Having administered a large-scale financial education program and evaluation back in 2001-2003, I read with interest CFPB's recent "Financial well-being: The goal of financial education" report in preparation for the Consumer Advisory Board public meeting on February 19. I wasn't surprised that a key finding is that "factual knowledge in and of itself is not sufficient to drive behavior or behavior change." The authors astutely framed the discussion as being about not only financial knowledge, skills, and execution, but also about fostering an environment where people have the opportunity to develop and exercise those skills.
While the CFPB report includes some recommendations for financial education practitioners and researchers, it does not focus much on implications for government and corporate policies that create the environment in which people take financial action (or not). I'd like to highlight a few such policies that have the potential to significantly boost financial well-being by expanding opportunities for people to participate in the economy and mainstream financial system.
The CFPB report found there is widespread agreement that one of the key components of financial well-being is "having control over day-to-day, month-to-month finances." Whether a person has such control depends on the social and economic environment, including whether the person has "good employment (especially with benefits)" such as "employers who offer automatic payroll deduction into a retirement account provide their employees with a simple, streamlined way to save...." Similarly, state and federal policies such as Illinois Secure Choice and MyRA create the context or infrastructure in which workers can easily implement their desire to save without having to individually research, shop for, and purchase a savings product, which increases the likelihood that they will save. We can't realistically expect workers to save adequately for retirement when half of all private-sector workers lack access to an employment-based retirement savings plan. That is why Woodstock is excited to be working with Illinois Treasurer Michael Frerichs on implementing Secure Choice and sharing our strategy with other states.
Perhaps a less well-known fact about the reality of many workers' lives is that they lack "control over day-to-day, month-to-month finances" because they have no control over their work schedules. Even the best budget and savings plan can fail miserably if work hours change frequently with little or no advance notice so that workers cannot schedule other work or adjust childcare arrangements. Recent US Financial Diaries research documents how schedule and income volatility wreak havoc on families. Other research by Lambert, Fugiel, and Henly at University of Chicago indicates that corporate employers can schedule ahead, but don't. Cities such as San Francisco have begun to pass laws to protect workers' schedule rights. Our economy is producing more of these jobs with built-in vulnerability. This poses problems not only for affected workers and families but also for the broader economy because such precarious jobs do not support workers to participate in our consumer-driven economy. Remember, Henry Ford paid workers enough to buy cars.
Not surprisingly, the CFPB report found that "getting a good education" is seen by many as "one of the best things one can do for oneself to promote well-being" because, for example, higher education opens doors to higher-paying, more stable employment. Some younger working consumers who were interviewed for the report note, however, that student loans had negatively affected their well-being. Other interviewees talked about "how being future oriented when young enables one to make better decisions with respect to engaging in or completing one's education." Our work at Woodstock to protect students from taking on unproductive student loan debt and expand repayment options for private student loan borrowers will increase the likelihood that getting a good education will be a good investment that promotes well-being. And our work to expand opportunities for lower-income families to participate in state college savings plans will make it possible for more future-oriented youth to complete their education and attain financial well-being.
I look forward to following CFPB’s next steps in fulfilling its mission to "empower consumers to take control over their financial lives."
Disclaimer: These opinions are my own and do not necessarily represent the opinions of the Consumer Financial Protection Bureau or its Consumer Advisory Board.