 2002). Girls Incorporated of Rapid City. Youth Development Comparative Study of Pre and Early Adolescent Females (2000). Adolescent Family Life, U.S. Department of Health & Human IELE 2002 Page 35

Services. School-To-Work Opportunities (1999, 2000, and 2001). Beadle & Spink Enterprise Community and Cornerstones Career Learning Center Partnership, Huron. Character Counts! (1999). Rapid City Area School District. Boys Health Program Evaluation: A Comparison Study (2001). South Dakota Department of Health. Boys Health Program Evaluation: A Causal Pathway Analysis (2002). South Dakota Department of Health. The New Spectrum Learning Program: Teacher Learning Series (2000 & 2001). Workforce LA, Los Angeles School District. Evaluation of Some Actions Taken To Reduce Drug Use & Related Criminal Activity Among Youth In Lawrence County (2000). Community Oriented Policing Services, U.S. Department of Justice. Trilateral Relationship of Media, Government & Citizens (2001). Kettering Foundation, Ohio. American Indian Spirituality & Practice of Religion In Western South Dakota: Phase I (2001 & 2002). Diocese of Rapid City. Rapid City Weed & Seed Evaluation Report (2001 and 2002). Executive Office of Weed & Seed, Washington, D.C. Credit When Credit Is Due: A National Program Evaluation (2001). American Center for Credit Education. Rapid City, South Dakota. Dr. Usera has been involved in program evaluation and research for over 16 years. During this time he has evaluated programs funded by the U.S. Department of Health, U.S. Department of Education, U.S. Department of Labor, U.S. Department of Justice, Texas Higher Education Coordinating Board, Kansas Department of Education, South Dakota Department of Health & Human Services, South Dakota Department of Education & Cultural Affairs, South Dakota Board of Regents, and numerous private foundations. Other programs evaluated include university and college professional preparation programs from allied health programs (nursing, radiologic technical, respiratory care technicians, etc.) to teacher education programs. IELE 2002 Page 36