Anatomy of a Financial Literacy Program Designed around Best Practices
A small percentage of financial education programs are designed around solid empirical evidence of best practices. This failure can be attributed in part to a shortage of rigorous research defining those financial education best practices.
Recently, however, there is growing evidence base and research documenting the steps to designing effective financial literacy programming. To successfully raise financial competencies, successful programs address specific areas essential to molding or modifying financial behaviors.
families. Since that time I have kept an eye on the figures and the proportion of income allocated to each category. This seems to be the current situation, which doesn’t seem to change all that much. I build scenarios around the “All-American family” because I don’t want people to think you have to be rich to create a banking system that can handle all your needs for finance. This young man is 29 years old and is making $ 28,500 per year after taxes. What does he do with the after-tax income? Twenty percent is spent on transportation, thirty percent is spent on housing, forty-five percent is spent on “living” (clothes, groceries, contributions to religious and charitable causes, boat payments, casualty insurance on cars, vacations , etc. Many of these items are financed by charge cards or bank notes. The balance is financed by paying cash for them—and thus , giving up interest that could be earned, otherwise). He is saving less than five percent of disposable income. But, to be as generous as possible, let’s assume that he is saving ten percent and spending only forty percent on living expenses . This is giving him every benefit of the doubt on the matter of savings. Just remember, the real situation is at least twice as bad as what will be depicted! The problem is that all these items are financed by other banking organizations. An automobile financing package for this hypothetical person is $ 10,550 for 48 months with an interest rate of at least 8.5% with payments of $ 260.05 per month. But, if you will check with the sales manager of an automobile agency you will find that 95% of the cars that are traded in are not paid for! This means, at the end of 30 months, if the car is traded, 21% of every payment dollar is interest. Even if he goes the full four years, the portion of every payment made is still 20%! This means that the interest portion of every dollar spent is perpetual. It never seems to dawn that the volume of interest is the real issue, not the annual percentage rate. For a real thrill, go to see the sales manager of the high priced cars and ask him what percentage of the cars that leave their car lot are leased. The answer will probably be 75%, or more! This is worse than financing a car purchase. When you go to the Doctor’s office to get a shot of some kind, the criteria is not the rate at which the medicine is injected into you— it is the volume! Too little, and it won’t do any good— too much and it can kill you! Now, let’s move to the housing situation. This young man can qualify for a 30 year fixed-rate mortgage in the amount of about $ 93,000 at a fixed interest rate of 7% APR with payments of $ 618.75 and closing costs of some $ 2,500. The problem is that within 5 years he will move to another city, across town, or refinance the mortgage. Something happens to a mortgage within 5 years. Including the closing costs and interest paid out during these 60 months he had paid $ 39,625, but only $ 5,458 has gone to reduce the loan. This means that $ 34,167 has gone to interest and closing costs. Divide the amount paid out into t
he interest and closing costs and you find that 86% of every dollar paid out goes
