Highlights
g g from
f
the Center for
f
Financial Literacy at Boston College
Alicia H. Munnell
Peter F. Drucker Professor, Boston College Carroll School of Management
Director, Center for Financial Literacy at Boston College
FLRC Conference
Washington, DC
November 18, 2010
SSA’s entrance into financial literacy is a
game changer
game-changer.
• Trusted source
• 1,300 field offices
• Annual
A
l statements to 150 million
illi
1
And SSA support allowed us to experiment with
a wide range of projects.
• Academic research
• Randomized trials
• Product development
Revise
Plan
Test
Develop
• Development plan for a go-to website
2
The first step was to find out how well current
approaches are working (Gale).
(Gale)
• None of the four traditional approaches – employer-based, schoolb d credit
based,
di counseling,
li or community-based
i b d – shows
h
strong evidence
id
of substantial success.
• Other approaches do show promise
promise, such as simplifying the savings
decision through defaults.
• Private sector efforts,
efforts such as on
on-line
line information,
information have mushroomed
in recent years but have not yet been evaluated.
• Evidence suggests
gg
that a ppublic information campaign
p g that is credible,,
targeted, and timely could be successful.
Source: William G.
G Gale and Ruth Levine.
Levine 2010.
2010 “Financial
Financial Literacy: What Works? How Could It Be More Effective?”
Effective? Chestnut
Hill, MA: Center for Financial Literacy at Boston College.
3
A more focused project explored why people
misuse target date funds (Agnew et al.).
al )
Individual Investment in Target Date Funds
Two or more target date
funds only, 2%
Two or more target date
funds plus other funds,
6%
One target-date
target date
fund, 46%
One target-date plus
other funds, 46%
Source: Vanguard.
S
V
d 2010
2010. How
H A
America
i Saves
S
2010:
2010 A Report
R
t on Vanguard
V
d 2009 Defined
D fi d Contribution
C t ib ti Plan
Pl Data.
D t Valley
V ll Forge,
F
PA:
PA
Vanguard Institutional Investor Group.
4
Field trials evaluated possible approaches for
debt reduction (Karlan and Zinman).
Zinman)
• Borrow Less Tomorrow ((BoLT)) helps
p clients repay
p y their debt using
ga
clear schedule, peer supporters, regular reminders, and oversight.
• Using random assignment, BoLT has been implemented at a site in
Tulsa, OK for the past six months.
• BoLT is beingg expanded
p
to another site to ensure a large
g enough
g
sample for effective evaluations of the program’s impact.
5
BC developed educational products for near and
new retirees to supplement prior work.
work
“Best source of information on
y
how to fix Social Security.”
Wall Street Journal, November 7, 2007
“…check
check out ‘The
The Social Security Claiming Guide
Guide’… a solid
and colorful summary of the rules and your options.”
Wall Street Journal, February 20, 2010
6
Target Your Retirement complements our
Claiming Guide and builds on research
research.
60%
The National Retirement Risk Index
51%
40% 38%
36% 38%
40%
43% 44%
31% 31% 30%
20%
0%
1983 1986 1989 1992 1995 1998 2001 2004 2007 2009
Note: The National Retirement Risk Index (NRRI) measures the percentage of working-age households that are ‘at risk’ of being
unable to maintain their pre-retirement standard of living in retirement.
S
Source:
Ali i H.
Alicia
H Munnell,
M
ll Anthony
A th
Webb,
W bb andd Francesca
F
G l bS
Golub-Sass.
2009
2009. “Th
“The N
National
ti l R
Retirement
ti
t Ri
Risk
k IIndex:
d Aft
After the
th Crash.”
C h”
Issue in Brief 9-22. Chestnut Hill, MA: Center for Retirement Research at Boston College.
7
From the start, Target focuses like a laser on
the three big levers.
levers
Control Spending
Work Longer
g
Use Your House
8
Target teaches users the power of these levers.
9
Testing confirms Target is an effective
teaching tool.
tool
Percent of Participants Listing Levers as Actions to
Increase Financial Security in Retirement
100%
96%
96%
92%
Before Target
After Target
80%
67%
60%
40%
20%
13%
13%
0%
Control spending
Work longer
Use your house
Source: Results from product testing conducted by the Center for Interdisciplinary Behavioral Finance Research at William & Mary.
10
Managing Your Money responds to challenges
identified in research
research.
“I live cautiously, I’ve tried to
save, but
b lif
life is
i expensive.
i
And
A d I think
hi k
that that’s scary.”
DC Pension Coverage
Life Expectancy at 65
25
80%
63%
56%
60%
20.1
22.3
20%
$400
$260
10
12%
$200
5
$0
0
0%
1983
$570
$600
20
15
40%
Health Cost Risk at 65
1995
2007
Men
Women
Mean
95th percentile
Sources: U.S. Social Security Administration. 2010. Annual Report of the Board of Trustees of the Federal Old-Age and Survivors
Insurance and Federal Disability Insurance Trust Funds; and Alicia H
H. Munnell
Munnell, Francesca Golub-Sass,
Golub-Sass and Dan Muldoon.
Muldoon 2009.
2009 ”An
An
Update on 401(k) Plans: Insights From the 2007 SCF.” Issue in Brief 9-5. Center for Retirement Research at Boston College.
11
This publication helps people identify what they
need and what they have.
have
12
Testing forced many revisions to respond to
anxiety, mistrust, and resistance.
“I always thought somebody else was going to take
care of me…[now I realize] that nobody is going to
take care of me.
me ”
“Health is a wild
card, finances are a
wild card,
card and your
ability to control [it]
diminishes as you get
older. So, uncertainty
is anxiety-producing.”
“With all the stories that are recurring
[about] fraud, and everything else…you
really come to value an independent
source that you can trust.”
Source: Results from product testing conducted by the Center for Interdisciplinary Behavioral Finance Research at William & Mary.
13
Curious responds to research on how our DNA
prevents good retirement decisions.
decisions
The rational brain is easily overloaded
and susceptible to emotional and
cognitive impediments to successful
retirement planning.
14
This interactive tool highlights obstacles using
humor and a light touch.
15
Testing of Curious indicates positive response
to individual vignettes.
vignettes
Product Testing Responses, 0=Very Negative, 100=Very Positive
80
70
60
50
Male
Female
Total
40
0
10
20
Time (sec)
30
40
Source: Results from product testing conducted by the Center for Interdisciplinary Behavioral Finance Research at William & Mary.
16
Our final product was a development plan for a
“go-to”
go to website (NBER).
Using the web is essential:
• It is increasingly where people go for
i f
information;
i
• it is
i cheap,
h
efficient,
ffi i t andd accessible;
ibl andd
• it is a way to establish an ongoing
relationship with individuals.
17
Survey of existing U.S. websites confirmed
none fully met people
people’ss needs
needs.
Data aggregators
Mint.com
Morningstar.com
Bankrate.com
Narrow scope,
scope commercial influence
Decision tools
Simplifi.net
PSECU.com
Fidelity.com
Often used to market products,
products narrow scope
Financial communities
Personal finance news
Bogleheads.org
Fool.com
Getrichslowly org
Getrichslowly.org
Quality of advice
Yahoo personal finance
CNN personal finance
Kiplinger
Shallow content
18
International search revealed NZ’s Sorted
as a successful model, now adapted
p
by
y
others.
Australia
Canada
New Zealand
Ireland
Brazil
19
This finding led us to support the notion of a
comprehensive trusted website for the U.S.
US
20
For both products & website, broad usage is key
to improving the nation
nation’ss financial literacy.
literacy
• Social Security Administration (SSA)
could lead a national campaign.
• The Consumer Financial Protection
Bureau’s new Office of Financial
Literacy could play an important role.
• Other federal agencies could assist
with promotion and marketing
marketing.
21
Conclusion
• A successful financial literacy effort to improve households’ decisions
on a national scale needs:
• effective financial education products grounded in research and
informed by extensive testing;
• a go-to national website to house the products; and
• a broad and sustained marketing effort to ensure widespread
usage.
• We welcome this opportunity
pp
y to gget your
y
reactions to our vision and
on products that will be displayed during the conference
22