Savings and Financial Education Among Low‐Income Households:
Low‐Income Households:
Focus Group Findings
Jennifer Turnham
Prepared for presentation at the First Annual Conference of the Financial Literacy Research First
Annual Conference of the Financial Literacy Research
Consortium
November 18, 2010
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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The research reported herein was performed pursuant p
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to a grant from the U.S. Social Security Administration (SSA) funded as part of the Financial Literacy Research Consortium. Consortium
The opinions and conclusions expressed are solely those The
opinions and conclusions expressed are solely those
of the author(s) and do not represent the opinions or policy of SSA or any agency of the Federal Government or of the of the University of Wisconsin System, including the Center for Financial Security.
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Study Overview
Study Overview
• Funded by Social Security Administration, UW‐FLRC and Abt Associates conducted 18 focus groups with low‐income people across the country
• Goal of the groups:
– Explore attitudes toward saving, money management, and financial education
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– Understand how community‐based organizations and employers could enhance efforts to provide d
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financial education to low‐income and vulnerable populations
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Study Methods
Study Methods
• 18 focus groups, 162 people
• 12 groups affiliated with community‐based organizations:
– Community Tax Preparation (tax preparation services)
– One‐Stop Job Center (employment services)
One Stop Job Center (employment services)
– Suburban Housing Services (foreclosure counseling)
– Savings Match Alliance (IDA program)
• 3 groups with employees of a logistics center of a large national retail chain
• 3 groups with Spanish speakers: workers and small business 3
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Interviews with staff of the 4 community‐based
based organizations
organizations
• Interviews with staff of the 4 community
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Focus Group Demographics
Focus Group Demographics
Group
Age
Race / Ethnicity
Community Tax Preparation (CTP)
Under 35; 35‐50; 50 Mostly African‐
and over
American
Low
One Stop Job Center One‐Stop
Job Center
(OSJ)
20s to 30s
20s to 30s
Mostly African
Mostly
African‐
American
Low
Suburban Housing Services (SHS)
Services (SHS)
30s to 50s
Mostly white
Range
Savings Match Alliance (SMA)
30s to 50s Mixed race; one Hispanic group
Low
Logistic Center (LC)
Under 35; 35‐50; 50+
Mostly white
Low‐Mod
Hispanic Business Organization (HBO)
20s to 40s; nearing retirement
Hispanic
Range
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Discussion Topics
Discussion Topics
• Savings Practices and Motives
–H
How and why do people save?
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– What obstacles do they face in saving?
– How do they view retirement savings, tax refunds, and How do they view retirement savings tax refunds and
IDAs?
• Financial Education and Information Financial Education and Information
– Where do people obtain financial information?
– What forms of financial education do people prefer?
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– When is financial education most effective?
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Who is Saving?
Who is Saving?
Most not currently saving
Youngest group least likely to save
Youngest group least likely to save
Community Tax Preparation (CTP)
Preparation (CTP)
One‐Stop Job Center About half saving in bank, credit union, 401(k), IRA
(OSJ)
Least likely to be saving for retirement
Suburban Housing Services (SHS)
More than half have some savings
All in financial crisis
Savings Match Savings
Match
Alliance (SMA)
All saving through IDAs
All
saving through IDAs
Few saving for retirement
Logistic Center (LC)
Most saving through company’s 401(k) plan
Most have savings accounts
Most have savings accounts
Hispanic Business Organization (HBO)
Most not currently savings
Few have bank accounts other than business owners
Few saving for retirement
Few saving for retirement
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Factors Affecting Ability to Save
Factors Affecting Ability to Save
• Ability to set goals
• Opportunities to save
• Knowledge of personal finance
• Willpower and persistence over time
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• Attitude toward savings institutions
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Savings Goals
Savings Goals
• In general, little mention of savings goals I ve never set a goal in my life. It
I’ve
never set a goal in my life It’ss like this is where I am now. What lily like this is where I am now What lily
pad do I jump to now? • Sense that some savings required before setting goals I don’t really have the money to set the goal.
• When expressed, goals typically lacked specificity and were short‐term
I can set a goal but once it’s accomplished, where do I go from here?
• Exception is SMA participants: very focused on goals E
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and making regular contributions to savings accounts
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Savings Opportunities
Savings Opportunities
• Many felt they had insufficient income to save
It s hard and it does take a lot of discipline, but when you don
It’s
hard and it does take a lot of discipline but when you don’tt have have
any money to save, you don’t have any money to save. By the time we pay bills and we eat there is not really anything left over. • Lack of financial cushion means savings don’t last
II had a lot of savings actually and I put a lot down on a house and then h d l
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my first son lost his job again, he has serious health issues, he lost his insurance…After that, I had very few savings left and then…I have just had to use it to stay alive
had to use it to stay alive.
I keep having to start over. It’s just always something.
• Lack of access to 401(k) plans or other financial tools
Lack of access to 401(k) plans or other financial tools
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Gaps in Financial Knowledge
Gaps in Financial Knowledge
• Weak financial education as children and young adults means hard lessons learned through experience
means hard lessons learned through experience
When I was younger, I didn’t understand… saving over a continual basis and not to touch the money. I have [had] a savings account since I was probably three years old and if I would not have touched or my parents b bl h
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would not have touched that money, I’d be a millionaire by now. II wish I had never gotten the eight credit cards I had by the time I was wish I had never gotten the eight credit cards I had by the time I was
21…oh, it was awful. And I wish my parent, my father would have taught me more about that.
• Uncertainty about future of Social Security and how Uncertainty about future of Social Security and how
much to save for retirement
• Confusion about how 401(k) programs work and Confusion about how 401(k) programs work and
penalties of cashing out
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Language Barriers
Language Barriers
• Lack of access to financial information in Spanish / issues with translation
issues with translation People just do not know where to get the information in our language.
II don
don’tt understand the translation from my children, because they understand the translation from my children because they
might use terms in Spanish that might not be understandable, or they don’t understand certain English terms. I just prefer to go to a professional so that I can fully understand what is being said because
professional so that I can fully understand what is being said because one word will change the meaning or the translation of the entire page.
It’s not that I don’t understand the material. It’s the translation that It’
t th t I d ’t d t d th
t i l It’ th t
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does not make sense… The words are not translated appropriately.
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Willpower
• Lack of willpower a major theme in all focus groups
• Many admitted overspending, especially on children
Many admitted overspending especially on children
I have tried in the past to follow a written budget, however I am horrible at it. I get easily discouraged and unfortunately if I do see something that attracts my attention financially and it’s ‘ooh shiny!’ I am going to get it.
When I had my child that
When
I had my child that’ss when it got harder because it
when it got harder because it’ss like I give like I give
him what I didn’t have… It’s not about me, it’s about my son. That’s where my money goes.
• Many reported spending tax refunds on vacations or Many reported spending tax refunds on vacations or
technology
I’ve gotta admit, I kind of blew it. I bought one thing I can say I need g
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which is the iPod Touch because it kind of makes my life more convenient.
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Attitudes Toward Savings Institutions
Attitudes Toward Savings Institutions
• Frustration with traditional savings institutions: fees, penalties, poor customer service low interest rates
poor customer service, low interest rates
– Credit unions perceived to be more customer‐friendly
• Mistrust and confusion around 401(k) plans
I view a [401(k)] as [my employer’s] money because in the end there’s always some kind of catch. I guess it’s just not trusting.
• Some
Some groups very concerned with privacy, perhaps linked to groups very concerned with privacy perhaps linked to
fear of losing public benefits
I really don’t like people to hold my money.
I am not in the system. I’m not a system girl. I don’t need to put my stuff in the system.
• Strong mistrust among Spanish‐speaking groups: participants g
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reported investing in property rather than saving in banks
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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What Works for Saving
What Works for Saving
• Many participants using practical techniques
– Collecting loose change in “penny jar”
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– Bargain shopping (though not clear extra $ going to savings)
– Making money inaccessible to themselves
• 401(k) an effective tool for participants with trust in their employers (Logistic Center groups)
• IDA program participants highly motivated
IDA program participants highly motivated
– Participants value coaching component of financial education
– Said were likely to save after the match ends
• Life events (negative or positive income shock, birth of child, aging) can change attitudes and motivate greater savings
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Sources of Financial Information
Sources of Financial Information
• Most commonly cited source is family and friends
– Friends in financial industry, proven financial ‘winners’
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– Family role models, e.g., grandmother who lived through Depression
• Television and radio
– Segments on national and local news
– Talk shows (e.g., Oprah)
– Financial programs on cable TV
Financial programs on cable TV
• Internet
– Most have access in own homes or through libraries or friends
– Most browse financial information on news sites (CNN, MSNBC, Univision)
– Some skepticism of information found online and reluctance to share personal information online
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Sources of Financial Information (cont.)
Sources of Financial Information (cont.)
• Community‐based and nonprofit organizations – High level of trust in these organizations
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• Employers
– Potentially strong source of financial information if employer is trusted
• Banks and other financial institutions
– Frequently used, but some mistrust of banks’ motives
– Credit unions viewed more favorably
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• Churches and other places of worship
– An important source for participants in tax preparation and foreclosure p
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counseling groups
• Experience and ‘school of hard knocks’
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Financial Education
Financial Education
• Participants eager for financial education:
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General saving and budgeting
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Retirement planning and 401(k)
Investments and mutual funds
Student loans
• Interest in both group settings and one‐on‐one
• Strong interest in coaching and peer support groups because of Strong interest in coaching and peer support groups because of
long‐term engagement and focus on behavior change
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• Mixed support for financial education packaged with other services (foreclosure counseling and tax prep) and for employer‐based education
• Little interest in online education, but also little experience Little interest in online ed cation b t also little e perience
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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Study Implications
Study Implications
• For basic saving, behavior appears to be a greater impediment than lack of knowledge
than lack of knowledge
– Many people know how to save but don’t act on their knowledge
– Strong support for financial education methods focused on behavior
• Gaps in knowledge regarding 401(k) and saving for retirement suggest continuing need for content‐based education
• Mistrust of financial institutions (and employers) a major Mistrust of financial institutions (and employers) a major
concern for some groups
– Opportunity for community‐based organizations to partner with banks and employers for financial education
• Language barriers persist for Spanish speakers
• Ambivalence toward online education warrants further Ambivalence toward online education warrants further
exploration
SSA FLFC 19-F-10003-5-01, University of Wisconsin
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For more information, contact:
Jennifer Turnham, Abt Associates Inc.
Jennifer
Turnham Abt Associates Inc
Phone: 410‐382‐4837
E‐mail: Jennifer_Turnham@abtassoc.com
http://cfs.wisc.edu/
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