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SUMMER 2009
VOLUME 21
NUMBER 2

Federal Reserve Bank of San Francisco

Financial Education
Plus:
City-Based Affordable
Homeownership Programs
A New Model for
Mixed-Income Housing
New Credit Card Reforms
Dr. CRA

CI Notebook

by Laura Choi, Editor

A

Community Development Department
Federal Reserve Bank of San Francisco
101 Market Street, Mail Stop 640
San Francisco, CA 94105
www.frbsf.org
(415) 974-2765 / fax: (415)393-1920

comedy skit featured on the television show Saturday Night Live
opens with a married couple trying to make sense of their worsening
financial situation. Overwhelmed by credit card debt, the couple
wonders aloud how they’ll ever get out of debt. At that moment, a
helpful announcer enters the scene. “Did you know that millions of Americans
live with debt they cannot control? That’s why I developed this unique new
program for managing your debt. It’s called Don’t Buy Stuff You Cannot Afford.”
The couple struggles to make sense of this foreign concept and the skit ends
with the announcer offering a free copy of his follow-up program entitled,
Seriously, If You Don’t Have the Money, Don’t Buy It!

Joy Hoffmann

While these lessons may seem so obvious they’re funny, the data suggest that
many Americans haven’t mastered them. The average household in the U.S.
holds more than $8,000 in credit card debt and saves less than $400 each year.
This combination of growing debt and inadequate savings has left many families
particularly vulnerable to the current economic downturn. And it suggests we
all need to do more to educate consumers about their personal finances and to
expand access to appropriate financial products. Financial education programs
and initiatives continue to develop, along with research efforts to gauge their
success, but important questions remain. How do we measure success? Which
programs are most effective? Can financial education change people’s behavior?

Manager, Center for Community
Development Investments
david.erickson@sf.frb.org

In this issue of Community Investments, we explore some of these questions
and discuss how the growing field of financial education can help people
maximize their financial well-being. You’ll learn about best practices in financial
education, the role of financial institutions in delivering financial education
tied to financial products, and how insights from behavioral economics can
improve the design of financial education. In addition, we take a closer look
at a research study measuring the effectiveness of financial education among
soldiers and consider strategies to promote asset building at tax time.
In addition to the Special Focus articles on financial education, our Eye on
Community Development examines the performance of city-based affordable
housing programs, innovations in mixed-income housing, and the new reforms
to credit card regulation. In addition, quarterly features like Dr. CRA, Research
Briefs, and Data Snapshot provide the latest findings on important community
development topics.
There’s nothing like a recession to get people thinking about their personal
finances, and we hope this issue of Community Investments motivates a
discussion around ways to improve financial education in the Twelfth District
and across the nation.

Group Vice President
Public Information and
Community Development
joy.k.hoffmann@sf.frb.org

Scott Turner

Vice President, Community Development
scott.turner@sf.frb.org

Brent Minnich

Administrative Analyst
brent.minnich@sf.frb.org

RESEARCH STAFF
David Erickson

Ian Galloway

Investment Associate
ian.galloway@sf.frb.org

Carolina Reid

Manager, Research Group
carolina.reid@sf.frb.org

Naomi Cytron

Senior Research Associate
naomi.cytron@sf.frb.org

Laura Choi

Research Associate
laura.choi@sf.frb.org

FIELD STAFF
John Olson

District Manager
john.olson@sf.frb.org

Jan Bontrager

Regional Manager
Arizona, Nevada, Utah
jan.bontrager@sf.frb.org

Melody Winter Nava
Regional Manager
Southern California
melody.nava@sf.frb.org

Craig Nolte

Regional Manager
Alaska, Hawaii, Idaho, Oregon, Washington
craig.nolte@sf.frb.org

Lena Robinson

Regional Manager
Northern California
lena.robinson@sf.frb.org

Darryl Rutherford

Regional Manager
San Joaquin Valley
darryl.rutherford@sf.frb.org

This publication is produced by the Community
Development Department of the Federal Reserve
Bank of San Francisco. The magazine serves as
a forum to discuss issues relevant to community
development in the Federal Reserve’s 12th District,
and to highlight innovative programs and ideas that
have the potential to improve the communities in
which we work.

In This Issue

Federal Reserve Bank of San Francisco

Special Focus: Financial Education
Financial Education for a Stable Financial Future.................................................................................................... 3
The current economic climate points to the growing need for financial education;
this overview sets the stage for an exploration of current efforts and potential solutions.
An Apple or a Donut? How Behavioral Economics Can
Improve Our Understanding of Consumer Choices................................................................................................ 8
The growing field of behavioral economics takes a unique approach to understanding
how we make decisions and offers insight for designing and delivering financial education.
Learning and Growing: Lessons Learned in Financial Education........................................................................... 11
The National Endowment for Financial Education draws on its experience in funding,
supporting, and researching financial education, and offers some best practices.
Financial Education: Does it Work and How Do We Know?.................................................................................. 15
This research study examines the effectiveness of a financial education program for military personnel.
Tax Time as an Asset Building Opportunity: Assessing the Potential..................................................................... 17
Tax time can be an important opportunity for promoting asset building services, including
financial education. Learn more about the Financial Opportunities Project.
Banks and Financial Education................................................................................................................................... 23
Banks and other financial institutions can offer financial education and specialized
financial products, providing a hands-on approach to learning about personal finance.

Eye on Community Development
Sustaining Homeownership: The Experience of City-Based Affordable Homeownership Programs................. 27
City-sponsored affordable homeownership programs have historically performed very well.
Five cities share their experiences with the programs.
San Francisco’s New Model for Mixed-Income Housing: HOPE SF. ..................................................................... 31
San Francisco’s new HOPE SF program involves coordination across multiple city agencies
to improve physical, economic, and social conditions in local low-income neighborhoods.
Reforms to Protect American Credit Card Holders................................................................................................. 35
Learn more about the new Credit Card Accountability, Responsibility, and Disclosure Act
that became law earlier this year.

Quarterly Features
Dr. CRA.......................................................................................................................................................................... 37
Can your bank earn CRA credit for financial education activities?
Dr. CRA takes a closer look at the regulations to answer your questions.
Research Briefs. ............................................................................................................................................................ 38
Using soap operas to deliver financial education, the impact of the EITC
at the neighborhood level, and other community development research.
Data Snapshot: The American Recovery and Reinvestment Act (ARRA)................................................................ 40

Financial Education for a
Stable Financial Future
By Laura Choi

2

Special Focus: Financial Education

Introduction

W

hether for lack of knowledge, resources, or self-control,
far too many Americans are struggling with their personal
finances. A recent survey by the National Foundation for
Credit Counseling finds that 41 percent of U.S. adults gave themselves
a grade of C, D, or F on their knowledge of personal finance and 26
percent admitted to not paying all of their bills on time (among AfricanAmericans, this figure jumps to 51 percent); one in three adults reported no savings. Among those between the ages of 18 and 34, almost half
reported that they did not have any savings.1 At the same time, Americans’ credit card debt reached $972.73 billion at the end of 2008, up
1.12 percent from 2007, consumers had an average of 5.4 credit cards,
and the average outstanding credit card debt for households that have
a credit card was $10,679.2 The rate of personal saving has been in
steady decline over the past twenty years while household debt service
relative to income has been on the rise since the early nineties (these
trends have recently begun to reverse, consistent with past recessions,
see Figure 1.1 and Figure 1.2). These findings suggest that individuals
from across the economic spectrum struggle to master the skills and
“good” behaviors related to personal financial management.
The need for financial education is especially salient in light of the
current economic downturn. Families struggling to cope with job losses
and reductions in household income need to be able to draw on financial skills such as budgeting, saving, and credit and debt management.
In particular, many low- and moderate-income (LMI) families that were
already stretched thin before the recession now face even greater financial challenges. These households suffer greater income losses (as
a proportion of total income) during economic downturns and experience slower economic recovery relative to higher-income households.3 Many of these families lack the basic knowledge and resources
required to save and invest, build wealth, and avoid excessive debt; at
the same time, many remain outside of the financial mainstream and
lack access to important financial products and services.4
Financial education plays a vital role in equipping all individuals
with the knowledge, skills, and opportunities they need to get back
on solid financial ground. This article provides a brief overview of the
field of financial education and explores some of the challenges and
potential solutions for moving the field forward.

The Field of Financial Education
The contemporary financial education movement proliferated in
the mid- to late-1990s in response to a number of widespread changes.
Financial products became more complex; technology played a
growing role in the financial services sector; employers shifted away
from traditional pension plans to defined contribution plans; and the
wave of “baby boomers“ approaching retirement created apprehension around the adequacy of safety nets such as Social Security and
Medicare. The need for greater education in the area of personal financial management spurred the creation of a number of large, nationally representative organizations, such as the National Endowment
for Financial Education, the American Savings Education Council, the

3

Figure 1.2
Household Debt Service
Household
Service
1988 –Debt
2009

Figure 1.1

U.S. Personal Saving Rate
U.S. Personal
Rate
1984 Savings
– 2009
1984 - 2009

12%
10%

8%
6%
4%
2%

0%
-2%
-4%
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Bureau of Economic Analysis
Seasonally adjusted, personal saving as a percentage of personal
disposable income

Jump$tart Coalition, the Financial Literacy Education
Commission, and the Treasury’s Office of Financial Education. At the same time, financial education programs
were introduced by a wide variety of providers, including
community-based organizations, state cooperative extension services, financial institutions, and the military (see
the article “Financial Education—Does it Work and How
Do We Know?”). Today, financial education services are
diverse, ranging from school-based programs for youth to
specialized training for underserved adults.
Programs for youth make up a significant share of financial education activity and utilize a variety of delivery mechanisms. At the broadest level, certain states have
mandates for financial education in public schools, typically at the high school level. The types of mandates vary
by state, with some states requiring content standards for
personal finance (which may or may not require implementation) while others may require students to take a
personal finance course in order to graduate. Within the
Federal Reserve’s Twelfth District, Arizona, Idaho, and
Utah are the only three states that require students to take
a financial education course (see Table 1.3). Support for
state mandates continues to grow as proponents argue
that children should learn the importance of good financial behaviors early on as part of their basic compulsory
education. The National Council on Economic Education
reports that in 2007, 40 states had mandates for content
standards, as compared to just 21 states in 1998.5 But
critics point out that the research findings on the effectiveness of youth financial education are mixed. For example,
high school seniors consistently earn failing marks on the
Jump$tart Coalition test of financial literacy and although

4

1988 - 2009

Household
as aas%aof%Disposable
Income
Household
DebtDebt
Service
of Disposable
Income

14%

15%
14%
13%
12%

11%
10%
1998 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Recession

Source: Federal Reserve Board
Debt payments consist of the estimated required payments on
outstanding mortgage and consumer debt.

questions relating to money management education have
been asked since the 2000 survey, only in 2004 have
mean scores of students who have taken a class in personal finance exceeded those of all students.6 However,
a study by researchers Douglas Bernheim, Daniel Garret,
and Dean Maki suggests that state mandates for financial education in high school have a significant effect on
savings rates and net worth during peak earning years
later in life.7 In addition, researchers have been able to
demonstrate significant effects at the individual program
level (most often occurring outside of the school system)
including changes in knowledge, attitude, and behavior.8
Although more rigorous research is required to assess the
effectiveness of youth financial education, some promising practices have emerged, which include demonstrating
relevance to students in order to engage their motivation
and incorporating experiential learning opportunities.
In addition to state mandates for financial education,
youth can also receive training through extracurricular
programs. The Bank at School program establishes active
bank branches on school campuses, and in a number of
states, such as Delaware, Louisiana, West Virginia, and
Illinois, the program operates as a partnership between
schools, local banks, and the state treasurer’s office. The
program includes classroom based training on financial
topics (often aligned with state educational standards),
and couples the traditional curriculum with real world
banking experiences. Students can open non-custodial, no-fee savings accounts at the school branches and
have the opportunity to make regular deposits at the
bank as part of the program.9 The nonprofit organization Junior Achievement (JA) operates the “Finance Park”

Special Focus: Financial Education

Table 1.3
Financial Education Mandates in the 12th District

State

Mandate

Alaska

Content Standards only

Arizona

Social studies graduation requirement includes one-half credit of economics (which includes a personal
finance concept in its standards) for the class of 2012.

California

None

Hawaii

Content Standards only

Idaho

Personal finance education provided within social studies economics content standards required for high
school graduation.

Nevada

None

Oregon

Content Standards only

Utah

Financial literacy education (.5 credit) required for high school graduation effective January 1, 2008.

Washington

Content Standards only

Source: Jump$tart Coalition for Personal Financial Literacy and National Council on Economic Education

and “BizTown” programs in multiple locations throughout the country, which offer real-world learning simulations for elementary, middle, and high school students.
Students learn about personal financial management and
career exploration (Finance Park) as well as entrepreneurship, free enterprise, and financial planning (BizTown) in
the classroom, and then visit a JA site to participate in a
hands-on role play simulation. For example, students visiting Finance Park are randomly assigned a “life situation”
card which determines their job, income, education level,
marital status and number of children for the simulation.
Based on these factors, students use bank services, purchase housing, food, health insurance, and other necessities, and experience firsthand the process of budgeting,
saving, and making choices and tradeoffs to live within
their means.
While it may be ideal to instill good financial habits at
a young age, there is also a great need for financial education for adults. Many adults never learned the basics of
good financial management and may be struggling with
poor credit, while other adults may be facing new financial challenges in the current economic climate, such as
significant losses to their retirement portfolios. In addition,
the ever-changing nature of financial markets and products
means that adults must continue to educate themselves
in order to successfully manage complex financial decisions, such as paying down debt or purchasing a home.
Financial education for adults is generally voluntary and
programs attract participants through a variety of channels. For example, the FDIC’s “Money Smart” program is
a comprehensive financial education curriculum designed
to help individuals outside the financial mainstream and

is used by financial institutions and other community organizations interested in sponsoring financial education
workshops. In a recent longitudinal evaluation of Money
Smart, respondents reported significant positive changes
in their level of savings, amount of debt, and likelihood
to comparison shop for financial products at the end of
their training and over the intermediate term (six to twelve
months later).10 Other financial education programs for
adults may be tied to a specific asset building initiative.
Many city-sponsored first-time homebuyer programs
require participants to complete pre-purchase counseling
in order to qualify. One study found that such counseling can be effective in reducing mortgage delinquency,
and that different counseling programs vary in their effectiveness: individual-based programs resulted in a greater
reduction in delinquency rates, relative to classroom and
at-home self-study counseling. Most individual development account (IDA) programs also have a financial education requirement for participation, and studies have
shown that even short courses, from 8-10 hours, can have
a significant impact on savings behavior.11
While the effectiveness of financial education is still
under debate, there is some consensus that delivering financial education around a specific life event or financial decision, such as the purchase of a home or opening
a savings account, can increase the program’s salience
and impact (for more on tying financial products into financial education, see the article “Banks and Financial
Education”). Often referred to as “just-in-time” education,
this approach provides targeted information that is relevant and can be applied in the near term. For example,
workplace training on retirement planning gained popu-

5

. . . individuals must have the opportunity to participate in economic life by
being linked to financial institutions.

larity with the rise of defined contribution plans as the
responsibility of saving for retirement increasingly fell on
employees.12 Studies show evidence of increased levels
of participation and savings in retirement plans after completion of workplace training.13 But participation in these
programs is voluntary, and it could be the case that those
who participate in such training are more likely to save
and plan for their retirement, thus making it difficult to
understand the true effect of the education. Researcher
Lewis Mandell summarizes the issue by pointing out that,
“those who need financial education the most—workers
with little formal education, who have accumulated few
assets and are in the greatest danger of retiring without
sufficient income—are least likely to attend.”14 However,
one study found that retirement seminars appear to have
the strongest effect among workers with lower levels
of wealth and that the impact decreases or disappears
among wealthier workers.15 This finding was verified by
Dartmouth researcher Annamaria Lusardi, who also found
that the effect of seminars was especially strong for those
with little wealth or education, boosting financial wealth
in some cases by as much as 18 percent.16

Challenges in the Field
One of the challenges facing the relatively young field
of financial education is the lack of common terminology and standards. While “literacy” is universally defined
as the ability to read and write, the meaning of the term
“financial literacy” is less clear. The President’s Advisory
Council on Financial Literacy, a group of industry experts
formed in 2008, defines financial literacy as “the ability
to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being,” but
points out that, “the term ‘financial literacy’ is being used
to describe financial education programs without taking
into consideration exactly what the program’s goal is,
what particular skills the participants will learn, or if participants will emerge from the program with the ability
to take control of their financial future.”17 Even the appropriateness of the term “financial literacy” is debated
as practitioners point out that some program participants
may find the connotation of illiteracy to be offensive, particularly among low-income populations or those with
low levels of educational attainment. In addition, Johnson

6

and Sherraden suggest that financial literacy is “a helpful
but not sufficient idea,” pointing out that individuals must
have the opportunity to participate in economic life by
being linked to financial institutions; they introduce a new
term to the field and refer to this combined functioning of
knowledge and practice as “financial capability.”18
This inconsistency in terminology creates particular
challenges for researchers trying to evaluate the effectiveness of the financial education field; without consistent
definitions and clear standards, it’s extremely difficult for
evaluators to compare the changes in knowledge or behavior from one program to the next and make industrywide assessments.19 In addition, there is wide variation
across programs in terms of what is being measured and
how.20 Program evaluation remains a significant challenge
for financial education practitioners and researchers alike
for a number of reasons: a general lack of understanding about how to measure program impact (designing
a survey instrument, identifying appropriate metrics);
capacity limits in terms of staff, time, and funding for
program evaluation; and the difficulty and cost associated with collecting sufficient data for a rigorous study.
Longitudinal data collection over the long term is particularly costly and challenging, as maintaining contact
over time requires significant effort and participants may
be unresponsive. As a result, many evaluations utilize a
pre- and post-test model of assessment, which generally
relies on self-reported data and does not capture behavior change that is more likely to occur over the longer
term.21 A number of useful resources are available to help
simplify the program evaluation process, such as the National Endowment for Financial Education (NEFE) Evaluation Toolkit (see the article “Learning and Growing” for
more information from NEFE), and many of these guides
and web resources are designed to be practitioner-friendly
and easy to use.22
In addition to the broader challenges discussed above,
there are a number of challenges at the individual level.
For example, motivating a person to change their behavior is extremely difficult. Knowing and doing are separate matters, and good financial behavior requires not
only knowledge, but also discipline, future orientation,
and self-control. Even highly knowledgeable and skilled
individuals may have a difficult time controlling their
spending and debt, despite knowing the “good” behaviors
of financial management. There are some promising advancements in the field of behavioral economics that may
help financial education providers better understand the
link between knowledge and behavior (see the article “An
Apple or a Donut” for more on behavioral economics).
Other challenges at the individual level include language
and cultural barriers. Federal Reserve Chairman Ben Bernanke has recognized the need for greater financial edu-

Moving the Field Forward
Despite the challenges, financial education practitioners continue to move the field forward through a variety
of efforts. One example is the Financial Education Network
in San Francisco, a group of local financial education providers, funders, and government agencies that is working
collaboratively to share resources and improve service delivery and outreach at the local level. The Network meets
on a regular basis to share information and develop a
unified strategy for advancing financial education, which
includes creating a local online directory of services and
launching a city-wide financial education outreach event.
Another example is the ongoing effort to increase access
and awareness of financial education among immigrant
populations. The non-profit Korean Churches for Community Development (KCCD) partnered with other community organizations and banks to help the FDIC develop an
accurate and culturally sensitive Korean language version
of the Money Smart program, and also recently completed
a research study which found that many Korean Americans
are not adequately prepared for retirement and continue
to face linguistic and cultural barriers to asset building
and retirement planning in the U.S.24 In addition, financial
education practitioners are finding innovative ways to incorporate technology into program delivery; these include
offering downloadable podcasts on financial management
topics, or developing video game-type applications for financial education, such as an interactive financial lesson
for teens built into the popular online site “Second Life.”
In addition to these innovations at the program level,
progress in the area of outcomes evaluation and research is
critical to advancing the field. The Treasury’s Financial Literacy and Education Commission held a national research
symposium last year and developed a list of national

Special Focus: Financial Education

cation in underserved communities and suggests strengthening efforts in these areas. “There needs to be a broader
understanding in minority communities, which haven’t
had that much exposure [to financial education], about
saving and building a credit record and being part of the
mainstream economy.”23

. . . this financial crisis provides the
ultimate “teachable moment” for
financial education, and we should
continue our efforts to strengthen the field
and reach many more individuals.
research priorities for the field, which include identifying:
core principles of personal finance that every consumer
needs to know; reliable and valid measures of the success
for financial education; the most effective mix of financial
education, decision framing, and regulation to improve
financial well-being; and effective coping strategies and
behaviors during times of financial crisis.25 Rigorous data
collection and analysis will improve our understanding of
what works and, just as important, what doesn’t. In addition, empirical evidence of the effectiveness of financial
education will go a long way in attracting further financial
and political support for the field.

Conclusion
There’s no question that this recession is forcing all individuals to reconsider their financial situations and futures.
Many consumers have reversed their spending trends and
the recent increase in personal saving suggests a return
to thriftiness. In many ways, this financial crisis provides
the ultimate “teachable moment” for financial education,
and we should continue our efforts to strengthen the field
and reach many more individuals. At the same time, the
origins of this crisis serve as a reminder that financial education is not a panacea. Financial education is a necessary, but not sufficient condition for consumer protection,
which also requires thoughtful regulation and disclosure
of information. Practitioners, policymakers, and researchers continue to search for the optimal balance of strategies, and greater collaboration across these areas will help
ensure that all individuals and families can successfully
navigate our complex financial marketplace.

7

Photo credit: Oregon Department of Transportation

An Apple or a Donut?

How Behavioral Economics Can Improve
Our Understanding of Consumer Choices
By Carolina Reid

G

enerally, I wake up committed to the idea of
eating healthy meals and I pack my gym bag for
my afternoon workout. Then at the morning staff
meeting I eat a donut, and at day’s end I’m headed home
on the train with my workout clothes still folded neatly
in my bag. I would have gone to the gym, but Laura, the
editor of Community Investments (and she can be tough!),
was reminding me that this article was long overdue, and
if I could just squeeze in one more hour of work . . .
Luckily, behavioral economists have developed a
theory to explain why my actions are so at odds with my
intentions: hyperbolic discounting. In more simple terms,
I “undervalue” the future rewards of a better diet and exercise and “overvalue” the current gratification of a glazed
old-fashioned. I’d rather take the smaller payoff now,
rather than waiting for the larger payoff at a later time.
While it’s easy to scoff at a fancy name for what seems like
a basic lack of willpower, hyperbolic discounting is in fact

8

a very important economic idea that can help to predict
financial behavior. Financial decisions are highly susceptible to hyperbolic discounting, since consumers often
value money differently in the present than in the future.1
In fact, hyperbolic discounting can help us to explain why
so many consumers carry high credit card balances for
items they bought “on sale,” while not factoring in the
cost of the interest payments. Or why homeowners took
out high-priced, cash-out refinance loans that stripped
them of the equity in their home. Or why most people say
that they would like to improve their financial knowledge,
yet nonprofits find it difficult to fill the seats in a free financial education class.
Understanding what drives these seemingly “poor”
outcomes—as well as many others related to financial
decision-making—is part of the growing field of behavioral economics. Behavioral economists focus on research
that explains why people often make choices against their

Special Focus: Financial Education

best interests, even when they know better. This research
is increasingly coming to the attention of policy-makers
interested in influencing consumer choices in the financial marketplace, and many of the principles of behavioral economics are being used to inform everything from
retirement savings programs to credit card and mortgage
loan disclosures.
So what is behavioral economics, and how is it different from traditional economic theory? Simply stated, traditional economic theory generally assumes that individuals make rational decisions based on the information they
have (e.g. knowledge about a financial product) and their
situation and resources (e.g. income). This individual—
homo economicus—makes rational, unbiased decisions
that maximize his well-being, systematically evaluating
risks and accurately assessing both short- and long-term
costs and benefits.2 If consumers make a poor financial
choice—for example, by taking out a loan they can’t
afford—this approach would lead us to believe that they
merely didn’t have enough information to make a good
decision. The appropriate policy response in this case
would be to provide disclosures or additional information
to ensure that homo economicus can make a better loan
choice given his financial situation.
While financial knowledge is certainly important, it is
also clear that it is not sufficient to ensure that consumers
make good financial decisions. This is where behavioral
economics steps in. Rather than assuming that people
exhibit the perfect rationality of homo economicus, behavioral economists rely on insights from psychology to
understand why people often make choices that do not
align with a rational assessment of the decision’s consequences. This is not to say that people are “irrational,” but
rather that there are systematic and predictable ways that
people behave differently from what we might expect.3 In
the area of financial decisions, insights into these behavior patterns can help to craft more effective and efficient
policies to encourage savings or protect consumers from
predatory loan products.4
Hyperbolic discounting—making different decisions
based on present versus future benefits—is just one of
those insights. In a recent study, Stephen Meier and Charles
Sprenger found that individuals who tended to value the
future more than the present were much more likely to
choose to participate in a credit counseling session to
learn more about their credit score. In contrast, those with
a bias to the present were less likely to participate in the
course, despite the fact that hyperbolic discounters tend
to borrow more (to spend in the present) than their more
patient counterparts.5 This finding suggests that offering
voluntary financial education courses may not reach those
consumers who need them the most. Time horizons—such
as the timing of financial information—may also influence

While financial knowledge is certainly
important, it is also clear that it is not
sufficient to ensure that consumers make
good financial decisions. This is where
behavioral economics steps in.
consumer behavior. In a study of credit card use, researchers found that consumers who were subjected to a penalty
fee (e.g. for a late payment) were more likely to pay their
credit card on time, but that this response diminished over
time. As the experience of the penalty fee receded into the
past, consumers tended to revert to their past behaviors.6
Another important insight from behavioral economics is default bias—what most of us might simply call
laziness or inertia. Default bias suggests that people are
much more likely to stick with the status quo than what
we might expect given the benefits of switching to another
option. In studies of retirement savings, for example, researchers have found that default bias plays a significant
role in determining whether or not employees participate
in a 401(K) plan. Until recently, the default option for most
401(K) plans was non-participation, meaning that employees had to actively choose to participate. Changing the
default option to participation—with no other changes
to the benefits—leads to significantly higher participation in the 401(K) plan.7 Michael Barr, Assistant Secretary
for Financial Institutions at the Treasury Department, has
proposed that these findings be applied to loan products
as well: lenders would be required to offer borrowers a
standard mortgage option (e.g. a fixed rate, self-amortizing 30 year mortgage loan), and borrowers would have to
actively ‘opt-out’ to receive a more risky product such as
an adjustable rate or interest-only mortgage.8
Behavioral economists have also focused on how
choices and information are framed—for example
through advertising or disclosures—and are beginning to
understand how even small changes may influence consumer decisions about financial products. Studying disclosure laws, Michael Collins found that a simple, negatively framed message can prevent borrowers from taking
on a risky loan, not unlike the health warning on a pack
of cigarettes. States that required borrowers to sign a disclosure that simply read “You Could Lose Your Home”
before taking out a high-cost subprime loan significantly
increased the likelihood that a borrower would reject the
loan offer, compared to the less dramatic standard HOEPA
disclosure.9 In South Africa, a controlled experiment on
loan offers found that those that contained a picture of an
attractive woman increased loan uptake. In contrast, loan
offers that displayed too many loan options decreased
uptake, consistent with the hypothesis that presenting

9

consumers with more options can overwhelm them and
lead them to delay in making a decision.10 The way prices
are framed also matters. For example, “rent to own” stores
promise low monthly payments, yet the interest rates are
incredibly high, leading to very high product prices over
time. More than 70 percent of consumers eventually buy
the product they rent,11 meaning that the sofa listed at $25
a month actually ends up costing $2,000. Requiring these
companies to state the true cost of purchasing an item up
front—imagine your reaction to a sign that read “Used
Couch For Sale: $2,000”—would ensure that consumers
are aware of the financial consequences of buying the
rent-to-own product.12

10

Through this type of research, we’re starting to understand the systematic and predictable ways that people
exhibit irrational behavior, and these findings can inform
the structure and delivery of financial education, as well
as help to shape public policy. For example, Meier and
Sprenger’s research cited above suggests that we need
to develop new strategies to ensure financial education
courses are structured in a way that ensures attendance
by people most likely to face difficulties planning for the
future. Incentives that build on their desire to maximize
present benefits, for example, could work to make the
course a current priority. Framing can also be used creatively, such as “pre-approving” someone for a financial
education class or credit counseling session, which may
make the consumer feel as though they’ve been specially
selected to participate (as opposed to a ‘free’ course open
to anyone).13 Linking a financial education course with a
savings account opened ‘on-site’ (and a mandatory $20
contribution) may also help to overcome the inertia of
having to go to the bank “tomorrow,” and may make it
more likely that the lessons learned stick. Financial education curriculum should also include lessons about these
common pitfalls—awareness of our potential biases or
how advertisers frame messages is an important tool that
can help us be more informed about why we make the
decisions we do.
In addition, these theories into financial decision-making can provide policymakers with a better understanding
of how to develop programs and policies that will ensure
that consumers don’t unintentionally make poor financial choices. While some view policies such as “opt out”
defaults, strategically framed disclosures, and “cooling
off” time periods to be paternalistic, these approaches do
not limit consumer choice in the same way as banning
a product would do. Consumers would still be able to
make the decision to take on a subprime mortgage, for
example, but presumably they would only do so after conducting an informed analysis of the costs and benefits of
this product choice. Richard Thaler, a leading behavioral
economist, has developed an idea for a program called
Save More Tomorrow (or SMarT), which gives employees
the option of committing themselves now to increasing
their savings rate later, each time they get a raise.14 This
program takes advantage of people’s good intentions for
the future, as well as ensuring that their take-home pay
doesn’t change (thus reducing the effect of loss aversion),
since it is their raise that will go towards their saving. As
Thaler points out, developing policies that keep in mind
that we are all humans will do much to help households
navigate today’s complex financial world, and ultimately
help them towards the goal of financial stability over the
life course.15
As for me, I’ll go to the gym tomorrow.

Special Focus: Financial Education

Learning and Growing:

Lessons Learned in Financial Education
By Ted Beck and Brent Neiser
National Endowment for Financial Education

T

he National Endowment for Financial Education®
(NEFE®) is a private, nonprofit, nonpartisan and
noncommercial foundation committed to increasing access to financial education and to empowering individuals to make positive and sound financial decisions.
For more than 30 years, NEFE has provided funding,
logistical support, and expertise for financial education
programs and materials. In addition, NEFE funds research
and development grants that advance innovative thinking
and contribute to our understanding of financial behavior.
Through these programs and research studies, NEFE has
developed its own perspective on best practices, which
are shared in this article by Ted Beck, President and CEO,
and Brent Neiser, Director of Strategic Programs and Alliances. For more information on NEFE, visit their website
at: www.nefe.org

Financial security is an important concern for many
Americans, and promoting financial capability is a necessary part of strengthening the safety net for all Americans.
Given the current economic climate, the mission of financial education has never been more critical. In this era of
volatile financial markets, labor market uncertainty, rising
debt, and insufficient savings, the ability to manage one’s
personal finances is becoming increasingly important. At
NEFE, we believe that by building strong partnerships and
working together toward the common goal of improving
financial literacy for all Americans, we can reach individuals with the positive message that they have the ability
to take charge of their financial well-being. We see this
as more than financial education; rather, increasing an individual’s financial capability involves expanding knowledge, awareness, positive behavior change and action
throughout one’s lifespan.
Doing so is far from easy, however, and often there
is limited information on what works. In this article, we
present some of the lessons learned from our financial
education efforts, and also consider how to advance the
field going forward.

One Size Does Not Fit All
One of the core lessons we have learned is that financial education programs need to be tailored to different

market segments, and that no one program can meet the
needs of all consumers. And while NEFE focuses largely
on those who are “underserved” by the financial system,
our definition of “underserved” is much more expansive
in scope than many others focused on financial education. We define the underserved to be the vast majority
of Americans—about 80 percent—without access to professional financial advice or sufficient investible assets
to merit such service. This lack of professional financial
advice makes this group of Americans particularly prone
to poor decisions and financial instability. While NEFE
strives to reach as many audiences as possible, particular emphasis is placed on those who operate outside of
mainstream financial services and are most at-risk for experiencing significant financial difficulties. These include
youth, low-income individuals and families, minority populations, and people facing special challenges or
other life-changing events.
These underserved populations often have multiple
barriers to financial stability. For example, they may lack
the motivation or time to attend a financial education
class, or they may have suffered a financial setback such
as an unexpected medical expense or job loss. Many are
unbanked due to a variety of reasons. Some may have a
blemished ChexSystems record, or have had a negative
banking experience in their past. Others may experience
cultural barriers to banking, and need more time to learn
about and feel comfortable with the products and processes associated with a mainstream savings or checking
account. Language is often a substantial obstacle.
The intergenerational effects of poverty and the resulting lack of experience with financial institutions and
savings products also can hamper financial capability
and long-term asset building. Those who have been entrenched in poverty generally are focused on income
rather than the longer-term acquisition and development
of assets. This behavior is exacerbated in crisis situations.
Long-term financial issues that need to be addressed often
are masked by more immediate problems, such as not
being able to pay for rent or utilities. When these crises
surface, the natural response is to focus on getting through
the crisis, as opposed to planning for the future. People in
crisis may not be in a frame of mind to learn–they’re just
trying to get by.

11

Each person has a unique
financial literacy context,
and each person is at a
different stage within their
economic lifespan.

Family attitudes also play a huge role in money management across all demographics and income levels;
no one is exempt from their influence. However, belief
systems and unhealthy attitudes become more impactful
and significant when money reserves are low. Negative
thoughts surrounding finances hinder positive behavior
change, especially when a person was raised in a family
that didn’t save or was particularly inflexible with its
spending habits. In these cases, the biggest challenges are
changing a person’s attitude and approach to managing
money, especially when the lessons presented run counter
to a family’s influence.
A one-size-fits-all approach to financial education
simply misses many of these populations. Each person has
a unique financial literacy context, and each person is at a
different stage within their economic lifespan. They may be
preparing for college, entering the workforce while trying
to negotiate benefits packages, buying a home, or planning for retirement. There are differences in culture, language, age, experience, and asset levels. Programs need
to be customized as much as possible across these basic
individual factors, while keeping other factors in mind,
such as the use of technology or incorporating community values. More importantly, financial educators need to
move away from framing programs around middle class
assumptions. It’s all too easy to assume that every household is in a position of financial stability and is ready to
save. A back-to-basics approach needs to be applied, covering topics such as establishing an emergency fund, negotiating with creditors, finding access to social services,
and building job opportunities.
Collaborations with more than 100 organizations, including 100 Black Men of America, Inc., American Indian
College Fund, I Have a Dream Foundation®, League of
United Latin American Citizens, National Coalition of
Asian Pacific Americans Community Development, and
the United Negro College Fund, continue to help NEFE
better reach various audiences to provide them with necessary tools and encouragement.

Learning is a Continuous Process
It’s important to remember that just as one size does
not fit all, one time does not help all. Educational resources must be provided throughout a person’s economic
lifetime. To truly touch and change the lives of people in
financial need, we have to provide them with financial
knowledge at different stages in their lives, from childhood through retirement.
Financial education is a continuous process; it’s a life
skill that one constantly develops. Education should be
embedded at home and in schools, faith and community-based organizations, and workplaces. NEFE evaluates
potential partners based on their ability to fill a financial
education need in one’s life or provide a continuum of

12

Reach People at Teachable Moments
Over the years, NEFE has found that the most effective financial education comes at teachable moments.
Teachable moments occur when people are motivated by
a life circumstance—for example, buying their first home
or facing foreclosure—to educate themselves toward the
better management of their personal finances. On their
own, these events may not necessarily move someone
to change behavior, but intervention added to an impending situation can help make the financial education
seem more relevant and encourage people to make the
link between education and adopting new and helpful financial behaviors. Yet educators must realize that these
moments often take place in a very small window of time,
and that “just in time” delivery of the message is critical. Partners in the decision making process are crucial
to effective “just-in-time” and “just-in-place” delivery. For
example, banks and mortgage brokers open the educational door to first-time home buyers, while medical practitioners can connect patients facing a long-term illness or
disability with appropriate financial education.
Financial educational materials also are more effective when they are targeted to a specific stage of life.
For example, the NEFE High School Financial Planning
Program® (HSFPP) reaches young people at a time when
they are developing financial habits that will shape their
future. The program consists of a complete money management curriculum covering the financial planning
process, careers, budgeting, saving and investing, credit,
and insurance. So far, more than six million student guides
have been sent out to an estimated 200,000 classrooms—
all at no cost. This curriculum is correlated to educational
standards in all 50 states and benchmarked against seven
national educational standards, and adopts a competency-based format that takes students beyond passive learning to actively doing what the program teaches.

Recognize the Importance of Partnerships
In nearly every aspect of its work, NEFE forms partnerships and pursues collaborations with other entities,
including nonprofit organizations and government, to
provide financial education to members of the public. We
believe that a partnership approach represents the most
effective means of leveraging resources and expertise on

We believe that a partnership approach
represents the most effective means of
leveraging resources and expertise on a
large-scale, while addressing the different
educational needs of diverse segments of
the public.
a large-scale, while addressing the different educational
needs of diverse segments of the public.
NEFE collaborates with a variety of partners to provide
financial education resources to populations in specific
situations or facing particular challenges. For example,
the American Red Cross joined NEFE and the American
Institute of Certified Public Accountants in the development of a resource booklet to help survivors of natural and
man-made disasters recover financially. Subsequently,
this team developed a second booklet to address disaster preparedness. NEFE also worked with the Association
for Enterprise Opportunity to create a resource to help
underserved entrepreneurs organize their personal and
business finances so they could make fledgling businesses successful. Recently, NEFE has worked with Volunteer
Income Tax Assistance sites to capitalize on tax time as a
teachable moment, which helps families plan for goals
such as purchasing a car, establishing an emergency
fund, preparing for retirement, reducing debt, or avoiding
predatory lending. (For more on this topic, see the article
“Tax Time as an Asset Building Opportunity”)

Messaging Matters
Repetition works. Sending the same messages to the
public over and over again, from different sources and
through different channels, eventually can motivate people
to change negative financial behavior into positive behavior. Fundamental messages include: how the financial
choices individuals make today affect the attainment of
their goals tomorrow; the value of saving; the importance
of making sound investment decisions; the critical need to
prepare financially for retirement; and the importance of
financial education for the nation’s youth. Whatever the
messages, however, making them clear and relevant to the
context of people’s lives improves their success.
NEFE also builds content-specific research-based
messaging for targeted audiences. Our 2007 Retirement
Income Decumulation Think Tank explored the choices
and decisions at-risk middle-income retirees must make
while drawing down their limited resources. Participants
from various fields representing financial planning professionals, academic institutions, think tanks, financial services industries, regulatory associations, and the federal
government brainstormed issues and messages of con-

13 13

Special Focus: Financial Education

financial literacy education. Having a student go through
a financial education program in high school or providing
an employee with financial education in the workplace
is a start, but it is not enough. “Just-in-time” financial information must be available throughout each stage of life
so individuals can acquire knowledge and change behavior during points in their lives when they are motivated
to change or must make an important financial decision
(also known as a teachable moment).

Consumers are more than capable of
managing their money and making
sound decisions, and we believe that they
can do so as long as they have access to
the proper tools and support.
siderable significance in retirement. The think tank team
subsequently developed effective messages to help retirees avoid making irreversible decisions that have negative
impacts on their nest egg, and to help them optimize what
assets they do have. For example, one message states: Aim
to work at least until your full retirement age (66-67). This
produces many benefits, as delaying receipt of Social Security results in a much larger monthly payment, and all
Social Security retirement benefits are adjusted for inflation. Another message warns: Don’t “cash out” your retirement 401(k) savings before age 59½. This will always
cost you money, and there are better ways to pay yourself
through your retirement years, including using a rollover
or keeping money in your company plan. In total, the initiative developed messages for eight important areas of financial decision making, including Work, Social Security,
The House, Insurance Products, Defined Benefit Pensions,
Defined Contribution Plans, Debt, and Fraud. View all of
the messages at the consumer-centric Web site, www.decumulation.org.
Spendster.org is another NEFE site that focuses on
changing spending behavior. The website allows people
to share the purchases they now regret while they rate
and discuss those of others. It also includes tools to calculate how costly items really are. The message comes
across loud and clear: We often don’t need the things we
buy, and the money we spend can be saved and invested
towards achieving future financial goals.

Focus on Evaluation and Behavior Change
Successful financial education ideally leads to new
knowledge, increased skills, changed attitudes, modified
behavior, and ultimately, improved financial well-being.
It’s critical that financial education programs include an
evaluation component to determine if they are achieving these desired outcomes. NEFE developed an online
Evaluation Toolkit as a resource to help evaluate the effectiveness of financial education programs. The Evaluation

14

Toolkit, available online at www.nefe.org/eval, is designed
to help financial educators to first understand evaluation
concepts and then efficiently apply them to their educational programs so they can document the impact their
programs have on participants.
Not only is it important to measure behavioral change,
but it is critical to understand what influences behavioral
change. NEFE funds research that enhances the understanding of financial behavior and perceived challenges
to changing behavior. One study partially funded by NEFE
and conducted by the University of Arizona and Arizona
Pathways to Life Success for University Students (APLUS)
explored the diverse social factors that influence the financial attitudes and behaviors of today’s young adults. Those
attitudes and behaviors can determine their financial
success or failure as adults. The study found that parents
have more influence over their children’s financial knowledge, attitudes, and behaviors than work experience and
high school financial education combined. Other current
NEFE grants are researching which educational methods
help particular groups of people learn best, and common
response patterns to debt consolidation ads and offers.
Our most recent symposium, titled “Financial Realities of
Young Adults: Building a Financial Education Framework
that is Relevant and Accessible,” examined the unique
characteristics and financial realities of today’s young
people, including learning whom they trust and how they
get their information, as well as effective channels for
targeting Americans ages 18-34 with attention-grabbing,
educational messages that will help them make informed
financial decisions.

A Call for More Involvement
The current economy creates an unprecedented teachable moment to promote healthy financial attitudes, behaviors, and habits among all Americans. There’s always
more room for increased research and funding, but we
also need to focus on the importance of providing positive encouragement. Consumers are more than capable
of managing their money and making sound decisions,
and we believe that they can do so as long as they have
access to the proper tools and support. We all have a
unique opportunity to encourage savings and responsible
fiscal management. Better yet, we have an opportunity to
learn from each other’s best practices as we reach out to
empower all Americans to take control of their financial
well-being.

Special Focus: Financial Education

Financial Education – Does It Work
and How Do We Know?
Research Findings from a Study of Financial
Education Among Soldiers
By Casey Bell, Dan Gorin, Jeanne Hogarth
Division of Consumer & Community Affairs, Federal Reserve Board1

F

inancial education has risen on the agendas and priority lists of a number of agencies and organizations,
including the Federal Reserve Board, as evidenced
by recent hearings on financial literacy in Congress and
speeches by Federal Reserve Chairman Ben Bernanke.2
The issue is also a “hot topic” among academics and researchers, and numerous programs have arisen to address
financial education gaps, targeting a variety of topics from
student loans and credit card debt to home buying and
retirement planning.3 Yet, despite the increased attention
from policy makers and educators—both via the school
system and community-based education efforts—we
know that consumers continue to face financial difficulties. In addition, questions around the effectiveness of financial education still loom large.
In an effort to address these questions, the Federal
Reserve Board conducted a research study focusing on
the effectiveness of a financial education program for military personnel.4 Beginning in 2003, we collaborated with
Army Emergency Relief (AER), the U.S. Army post at Ft.
Bliss in El Paso, Texas to provide financial education for
young enlisted soldiers and to evaluate the impact of that
education on the soldiers’ financial management behaviors. Soldiers attending the Army’s air defender advanced
individualized training (AIT) at Ft. Bliss were offered a
two-day financial education course taught by staff from
San Diego City College; funding for the course was provided by AER.5 At the end of the two-day course, soldiers
completed a survey of financial behaviors that served as
a baseline for the evaluation; most of the surveys were
conducted from 2006 through 2008. A second group of
soldiers at Ft. Bliss, who did not participate in the financial
education course, served as a comparison group. Followup surveys were conducted in January 2008 and January
2009 to provide second data points for those who took
the financial education course. Specifically, we explored
the differences in behaviors between those who took the
course and those who did not, focusing on six topics

covered in the course: budgeting, credit, consumer awareness, car buying, insurance, and retirement savings using
the Thrift Savings Plan (TSP), which is a 401(k)-type retirement savings and investment plan for federal employees
and the military.

Who Is in the Study?
Soldiers in this study were in their early 20’s, and
predominantly male (86 percent). As might be expected
when studying a population in their early 20’s, 70 percent
of the soldiers in our baseline survey were single; by the
time of the follow-up surveys, 54 percent were still single.
About 40 percent of the soldiers in this study had some
post-secondary education.
Because the financial education course was delivered
during the soldier’s AIT (generally taken within the first year
of military service), the majority of the soldiers (more than
90 percent) in the baseline survey had less than one year
of military service. By the time of the first follow-up survey,
about two-fifths (40 percent) had more than one year, but
less than three years of service. Pay grade, or rank, is closely
correlated with length of service. At the time of the baseline
survey, 78 percent of the respondents were in the lowest
two pay grades, but by the time of the first follow-up, only
45 percent were still in the lowest grades, while the other
54 percent were now in the next two higher pay grades.6

Did Financial Education Make a Difference?
To assess whether or not financial education made a
difference, we identified 13 positive financial management behaviors (for example, tracking spending, having
an emergency fund, comparison shopping, saving for retirement) and 15 negative behaviors (for example, paying
overdraft fees, paying bills late, being called by a bill collector, losing security clearance). Overall, the research
found that soldiers in the financial education group reported more of the positive behaviors and fewer of the
negative behaviors than soldiers in the comparison group.

15

We believe it’s important to continue to
evaluate financial education programs
and to improve our measures of
financial capability.
We wanted to know more specifically which behaviors were influenced by the financial education program.
In order to separate the effects of the financial education
course from other influences on money management,
we included independent variables measuring years in
the military, pay grade, gender, education, race/ethnicity,
marital status, pre-military experiences (awareness of family’s finances, having a high school financial education
course, and having a savings account in high school), and
having a credit card (as a proxy for experience).
Soldiers who had the financial education course were
more likely than the comparison group to report using an
informal spending plan, suggesting they kept some sort of
‘mental account’ of how much they could afford to spend
(as opposed to doing nothing). However, these soldiers
were less likely to report using a formal, written budget,
relative to the comparison group. Also, those who took the
course were more likely to know the difference between
discretionary and non-discretionary spending—in other
words, they understood the difference between spending money on needs versus wants. When buying a car,
those who took the financial education course had higher
down payment-to-loan ratios than those in the comparison group.
Other variables that seemed to influence soldiers’ financial management behaviors included previous experience (having a savings account in high school, being
aware of parents’ financial situation), education, marital
status, number of years in the military (a proxy for experience), pay grade (a proxy for income), race/ethnicity, being
male, and perceiving oneself as a good money manager.

Research Design Considerations
Measuring behavior change can be extremely challenging and we recognize several limitations to our
study. For example, our measures occur at two points in
time, but we have not captured what may be happening
between these two points. By looking at the lapsed time

16

between taking the course and the follow-up survey, we
may be able to explore some of the effects of timing on
behavior change.
Our study focused on behaviors that soldiers either
did or did not report, such as budgeting, saving, or paying
credit card bills. But we know that for some financial behaviors, people can be at different stages in the decision
making process. We did not measure where soldiers were
on the behavior continuum or whether they moved from
one stage to another. For example, if a soldier in the class
moved from being unaware of the retirement savings plan
to thinking about signing up for the plan, or gathering
information to make a decision, we could say the class
had an effect; however, we did not measure these more
subtle behavioral changes. Thus, we may have missed
some of the impacts of the financial education program
by focusing on actual behaviors rather than also including planned behaviors.
The class was delivered primarily as a lecture. Alternative formats, such as simulations, experiential events,
activity-based learning, and case studies may increase the
relevance as well as the retention of information. It may
also be that the timing of this course was not optimum
for learning. Most soldiers took this course on the weekends, rather than as part of their regular training in AIT.
As most high school and college instructors know, it is
hard to find time in the curriculum to squeeze in a financial education course. And when the course is an add-on
to an already busy and tiring schedule, the content may
not sink in very well.

Conclusion
The financial education program had some positive
effects on soldiers’ financial management behaviors over
the longer term. We believe it’s important to continue to
evaluate financial education programs and to improve
our measures of financial capability. We also believe that
while education is necessary, it alone is not sufficient
to establish financially secure families and households.
Important complements include access to information,
access to financial counseling and advising, and public
policies that provide consumer protection. The Federal
Reserve Board remains committed to further research and
support for all of these elements in order to help families
attain financial stability and security.

Special Focus: Financial
Unemployment
Education

Tax Time as an Asset
Building Opportunity
Assessing the Potential

By J. Michael Collins, University of Wisconsin-Madison

T

ax time provides a unique opportunity for people
to reflect on the past year’s income and expenses,
take advantage of tax incentives, and make financial plans for the future. For low-income families in the
United States, tax time is also an important window for
the delivery of asset building products and services. The
Earned Income Tax Credit (EITC) and the Child Tax Credit
(CTC) may produce significant tax refunds, in some cases
more than 15 percent of annual income in a lump sum,
thus providing a ‘teachable moment’ that can help to
encourage saving and financial planning. Communitybased free tax preparation programs, such as the Internal
Revenue Service’s (IRS) Volunteer Income Tax Assistance
(VITA) sites, contribute to this mission and complete approximately 1 million tax filings per year.1
In the last decade many of these community-based
tax programs have expanded beyond preparing taxes and

now offer other services to tax clients, such as financial
education.2 A 2007 survey by the Center for Economic
Progress (the Center) and the National Community Tax
Coalition (NCTC) found that 64 percent of tax sites offered
financial education or group training, more than any other
non-tax service, and 45 percent offered credit counseling.3
The agencies surveyed estimated that about 16 percent of
tax clients in 2006 took part in some education service
related to the tax preparation session (either on site or
follow-up). The share of tax clients taking part in such
services had doubled from the previous year. Financial
education is provided as a means to help clients gain skills
to manage their financial situation and make informed
financial decisions in the future. Community-based tax
programs have developed targeted methods to deliver
financial education.4 These approaches include offering
printed educational materials during the tax preparation

17

session or referring clients to training on specific financial
topics outside of the tax session.
Nevertheless, providing education onsite is challenging, since clients are generally focused on their taxes and
uninterested in prolonging their time at the tax program
site. Providing education at a later time generally results in
very low completion rates, even if incentives such as food
or gifts are offered. There is still much to be learned about
how to effectively deliver asset building services at tax time.
In 2007, the Center launched the Financial Opportunities Project (FOP), a comprehensive effort to identify, implement, and disseminate strategies for integrating financial services and asset-building opportunities
with income tax preparation services at VITA sites. The
goal of the FOP was to determine which approaches
best promote asset-building opportunities to taxpayers.
The Center developed the Asset Building Service Delivery System (ABSDS)—a process-based model for offering asset-building products and services to clients served
by community-based programs. The components of the
ABSDS include 1) strategic program planning around
asset promotion, 2) simplicity in process design, 3) specialization of staff to promote assets, 4) specific and targeted promotional strategies, and 5) customer-focused
processes. The model is grounded in research from past
attempts at service promotion at tax sites and based on
theories from behavioral finance regarding consumer decision making (see the article “An Apple or a Donut” for
more on behavioral economics).
From the fall of 2008 through the end of the 2009 tax
season, the Center oversaw the national launch of the
ABSDS and awarded three programs a grant of $25,000 to
apply a standardized model and general operating procedures for promoting asset-building strategies to community-based tax preparation services. The purpose of the grants
was to assess the effectiveness and versatility of the operational models and programmatic guides of the ABSDS.
To the extent programs adapted the model and tested new
ideas, this season provided an opportunity to further refine
the ABSDS. The following discussion provides an overview
of the FOP findings and identifies recommendations for
improved delivery of asset building services.

Take-Up of Asset Building Services at Tax Programs
For the purposes of this project, the term asset building products or services refers to any financial service,
in addition to free tax assistance, that helps to positively
address an individual’s financial stability through debt reduction or asset maintenance and growth. Asset building
products or services may include credit or debt management counseling, access to public benefits, opening bank
accounts, U.S. Savings Bonds, CDs or other related products and services.

18

The goal of the FOP was that 15 percent of tax clients
would take on an asset building service, an improvement
from the 8-12 percent take-up rate achieved in past pilot
studies by the Center and tests on the take-up of savings
matches or Savings Bonds. Overall, take-up rates surpassed expectations (see Table 5.1). Almost 27 percent of
clients enrolled in at least one service. Table 5.1 shows
the total for all sites combined. Depositing a refund into
a savings account was the most frequently used option,
accounting for half of the total. Receiving a credit report
was the next most frequently used asset building service.
Direct deposit stored value debit cards were almost as
prevalent, representing less than half the share using a
savings account. Credit counseling and savings bonds
were the next most commonly adopted asset building services. Although offered at only one site, assistance with
utility bills was also more popular than may be expected.
Table 5.1
Take-Up by Service
Put some of refund in savings

14.50%

Direct deposit card

6.30%

Credit report

6.60%

THAW utility assistance

5.50%

Buy a bond

4.90%

Credit counseling

4.80%

Apply for checking

4.50%

Apply for savings or financial institution account

3.10%

Small business counseling

2.90%

Open a CD

0.10%

Any service

26.60%

Source: Center FOP Surveys, 2009 (2008 TY)
Note: This table reflects responses to self-reported take-up of
services as included in each site’s survey; not all sites offered or
asked about all services

Note that 6.3 percent of clients used a direct deposit
pre-paid debit card. These cards offer a way to engage in
electronic banking and allow clients to re-load the card
when the refund is expended. Some cards offer checking
and savings features as well as online/telephone account
management. By comparison only 3.1 percent of tax clients
enrolled in a savings account. About half (47 percent) of
clients applying for the direct deposit card were otherwise
unbanked, compared to about 17 percent of clients at the
tax site overall who were unbanked. Clearly these products
carry some attraction. One site manager shared that clients
are excited about the card and its features, and in some
ways the advent of pre-paid cell phones makes the concept
of pre-paid debit cards easy for clients to understand.

Special Focus: Financial Education

any particular service always being popular (or not). Past
experience with a refund, having a larger refund than
expected and willingness to save all remain powerful
indicators however.

Of course, many factors may work in concert to influence take-up rates. Table 5.2 shows a statistical analysis
where all the listed variables are held constant. This analysis shows the marginal contribution of key factors that
predict taking on these services. The first two columns describe taking any service at all, the second two any savings
product and the third pair a savings bond. Estimates that
are statistically significant are in bold. Having received a
refund last year is significant for all three analyses. In all
cases, having a larger refund than expected also has a statistically significant effect, boosting take-up rates. This is
consistent with the notion of ‘mental accounting’ in behavioral finance, where people will use unexpected funds
differently than expected income. Willingness to save as
reported at intake is also an important indicator. Planning to pay bills with a refund has mixed effects, as does
having a bank account and time in the season. Surprisingly income does not have much effect, and age only has
effects for bond purchases, with older clients less likely to
buy a bond. Also, no particular agency funded by the FOP
shows any evidence of strongly higher or lower overall
take-up rates controlling for other factors. Past experience
with a bond has relatively strong effects.
Overall these results reinforce the need to target services to client type—and make it hard to generalize about

Communicating the Savings Message
Communicating and reinforcing the message of
savings is a key part of promoting asset building services for clients. Proper and thorough training of staff and
volunteers increases the effectiveness of promotional
strategies at the tax site. Clients, staff, and volunteers
need support to easily understand what savings options
exist and how to take advantage of them. Pilot program
sites were instructed to educate staff and volunteers not
only on product offerings, but on savings messages as
well. Sites were encouraged to develop specific savings
messages and product guides that could help program
staff and volunteers be more effective and confident
when working with clients, especially at the start of
the season, when they are less familiar with product
features. Figure 5.3 shows client responses to the exit
survey question about how many times they heard the
savings message. We suspect this is an underestimate
of the actual number of times, but still provides a relative order or magnitude.

Table 5.2
Analysis of Effects

Any Service

Any Savings

Savings Bond

% Effect

Sig (z)

% Effect

Sig (z)

% Effect

Sig (z)

Rec’d Refund Last Year

1.20%

2.05

3.20%

2.87

1.50%

1.69

Refund more than Expected

0.80%

4.78

4.10%

6.45

1.40%

3.46

Willing to Save at Intake

1.70%

5.03

10.00%

7.21

2.70%

3.5

Planning to Pay Bills with Refund at Intake 0.90%

4.39

0.00%

0.03

1.50%

3.3

Have Bank Account

-2.10%

-2.07

5.70%

1.85

1.50%

5.12

March/April (vs. Jan/Feb)

-1.20%

-4.19

-3.60%

-3.96

-0.70%

-0.85

Income Level

-0.20%

-4.4

0.10%

0.35

0.60%

4.27

Age

-0.80%

-1.23

-0.30%

-0.34

-1.30%

-4.38

Agency 1

5.10%

0.18

2.50%

0.68

4.80%

1.42

Agency 2

-2.10%

-2.53

-9.50%

-2.93

4.40%

1.8

Any Past Bond Experience					

2.60%

3.03		

Source: Center FOP Surveys, 2009 (2008 TY)							
Probit model with agency fixed effects (one agency as reference group) and robust std errors clustered at site level
n = 7108 							

19

clients should hear about savings opportunities at least
three times during their visit: (1) at intake; (2) during the
How Many
Times
Someone
at the Tax
Site
YoutoAbout
How
ManyDid
Times
Did Someone
at the
TaxTalk
Siteto
Talk
waiting period; and (3) at quality review or the end of the
YourofRefund?
YouSaving
About Some
Savingof
Some
Your Refund?
tax session.
Figure 5.3

Recommendations for Future Tax Seasons
The goal of the FOP grant program and the ABSDS pilot
was to “perfect the process” rather than to develop innovative or new financial products. The focus on process flows,
staff/volunteer training and targeted messaging appears to
have stronger effects than might otherwise be expected.
Despite the successes of the model, there is potential to
improve it for the next tax season, including the following
recommendations:

Three+
Times
7%

Twice
16%

Never
26%

Process
Once
51%

Source: Center FOP Client Surveys, 2009 (2008 TY)

Table 5.4 shows the number of times clients heard the
savings message, broken down by the following categories recorded in the intake form: whether the client received a refund last year; whether they’re willing to save
the refund; and whether they bought a bond in the past. If
the ABSDS was implemented as planned, it would be expected that clients answering “yes” would be targeted for
more savings messages. For each column, those answering “yes” show a four point to seven point greater report of
being talked to about savings or buying a bond.
General and specific savings messages were developed for different client groups and sites were encouraged to use these messages, as well as develop their own.
Sites were instructed to have standard, specific, written
messages for all products and services targeted by each
client group. It was recommended that tax preparation

						

1. Pay close attention to the physical space and layout of
the tax site. Space and workflow are closely linked.
Sites need to have space conducive to promoting
savings and other asset building services in group and
individual settings.
2. Broaden the definition of asset building services to
include credit counseling, debt management and
utility assistance as programs that allow people to
build net assets by reducing spending or outstanding
debt.
3. Employ simple data collection with a few key predictors at intake and exit to make sure clients are offered
the appropriate services.

Training
1. Make learning and using systems easy. Clients, staff
and volunteers need support to easily understand
what savings options exist and how to take advantage
of them.
2. Incorporate training on asset building earlier in season,
including more practice and role plays with ‘mock tax
clients.’
3. Train tax volunteers specifically on the asset building training delivery system and what they can do to
support the model.

Table 5.4

Did anyone talk to you about saving part of your refund / buying a bond?			
Refund last year

Willing to save refund

Bought a bond in the past

Yes

No

Yes

No

Yes

No

Never or once

76%

79%

75%

79%

78%

85%

Twice or more

24%

21%

25%

21%

22%

15%

Source: Center FOP Volunteer Survey, 2009 (2008 TY) n= 301					

20

1. Develop messages that are simple and targeted to key
audiences—especially based on prior experiences
with a product or service. Use the four basic categories of clients: (1) unbanked, (2) new savers, (3) longerterm savers, and (4) non-savers who need counseling
or other help (see Table 5.5 for greater detail).
2. Experiment with techniques to flag clients most likely
to use each type of asset building service and build in
redundant processes to make sure target clients hear
the appropriate message more than one time.
3. Send out “early-warning” promotional materials
before tax season. Work to heighten client expectations that there will be savings opportunities at the tax
site. Provide simple information sheets at intake about
the availability of products offered.
4. Offer more education on savings bonds and CDs, how
they work, the risks and benefits, and other features
for clients who lack prior experiences with them.
5. Embed and promote asset building messages into
the entire tax preparation experience, from the initial
outreach or appointment sign up, to intake, waiting
times, tax preparation and quality review.

Special Focus: Financial Education

Onsite Promotion / Education

6. Implement team-based incentives to promote asset
building services including posting reports of weekly
achievement of goals for savings, education and other
services.
7. Expand the development of scripts that intake, tax and
asset specialists can use and adapt for each targeted
client group.

Targeting and Triage: Four Basic Client Types
Table 5.5 presents a simplified attempt to target asset
building services by client type. In many ways this table is
a stylized illustration, but working within this framework
may help further refine promotional strategies. Each is discussed in more detail below the table.
The ‘unbanked’ are clients who have had negative experiences with financial institutions and do not want bank
accounts. Direct deposit of a refund onto a pre-paid debit
card is ideal for these clients and may offer a stepping
stone to further financial service offerings. Rather than try
to convert the unbanked, the pre-paid card may be the
best fit for these clients. To develop scripts, promotional
materials and targeting, it may be valuable to examine
the techniques used by mobile phone companies for

Table 5.5

Client Type

Goals

Unbanked and “burned by banks in the past”

• Faster refund

Look for: no bank accounts

• Convenience

Recommended Product
Pre-paid Debit

• Avoid financial
institutions altogether
Have Checking—Ready to Move into
• Start to save for a
Some Savings
rainy day
		
Look for: checking but no savings

Basic savings account as
complement to checking
account		

Saving for Future Generations

• Seeking longer-term
savings
Look for: over age 30; kids or grandkids
• Self-constraints - harder
to liquidate (but not
impossible)
• Better rate of return
than savings
		
Struggling with Debt and Expenses
• Catching up

• Savings bond (more
likely if client has past
experience)

Look for: not willing to save
• Which bills to pay first
		

• Benefits access; utility
assistance

		

• Budgeting education

• CD (more likely if client
has past experience)

• Credit counseling

21

Table 5.6
What Information or Services Would You
Be Interested in Next Year
Assistance with utility bills

14.4%

Food assistance or other benefits

9.9%

Buying a car

9.1%

Buying a house

8.3%

Home winterization

8.2%

Solving credit problems

6.9%

Help with legal problems

6.5%

Paying for college/job training

5.9%

Starting a small business

4.5%

Household budgeting

4.2%

Any of these services

39.0%

Source: Center FOP Intake Surveys, 2009 (2008TY), N=1,093

pre-paid cellular plans. Also, prior experience with buying
or loading cards may also be a good predictor of take-up.
The ‘banked but ready to move up’ group may have a
checking account (or pre-paid card), but are now ready to
save in a short-term liquid account primarily as a precautionary fund. These clients are unwilling to tie up funds
in a CD or Savings Bond but would like some separate
account to store money with a modest rate of return (the
objective is simply to set the money aside within a 6-18
month time horizon). For many of these clients, refund
splitting may be an attractive option as some funds can be
placed in existing checking accounts.
The ‘saving for future generations’ group has established some record of using basic financial products, but
is ready to save over the longer term. Clients may express
an interest in saving for education or the future of a child
or grandchild. In reality, time horizons may be 2-5 years

22

rather than a full generation, but regardless, this motivation may suggest demand for higher returns and more
constraints on accessing the funds at least in the short run.
For these clients, CDs and U.S. Savings Bonds may be the
ideal option. Of course past experiences with these products is likely to boost take-up rates. In addition, current
interest rates will also affect demand.
The ‘struggling with debt and expenses’ group includes individuals that are not in a position to save.
Perhaps a direct deposit card could be a viable option, but
in general, the strategy is to use the refund to pay off debt,
develop a budget and take control of problems paying
bills. These groups would benefit from benefits screening,
credit counseling and access to support to develop and
maintain a budget.

Expanding the Mix of “Asset Building” Services
One agency in the FOP asked a number of questions
about what services clients would be interested in next
year. These data (presented in Table 5.6) provide an indication of the types of services tax clients might be interested in receiving. Assistance with utility bills was the most
frequently mentioned service at 14.4 percent, followed by
9.9 percent of clients expressing interest in accessing benefits. Buying a house and car were also mentioned with
similar frequency. Credit and legal issues were also mentioned, as well as education/job training finance, small
business help and budgeting.

Conclusions
The 2009 FOP shows that careful attention to processes can help tax clients take advantage of tax time as
an asset building opportunity. More than a quarter of the
clients at the pilot sites accessed valuable asset building
services, getting much more than just a completed tax
form. Tax programs can include simple messages and financial education to encourage savings and improve financial management skills, even without complicated
financial products.

X

Special Focus: Financial Education

Banks and Financial Education

Integrating Practice, Products, and Partnerships
By Ammar Askari
M&I Marshall & Ilsley Bank

Introduction

A

number of developments have begun to underscore the growing need for financial education.
Surveys indicate that Americans have low levels
of financial knowledge, as well as insufficient savings
and high indebtedness. These disconcerting facts are
especially salient in light of the current financial crisis,
where plummeting home values, high unemployment,
and weak economic growth have exacerbated the already
weak balance sheet of many Americans. In light of this
grim background, financial literacy has found itself in the
spotlight. The topic continues to attract the attention of financial regulators, policymakers, and academics, and the
demand for financial education is growing among community based organizations and their clients.
The need for financial and economic education is
not new, however. For decades, government and non-

profit organizations have been trying to address what they
see as a serious gap in the curricula of our K-12 school
systems. Nationally representative organizations such as
the Council for Economic Education (previously known
as the National Council on Economic Education), Junior
Achievement, the Jump$tart Coalition, and the National
Endowment for Financial Education are among a growing
group of supporters that have recognized the problem and
are taking action to address it.
Financial institutions have also joined the effort and,
in some cases, devoted significant resources to the field.
They often provide financial support to existing nonprofit
financial education programs, and some develop proprietary financial education programs and materials. But a
few financial institutions have adopted financial education as a functional unit in their retail banking services.

23

This article provides an overview of bank-based financial
education and describes some of the factors for success.

The Role of Banks in Financial Education
Banks are uniquely positioned to provide financial
education, as they can bridge theoretical economic concepts, such as scarcity and opportunity costs, with practical “money-in-the-pocket” services, and supplement them
with the necessary financial products. Access to low-cost
financial products is particularly valuable for “unbanked”
and “underbanked” clients (those that do not have bank
accounts, or who have accounts but underutilize them);
connecting financial education with financial products
allows all individuals to become fully integrated in the
traditional financial system, setting them on the path to
wealth accumulation.
Financial education helps consumers by offering them
the knowledge they need to make sound financial decisions and secure their economic futures. But banks
can also benefit from financial education in a number
of ways. At a time when competition in retail banking is
fierce, targeted financial education programs can open
new roads into untapped populations, such as the immigrant and underbanked markets. In addition, financial education programs can also create goodwill at the
community level and strengthen relationships with local
customers and community partners. In some cases, banks
can also receive Community Reinvestment Act credit for
providing financial education to low- and moderate-income individuals.
M & I Marshall & Ilsley Bank (M&I Bank), headquartered in Milwaukee, Wisconsin, has been an active supporter of financial education for many years, and in
2005 the bank launched the M&I Community Education Program (M&I CE)—a unique bank-based financial education program designed to organize the bank
employees’ volunteer efforts and, at the same time,
respond to a widening gap between community needs
and community resources in this area. Led by an experienced financial educator, the bank adopted a comprehensive approach to community education informed
by research and experience. Going beyond just education, the program design includes specialized banking
products for the unbanked, electronic reporting tools,
alternative program delivery channels, and short- and
long-term outcome measurement. M&I CE designed
eight instructor-led financial education seminars, to
be offered in both English and Spanish by bankers and
community partners, where participants learn about
personal finance using a hands-on approach in a workshop setting. Program materials are standardized, and
every time a seminar is completed, instructors forward
the survey results and evaluations to the program administrator for input and record keeping.

24

Beyond an increase in financial acumen, the end goal
of financial education is to produce a positive change in
financial behavior. While there is strong evidence that financial education improves financial knowledge, the evidence linking financial education with improved financial
behavior is scarce. It may be the case that an improvement in financial behavior is the result of a convergence
of several factors related to financial education, such as
lifecycle timing (so-called “teachable moments”), the
availability of financial tools, or direct and easy access
to financial products. For example, teaching someone to
start a budget and regularly make deposits into a savings
account is meaningless if the person is shut out of the
banking system. Showing someone how to manage and
rehabilitate credit is merely an academic exercise if the
person is unable to open a new credit line. An effective financial education program should supplement the knowledge gained from a course with access to the tools and
products necessary for achieving financial goals.
To this end, M&I CE supplemented its education
program with specialized products designed to help those
outside the financial mainstream transition into the traditional banking system with ease and clarity, and little cost.
The financial education program is now complemented
by the “Foundation Suite,” a set of products especially
designed to help bank the unbanked, build credit for individuals with no credit history, or rehabilitate credit for
those with poor credit. The Suite includes a basic checking
account that comes with a bonus incentive of $50, and is
available to anyone that graduates from an approved financial education program; a thrift savings product which
is a probationary savings account with a small minimum
initial deposit of $25 and no maintenance fee for balances over $25; and a credit builder product, which is a
reverse loan tied to a certificate of deposit with a maturity term identical to the term of the loan. This loan is designed for credit building and rehabilitation and also acts
as a savings vehicle. Customers that have previously been
shut out of the credit market can open this account, make
regular loan payments to improve their credit scores, and
receive the loan principal plus interest upon CD maturity.

Unique Financial Education Partnerships
While program design and financial product integration are key factors for a successful financial education
program, effective delivery channels for reaching target
populations are equally important. M&I continues to
expand its delivery channels for financial education by
partnering with community or government organizations
with existing vocational or educational programs. This approach solves the intractable problem of poor attendance
in voluntary attendance-based workshops. The commu-

Special Focus: Financial Education

Incorporating Financial Products
into Financial Education

nity partnerships also extend the reach of financial education efforts; staff from partner organizations are trained in
the curriculum and learn to integrate financial education
into their existing programs on an ongoing basis. Below
are a few examples of community partnerships in financial education.

Wisconsin Department of
Correction Reentry Program
Beginning in 2008, the Wisconsin Department of Corrections (DOC) designed a new re-entry program called
“A Bridge to Success.” The program required ten modules,
one of which was a financial literacy module based on the
FDIC Money Smart curriculum. This presented a natural
opportunity for collaboration—the M&I CE program was
already using the FDIC curriculum as the basis for its financial education program, and the bank has been providing financial education to inmates and staff at several
correctional institutions throughout the state of Wisconsin
since 2006. Once the new DOC re-entry requirements
were announced, M&I CE received many requests from
correctional institutions to provide training directly to
inmates. However, M&I CE did not have the capacity to
meet the demand for services and began working with
the DOC’s Re-entry Program Administration to develop a
more centralized approach.
The result was a financial education package designed
by M&I CE that meets the full requirements of the DOC
re-entry program, supplemented with train-the-trainer sessions for the DOC Re-entry Program staff. M&I CE redesigned its existing curriculum to cover all of the topics
required by the re-entry program standards, and each
seminar was supplemented with pre- and post-surveys,
evaluation forms, handouts, certificates of completion,
and electronic reporting forms. Since the summer of 2008,
M&I CE has held five train-the-trainer sessions, reaching
about 130 re-entry specialists. This partnership contributes
to improved financial literacy in the community. Inmates
who reenter the community after having been trained in
the basics of personal finance have a greater likelihood of
rehabilitating their financial situations and making wise
financial decisions to improve their futures.

Ways to Work
Ways to Work is a Community Development Financial Institution (CDFI) based in Milwaukee, Wisconsin.
Through its network of loan offices across the country, it
provides small, short-term, low-interest loans to working
poor families with challenging credit histories, and all
loans are used to help individuals remain in or move
forward in their jobs (the vast majority of loans are made
for the purchase of modestly priced used vehicles). Individuals who borrow from Ways to Work have to meet
certain conditions related to steady employment and have

25

to attend counseling and financial education classes.
M&I CE worked closely with Ways to Work to design a
three-hour financial education seminar for the organization’s clients, as well as a staff training curriculum. The
program design process relied heavily on feedback from
Ways to Work staff, and the final product was delivered
in late 2008.

Program Evaluation and Outcome Measurement
Research has shown that rigorous evaluation demonstrating the effectiveness of financial education is scant,
and any credible evidence depends largely on the specific content and context of an individual program. It is
therefore important to continue to attempt to measure
the effectiveness of financial education programs in order
to identify a successful model and maximize scarce resources. M&I CE measures improvements in financial
knowledge using a pre- and post-test method and in 2008
documented results for 4,646 seminar participants. On a
10-question multiple-choice test, participants averaged an
increase of 2.60 points (from a mean score of 5.89 at pretest to 8.49 on post-test) which represents a 44 percent increase in the mean score. The improvement in the scores is
statistically significant at both the 5 percent and 1 percent
significance level for all seminars, both at the individual
and aggregate level.
To measure long-term behavioral change, M&I CE
utilizes special indicators that are attached to the bank
accounts of customers who participated in financial education seminars. This will allow for tracking of financial
behaviors over time, as well as comparing results for
those customers that received financial education training and those that did not. The analysis is done over time
using sample statistics at the aggregate level and does
not present any privacy risk for the participants. Behavior
change is a long term process, and sufficient time must
pass before any conclusions about meaningful behavior
change can be drawn. M&I CE is committed to the measurement effort and expects to have preliminary results in
a few years.

Conclusion
Building a successful bank-based financial education
program requires several important ingredients. First, the
program priorities have to be clearly defined. The bank
must decide what it hopes to accomplish through the
program and focus on achieving that outcome. Second,

26

If done properly, the rewards for
having a well-designed and accessible
bank-based financial education
program are many.
a standardized, high-quality curriculum should be employed. This does not mean designing a new curriculum
with a new website from scratch, as there are several
good curricula available for free. The problem of financial
education is no longer a problem of supply; consumers
currently have many good choices for free and accessible
financial education programs, both online and through
various delivery channels. Third, delivery mechanisms
must be appropriately designed, for example, consider
whether the program will be instructor-led, delivered directly by bank employees, or dependent on an indirect
delivery channel such as a third party community partner.
Also, designing the program to tackle relevant topics at
“teachable moments,” such as homebuyer education
for first-time homebuyers, or credit courses for individuals interested in getting a loan, is an effective strategy.
Fourth, sound outcome measures should be incorporated
into the program to assess effectiveness and enhance the
credibility of the program. This is an important consideration for internal operations, in order to provide results to
bank leadership and regulators, as well as external efforts
to support community partners who could use the outcomes to enhance their programs and fundraising efforts.
Fifth, effective and well thought-out community partnerships should be formed. These community partners are
the channels through which a bank can effectively reach
community members in a trusted environment. Finally,
in addition to education, the bank has to be prepared to
provide the tools needed to accomplish the educational
goals. Specialized financial products and services are vital
for helping the underserved become fully engaged in the
financial mainstream.
If done properly, the rewards for having a well-designed and accessible bank-based financial education
program are many. They include measurable benefits to
the bank, such as increased sales and positive branding,
as well as more difficult-to-measure benefits at the community level, such as wiser financial behavior and greater
familiarity with financial products.

Eye on Community Development

Sustaining Homeownership

The Experience of City-Based Affordable
Homeownership Programs
By Carolina Reid

1

T

he recent surge in mortgage delinquencies and
foreclosures has sparked a renewed debate over the
government’s role in promoting homeownership,
particularly among low-income and minority borrowers.
Increasingly, questions are emerging about the benefits of
homeownership for lower-income households. Commentators on the crisis note that homeownership is not for everyone, and argue that efforts to expand homeownership
opportunities for lower-income households are misguided
at best. The most vocal of critics have argued that government programs designed to expand access to credit and
homeownership, such as the Community Reinvestment
Act (CRA) and the affordable housing goals established
for Fannie Mae and Freddie Mac, helped to precipitate the
current subprime meltdown.
What these critics fail to consider, however, is that affordable homeownership programs have long been able

to help lower-income families overcome the financial barriers to owning a home, and have done so in a way that
is both responsible and sustainable. It is a mistake to conflate efforts to expand access to homeownership with the
subprime lending boom: indeed, the dramatic rise in subprime lending may be better viewed as the antithesis of
these efforts. Rather than support affordable homeownership, the characteristics of “subprime” lending—including
high interest rates, high debt-to-income and loan-to-value
ratios, limited documentation, and the layering of exotic
loan terms such as interest-only and negative amortization
payment schedules—all served to make homeownership
a risky proposition, not only for lower-income families,
but for many middle- and upper-income families as well.
Indeed, studies conducted by the Federal Reserve Board
of Governors and the Federal Reserve Bank of San Francisco both found that subprime lending was not targeted

27

Figure 7.1
Change in
Homeownership
Rates Across Income
Change in Homeownership Rates Across Income
3.0

Percentage Point Change

2.5
2.0
1.5
1.0

1996-1999

0.5

2000-2003
2004-2007

0.0
-0.5
-1.0
-1.5
-2.0
Lowest

Second

Middle

Fourth

Highest

Income Quintile

Source: Chris Herbert, Abt Associates

to lower-income families.2 Moreover, contrary to public
opinion, the expansion of subprime lending after 2004 did
not serve to increase homeownership rates among lowerincome households (See Figure 7.1). As the figure shows,
most of the gains in the homeownership rate were realized
before 2003, not during the height of subprime lending.
Rather than abandoning the goal of expanding access
to homeownership, the recent crisis provides us with an
opportunity to think critically about the housing needs of
lower-income families. The goal should be to develop a
spectrum of policies that can create a true housing ladder,
from affordable rental units to homeownership opportunities that can help lower-income families build assets. The
goal of homeownership should not be abandoned wholesale; research has shown that homeownership confers significant benefits to lower-income households and communities, especially when it is sustained over time.3 The
benefits are especially strong for young children, improving their educational outcomes and reducing their exposure to crime, which can yield significant return on investment over time. Home equity is also an important source
of wealth and asset accumulation, particularly for minori-

ties and those with lower incomes. Even research studies
that have been less than sanguine about homeownership’s
benefits have found that low-income households who
become and stay homeowners build significantly more
wealth over time than those who remain renters.
So how can we build better programs to help lowincome households both become and stay homeowners?
In this article, we examine the performance of city-based
affordable homeownership programs in five high-cost
cities, Boston, Chicago, Los Angeles, New York, and San
Francisco (See figure 7.2). These programs all serve lowand moderate-income households, often with lower credit
scores, lower savings, and more irregular and/ or undocumented income than higher-income borrowers—in other
words, they reach borrowers who would otherwise go to
the subprime mortgage market. But in direct contrast to
the high rates of foreclosure in the subprime market, the
number of foreclosures in most of these programs can be
counted on one hand, even in today’s troubled economy.
As such, these programs provide important insights into
what program elements comprise “responsible lending”
to lower-income borrowers. This article also demonstrates
the complicated funding streams these programs rely on,
and suggests that additional federal and state funding is
needed to increase the scale of these programs.

The Performance of City-Based
Homeownership Programs
Public policy has long sought to increase access to
homeownership opportunities for low-income households and a variety of programs exist at the local, state
and federal level to help remove financial barriers to
homeownership. These programs take on many forms:
some provide down-payment or closing-cost assistance,
others help to expand access to credit (including CRA
motivated lending by banks and government-backed affordable lending products), while still others support the
construction of affordable units. Federal programs, such

Figure 7.2

			
Total
Homeownership
Geography
Households
Rate
Boston

Median Value of
Owner Occupied
Units

2009 HUD Area
Median Family
Income (MFI)

229,787

38.5%

$425,700

$90,200

Chicago

1,022,916

49.9%

$286,800

$74,900

Los Angeles

1,284,430

39.7%

$633,800

$62,100

New York

3,030,752

33.6%

$538,800

$61,600

321,947

37.8%

$830,700

$96,800		

San Francisco

Source: American Community Survey (2007) and HUD 			

28

Figure 7.3
Change in House Prices in Case Study Cities
2000 – 2009
Changes in House Prices in Case Study Cities, 2000-2009
300

Case Schiller Index Value

250
200
150

100
50
0
2000

2001

San Francisco

2002

2003

New York

2004

2005

Los Angeles

2006

2007

Chicago

2008

2009

Boston

Source: Case Shiller House Price Index, 2000=100.

Despite the housing market challenges facing these
cities, their portfolios of affordable homeownership loans
are performing extremely well. In Boston, Homebuyer Assistance Programs have helped more than 4,800 low-income families purchase homes since 1995; only 62 have
gone into foreclosure. The foreclosure rate on all buyers
assisted since 1995 is 1.29 percent, less than a third of
the foreclosure rate for Boston’s housing market as a
whole (3.95 percent). This low foreclosure rate was realized despite the fact that Boston’s program serves a much
lower-income market segment than the overall market. In
Los Angeles, the city has seen only one foreclosure in its
portfolio of 1,117 loans; San Francisco has seen no foreclosures among its 1,217 loans, although there has been

Eye on Community Development

as the Community Development Block Grant program
and HOME Investment Partnership grants, are also used
by local governments to support locally developed affordable homeownership programs.
Expanding affordable homeownership has been a longtime goal for city officials in Boston, Chicago, Los Angeles,
New York, and San Francisco. Each of these cities is characterized by a lack of affordable housing, a challenge that
was heightened during the recent housing boom. At the
height of the boom, only five percent of families in New
York could afford to buy a median priced home; in Los
Angeles, only two percent of families could do so.4 Not
surprisingly, all five cities also saw high rates of subprime
lending during this time period, particularly in lower-income and minority neighborhoods. In both Los Angeles
and Chicago, nearly one in four borrowers in 2005 received a higher priced loan. And as the housing market
has collapsed (Figure 7.3), all five cities are struggling with
the consequences of rising foreclosure rates and concentrations of foreclosed properties in many neighborhoods.

one short sale and one pending notice of default. And in
Chicago, there are less than ten foreclosures pending out
of approximately 840 active loans. In New York, since
2004, the city’s HomeFirst program has assisted 913
low-income families become homeowners; as of January
2009, only two were facing foreclosure. In addition, New
York has also seen very few foreclosures among the properties it has developed as affordable units. The data show
that out of 18,354 units, only 18 units have been foreclosed upon—a foreclosure rate of only 0.01 percent. The
low foreclosure rates in these city programs are especially
remarkable given the fact that lower-income borrowers
are usually associated with higher rates of default than the
general population.5

Program Features and Policy Implications
Why have these programs performed so well and seen
so few foreclosures, despite high rates of default in the
overall housing market? In large part, the success of affordable homeownership programs can be attributed to
the checks and balances that are built into the programs
themselves. In direct contrast to the lax underwriting standards that were prevalent during the subprime boom,
city-sponsored affordable homeownership programs document participants’ incomes, ensure that the household
is able to make the monthly payments, and provide safe
and straightforward loan products that build, rather than
strip, equity.
Los Angeles’s program is instructive. Responding to the
high cost of housing in Los Angeles, the Housing Department offers three separate homebuyer purchase assistance
programs, one targeted at very low-income households
(less than 80 percent of area median income [AMI]),
one targeted at moderate-income households (less than
120 percent of AMI), as well as one targeted to slightly
higher-income households (up to 150 percent of AMI) that
are nevertheless priced out of LA’s housing market. The
program provides a downpayment loan at zero percent
interest6, payable upon sale of the property, title change,
or at the end of the 30-year loan term. The eligible loan
amount is greatest for the lowest-income households.7
Yet the program also includes many features that help
to ensure the sustainability of homeownership for these
households. First, the program requires that borrowers
complete at least eight hours of homebuyer education,
and that they have a minimum FICO score of 620. These
requirements ensure that the borrower understands and is
able to take on a mortgage; if their FICO score is below
620, they are encouraged to undertake credit repair and/
or get other debts under control first. Borrowers must also
secure conventional financing for their home purchase:
the first mortgage must be a 30 or 40 year fixed, fully amortized loan, and the maximum debt-to-income ratio is 38
percent.8 Borrowers must contribute a minimum downpay-

29

ment of three percent towards the purchase price, which
can be reduced to one percent with additional hours of
homebuyer education. Through these requirements, LA’s
program ensures that borrowers can afford their loan over
the long-term. In San Francisco, the program also prohibits
cash-out for more than 70 percent of the property’s value
minus the remaining loan amount, ensuring that borrowers don’t put themselves in a position of negative equity
after refinancing their home.
New York’s HomeFirst Down Payment Assistance
Program has similar requirements. The program provides
qualified homebuyers with a forgivable loan for up to six
percent of a home’s purchase price, which can be applied
toward the down payment or closing costs. Qualified
buyers must complete a homebuyer education course,
and have their own savings to contribute to the down
payment or closing costs. The city also requires that residents live in the home purchased for at least 10 years. This
feature demonstrates another important aspect of affordable homeownership programs: by fostering long-term homeownership, these programs also work to contribute to
neighborhood stabilization and community building, not
just individualized asset building.
Another important element in affordable homeownership programs is the post-purchase support offered to borrowers. In Los Angeles, borrowers who receive a purchase
assistance loan can also qualify to receive an additional
rehabilitation loan of up to $25,000. These loans have a
three percent interest rate, and payments are deferred until
the property is sold or the title is transferred. This type of
low-cost loan can be very important to low-income households who may not otherwise be able to address problems
like a broken water heater or a leaky roof, especially if the
property has deferred maintenance issues. Many programs
will also help borrowers who have a temporary loss of
income and need help making their mortgage payments.
In Chicago, for example, the city will work with borrowers
in distress to ensure that a foreclosure filing doesn’t result
in a foreclosure sale; more than 75 percent of foreclosure
filings among homeowners in the program were resolved
through refinancing with the original lender.
All of these aspects of city lending programs contribute to the success of low-income homeowners. Yet the
data also point to the small scale of these programs. Most
of the programs help a few hundred families a year, and
even so need to draw on multiple sources of funding to
make that number possible. For example, in New York, the
HomeFirst DownPayment Assistance program was funded
through HUD’s American Dream Downpayment Initiative.9 However, these funds have decreased over time, limiting New York’s ability to expand its program to more eligible families. Even at the program’s height in 2008, only
$4 million was allocated to the program, enough to help

30

between 230 and 270 households become homeowners. Recognizing shortfalls in federal funding for affordable housing, Boston has developed multiple sources of
funding to support its homeownership programs, including
using inclusionary housing to boost funds. When marketrate developers elect to make cash-out payments in lieu
of on-site affordable units, these funds are used to support
homebuyers up to 120 percent of area median income.
Boston has also developed the Leading the Way Fund,
which is a one-time general revenue fund in support of affordable housing. In San Francisco, the Down Payment Assistance Loan Program is funded through a revolving loan
fund that was established by a general obligation municipal bond of $15 million in 1996. San Francisco also has
an inclusionary housing ordinance passed in 2006 that
imposes a mandatory fifteen percent of affordable units to
be constructed on all projects of five units or more. In Los
Angeles, the program leverages other sources of borrower
financing through the Mortgage Credit Certificate Program
and the California Housing Finance Agency. This patchwork quilt of funding streams in all of the cities points to
a clear need for more streamlined and permanent sources
of financing for affordable housing.

Conclusion
The experiences of city-based affordable homeownership programs provide some key lessons for developing
more efficient and equitable financing for lower-income
homebuyers. Rather than being relegated to the subprime
mortgage market, lower-income households need access
to a true housing ladder, from rental units that allow them
to build financial stability to affordable homeownership
units for those ready to take on a mortgage. Building that
ladder, however, will require that we bolster policies to
support these transitions, including expanded funding at
the federal and state level for affordable housing (on both
the supply and demand side), better consumer protection
in the area of mortgage products, and opportunities for
lower-income households to build assets and savings that
can help them to make a downpayment as well as weather
unexpected income losses. Homebuyer education, both
pre- and post-purchase, should also be expanded and
improved, with greater attention paid to reaching potentially vulnerable populations such as non-English speaking households. Finally, policies that help lower-income
households to enter homeownership must be linked with
community development strategies to improve neighborhoods and increase access to good schools and job opportunities. This type of comprehensive housing strategy
will help to ensure that lower-income households are able
to realize the full potential of homeownership, improving outcomes for themselves and for the communities in
which they live.

Eye on Community Development

Artist rendering of new construction at Hunters View
Credit: Zendarski Studio. Architect: Paulett Taggart Architects.

San Francisco’s New Model for
Mixed-Income Housing: HOPE SF
By Naomi Cytron

A

mbitious plans are afoot to revitalize the City
of San Francisco’s oldest and most deteriorated
public housing sites. Through the city’s new HOPE
SF program, 2,500 units of distressed public housing will
be rebuilt as components of new mixed-income developments. This is not your ordinary public housing rehabilitation plan, though; nearly every city agency is involved in
an effort to integrate investments in housing with those in
educational and supportive services for current and future
residents.
Over the past decade, five public housing complexes
in San Francisco were redeveloped using HOPE VI funding
(see “The HOPE VI Program” sidebar), but the declining
availability of federal funding for both maintaining and rebuilding public housing prompted the city’s leadership to
think more creatively about how to finance revitalization
of the remaining portfolio of public housing units. HOPE
SF, initiated by Mayor Gavin Newsom in 2006, was born
out of that process. HOPE SF is distinguished by its guiding
principles, which seek to reduce the reliance upon dwindling HOPE VI funds, and in essence tackle many of the

critiques of HOPE VI head-on. Drafted by a taskforce of
residents, advocates, and government representatives, the
HOPE SF Principles hold that the redeveloped sites will
provide one-for-one replacement of the existing public
housing units, and will ultimately situate those units in
economically diverse neighborhood contexts. HOPE SF’s
reconfigured financing structure, which draws on a crosssubsidy concept, enables the redevelopment of housing
along a spectrum of affordability. Under the plan, sites
will be redeveloped with higher densities of housing; the
new mix of housing will include market rate housing units
and low-income rental units in addition to the replacement public housing units. Instead of financing the redevelopment of public housing with a heavy reliance on
federal subsidies, local support as well as proceeds from
the sale of market rate units will provide the significant
financing required to implement these projects. Reflecting the opportunity that city leaders saw to tackle not only
deteriorated physical conditions at public housing sites,
but social conditions as well, the principles also emphasize enhancements in local educational and workforce

31

training opportunities as housing and other neighborhood
amenities are rebuilt. In addition, the principles prioritize improved measures to engage residents in a variety
of ways throughout the planning and implementation of
redevelopment. Community building and environmental
sustainability are other core emphases.

Physical Redevelopment
HOPE SF will eventually rebuild eight public housing
sites around the city. The pilot site that will undergo
transformation is Hunters View, a project that was built
in 1956 on the site of former naval barracks. The San
Francisco Housing Authority notes that Hunters View
“displays many of the classic shortcomings of distressed
public housing in the United States: poor site planning,
indefensible open space, isolation from the surrounding
community, and chronic underfunding of operations and
maintenance.”3 Indeed, Hunters View is now far beyond
its lifespan—in 2007, federal inspectors rated it one of the
worst in the country, characterized by decrepit and dangerous conditions.4 The city was rejected three times for
HOPE VI funding to rebuild the project, and until HOPE
SF, the Housing Authority had no capacity to address the
deteriorated conditions at the site.
Through HOPE SF, the 22 acre site at Hunters View will
be “rebuilt from the ground up,” said Jack Gardner, presi-

dent of the John Stewart Company, the lead developer for
the site. Though the architectural plans are still schematic,
the plans call for the 267 public housing units currently
on-site—of which a little more than half are currently occupied— to be rebuilt among another 400-500 units of affordable and market rate rental and for-sale housing. This
will effectively create a housing ladder in a mixed-income
neighborhood, and will generate residential density that is
more consistent with other neighborhoods in San Francisco. In addition to housing, the site plans include a number
of community amenities, such as parks, open spaces, and
sites for community-serving small businesses. Flexible
spaces are also being built into the plans that can change
uses over the years depending on residents’ needs. Erin
Carson of the San Francisco Redevelopment Agency noted
that the programming in these spaces will ultimately take
shape as residents have a chance to weigh in on their interests, which may include senior services, day care, afterschool programming, or other uses.
The physical plans are being designed with an eye
toward creating a new sense of connection to the city
at large. “Historically, public housing has been not just
economically isolating, but physically isolating as well.
The new site will be designed to help residents feel that
they are part of a street, a neighborhood, and the city,”
said Gardner. “It will include fundamental design ele-

The HOPE VI Program
HOPE SF is modeled to some extent on the federal HOPE VI program, which aims to improve the living conditions within and surrounding troubled public housing developments. Since the early 1990s, HOPE VI has provided funds to demolish or rehabilitate distressed projects and rebuild them using new building configurations,
design standards, and residential densities. A core element of the program is that it encourages the development
of mixed-income communities in areas previously characterized by extreme concentrations of poverty; many
HOPE VI sites now include affordable housing for households at a variety of income levels, and at some sites,
market rate units have been developed alongside those that are deeply subsidized for low-income tenants.
Additionally, in an effort to help reshape the social and economic opportunities for low-income residents, the
program supports enhancements in supportive services and neighborhood amenities in addition to the “bricks
and sticks” aspects of redevelopment.
Over $6 billion has been allocated through HOPE VI toward the revitalization of nearly 600 distressed complexes around the nation. Many sites have seen marked improvements across a range of quality-of life indicators,
including health, education, employment and safety, and have acted as catalysts for a range of neighborhood
investments.1 However, the program has suffered from some political opposition—annual appropriations for the
program were cut back significantly during the Bush Administration, with the 2008 budget for the program just
under $98 million, down from a peak of $612 million in 19992-- and the program has some widely cited flaws.
Chief among them are that relocation programs for original tenants of public housing have not adequately supported residential transitions and returns to rebuilt units, that it has resulted in a net loss of units for low-income
households, and that residents have not necessarily seen significant opportunities for socio-economic advancement. In addition, difficulties have also arisen due to inadequate resident engagement in the planning process
for revitalization.

32

Eye on Community Development

ments that the site currently lacks—streets that lead
places, units that are positioned to offer views that orient
residents to surroundings.“ The new infrastructure in the
neighborhood will include a new street grid that connects
with the city-wide grid, as well as stairways, paths and
ramps that allow for easier pedestrian access around the
neighborhood. In addition, public safety concerns will
be addressed through improved positioning of buildings
and open spaces, as well as enhanced lighting, security
cameras, and emergency systems.

Supporting Transitions and Enhancing Opportunity
During typical redevelopment projects, those residing
in public housing slated for demolition are relocated offsite
for the duration of construction, and those who qualify are
given the option to move back to the new site once it is
complete. A unique aspect of HOPE SF is the commitment
to house residents from public housing units onsite during
the redevelopment process, and to help ensure that the
maximum number of current residents can qualify for a
new unit. A number of elements had to be coordinated
to make this possible. First, a phased tear-down plan was
developed; under this plan, units in a sector of Hunters
View slated for the second phase of reconstruction were
rehabbed in preparation for move-in by residents living in
buildings slated for the first phase of demolition. Residents
are moving into rehabbed units beginning this summer,
and will then be able to move into brand new units once
construction is complete. However, in order to qualify for
onsite relocation and the right to a revitalized unit, residents have to be current on rent and not in violation of
other lease provisions. Kaila Price of the Mayor’s Office of
Housing noted that in conducting assessments of current
residents, they discovered that this requirement would
effectively prohibit approximately 70 percent of current
residents from accessing new units. “We realized that we
were on the verge of creating a terrible policy situation,”
she said. In order to help those not in good standing on
their lease, the Mayor’s Office of Housing, in cooperation
with the Human Services Agency and Communities of
Opportunity, initiated a Rent Assistance Program. Through
this program, residents can get connected to existing eviction prevention programs to catch up on rental payments
and create plans for staying current, thereby ensuring that
they qualify for a new unit. Price noted that the relocation
plan, which was drafted with significant resident input
and collaboration, is geared overall toward minimizing
the disruptions in residents’ lives and helping to retain
continuity of community in the midst of large-scale neighborhood transformation.
While the relocation plan required the coordination
of existing programs, other aspects of the community engagement and service provision plans necessitated the
creation of supplemental programs. For instance, the de-

Current housing units at Hunters View
Photo courtesy of John Stewart Company

velopment team initially aimed to involve residents in a
master planning process for the neighborhood. But they
discovered early on that on a number of levels, residents
were not prepared to substantively participate in the
process. “When families are worried about possibly being
evicted for late payment of rent, or are struggling with
violence or drugs or otherwise traumatizing conditions,
questions about design are not yet relevant,” said Gardner.
On top of the challenges arising from dealing with difficult living conditions, another obstacle arose due to residents’ inexperience with seemingly arcane neighborhood
planning processes, meaning that many were unfamiliar
with and frustrated by development jargon and the various
roles played by the slew of agencies involved.
The Mayor’s Office of Housing stepped in to create a
number of programs to equip residents with the skills and
knowledge to better participate in the planning process,
and to ultimately help position residents to take advantage
of the opportunities that redevelopment will offer. The
HOPE SF Leadership Academy was established in collaboration with the San Francisco Housing Authority to deliver
a curriculum on housing development and neighborhood
revitalization to residents of all neighborhoods that will
be eventually transformed under HOPE SF. Students of the
Academy will be able to more effectively provide input on
policy and program development, and will gain skills to
serve as community leaders and liaisons. A Service Connection Program was also established to help stabilize
troubled households. Through this program, “Service Connectors” have reached out to all families currently living at
Hunters View to assess needs, and are working to develop
support plans tailored to individual goals and interests.
These plans can include a range of interventions, from
basic crisis mitigation and case management to helping
residents gain access to job training programs and tools
that can help lower barriers to employment, including
basic skills development and courses to complete a GED
and get a driver’s license. “We want to make sure that
residents are as prepared as they can be, and are lined up

33

The Impact of the Crisis
The unique financing structure for Hunter’s View,
which incorporates cross-subsidies from the
sale of market rate units as well as funding from
a number of private and public sources, would
have been complicated in normal circumstances.
But the current economic crisis—the credit
crunch, the collapse in Low Income Housing Tax
Credit pricing, uncertainty in the housing market,
and California’s ongoing budget crisis – has
generated significant challenges, noted Gardner.
Due to pull-backs both from home buyers and
lenders, for instance, adjustments were made
to development plans to delay the construction
of for-sale units, thereby allowing for recovery
in the housing market. Meanwhile, the project
has received support through federal Recovery
Act funding and the state’s Multifamily Housing
and Infill Infrastructure Grant Programs, and it is
anticipated that both infrastructure improvements
and the development of replacement public
housing and additional affordable housing units
will continue on schedule.

for any and all services they need to be able to succeed as
the communities are revitalized,” said Price.
Educational and recreational opportunities for youth
will also be reshaped through HOPE SF. The Mayor’s
Office is working with the San Francisco Unified School
District to tackle physical planning of local schools as
well as the other issues that need to be addressed to both
improve student and school performance and make sure
that students fare well during the redevelopment processes
at all HOPE SF sites. Additionally, University of California
at Berkeley’s Center for Cities and Schools has been enlisted to make recommendations for enhancing Malcolm
X Academy, the elementary school adjacent to Hunters
View. “The aim is take a more comprehensive approach
to neighborhood and community turnaround, starting with
the local school,” said Gardner. The development team also
hopes to reconfigure the nearby Hunters Point Youth Park as
a community and educational complex that would host a
diverse set of recreational and supportive service programs.

Coordinating and Sustaining Momentum
The range of both physical and social service transformations occurring through HOPE SF entails the involvement of a panoply of city agencies—the Housing Authority, the Redevelopment Agency, the Department of Public
Works, the Public Utilities Commission, the Department

34

of Children, Youth and Families, SF Unified School District, as well as the Mayor’s Offices of Housing, Community Investment, and Economic and Workforce Development, to name just a few. In addition, each site has its
own development team with nonprofit partners. Needless
to say, coordinating the activities of this many players
is complicated. Critical here was the lead taken by the
Mayor to achieve horizontal integration of a number of
city agencies in working to revitalize the HOPE SF sites.
In other words, rather than just viewing redevelopment of
public housing as a siloed Housing Authority issue, the
Mayor saw redevelopment as the responsibility of nearly
every agency in the city. “The mayor upped the ante in
shaping this as a collective initiative,” said Carson. “It’s
complex and ambitious, but is a much-needed approach.”
An interagency council has been established to
convene several times a month to work on coordinating the service provision and human capital development programs for populations residing in neighborhoods
where public housing is concentrated. “The coordination
is making a huge difference in service delivery,” said Price.
“It’s very exciting and promising, and gives me hope that
these processes and programs will be sustainable through
political and economic changes.”
While continued cooperation will be an important ingredient for sustaining momentum and generating positive outcomes from the program, ongoing flexibility to
adjust programs as needed will be an equally significant
contributor to success. Price noted that while the city has
drawn on national best practices in shaping the program,
they are learning at every turn and are making continual
adjustments to account for local political and economic
conditions. “We are learning as we go along—and with
the next three HOPE SF sites, we will be entering into a
20-year process with the program, so we’ll have plenty of
time to learn lessons and change the ways we are doing
business,” she said.

Conclusion
While still a work in progress, it is clear is that HOPE
SF is taking a promising approach to changing the landscape of public housing in linking physical redevelopment
with substantial investments in human capital development. The labors thus far point to a concerted effort to
reduce the isolation and dearth of opportunity that have
characterized public housing in recent years, and to build
the abilities of residents to shape and take advantage of
the possibilities that will emerge as redevelopment progresses. “The aim is to break negative cycles that have
occurred over generations,” said Gardner. “We hope to
catalyze changes that will both stabilize residents in the
near term and generate a profound transformation in their
lives over the long term.”

Eye on Community Development

Reforms to Protect American
Credit Card Holders
A Summary of the Credit Card Accountability,
Responsibility, and Disclosure Act
President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act into law on
May 22, 2009, noting that “With this new law, consumers will have the strong and reliable protections
they deserve. We will continue to press for reform that is built on transparency, accountability, and
mutual responsibility – values fundamental to the new foundation we seek to build for our economy.” To
help explain the changes to the regulations, the White House issued a fact sheet that outlined the major
provisions in the Credit CARD Act of 2009.1 This fact sheet is reprinted below.
Principles for Long-term Credit Card Reform
First, there have to be strong and reliable protections
for consumers. Second, all the forms and statements that
credit card companies send out have to have plain language that is in plain sight. Third, we have to make sure
that people can shop for a credit card that meets their
needs without fear of being taken advantage of. Finally,
we need more accountability in the system, so that we
can hold those responsible who do engage in deceptive
practices that hurt families and consumers.

Key Elements of the Credit CARD Act of 2009
Bans Unfair Rate Increases
• Financial institutions will no longer raise rates unfairly, and consumers will have confidence that
the interest rates on their existing balances will not
be hiked.

• Bans Retroactive Rate Increases: Bans rate increases
on existing balances due to "any time, any reason" or
"universal default" and severely restricts retroactive
rate increases due to late payment.
• First Year Protection: Contract terms must be clearly
spelled out and stable for the entirety of the first
year. Firms may continue to offer promotional rates
with new accounts or during the life of an account,
but these rates must be clearly disclosed and last at
least 6 months.

Bans Unfair Fee Traps
• Ends Late Fee Traps: Institutions will have to give card
holders a reasonable time to pay the monthly bill – at
least 21 calendar days from time of mailing. The act
also ends late fee traps such as weekend deadlines,
due dates that change each month, and deadlines
that fall in the middle of the day.

35

Plain Sight /Plain Language Disclosures
Credit card contract terms will be disclosed in language that consumers can see and understand so they can
avoid unnecessary costs and manage their finances.
• Plain Language in Plain Sight: Creditors will give
consumers clear disclosures of account terms
before consumers open an account, and clear
statements of the activity on consumers’ accounts
afterwards. For example, pre-opening disclosures
will highlight fees consumers may be charged and
periodic statements will conspicuously display fees
they have paid in the current month and the year
to date as well as the reasons for those fees. These
disclosures will help consumers make informed
choices about using the right financial products and
managing their own financial needs. Model disclosures will be updated regularly based on reviews
of the market, empirical research, and testing with
consumers to ensure that disclosures remain clear,
useful, and relevant.
• Real Information about the Financial Consequences of Decisions: Issuers will be required to show
the consequences to consumers of their credit
decisions.
Issuers will need to display on periodic statements

36

how long it would take to pay off the existing balance—
and the total interest cost—if the consumer paid only the
minimum due.
Issuers will also have to display the payment amount
and total interest cost to pay off the existing balance in 36
months.

Accountability
The act will help ensure accountability from both
credit card issuers and regulators who are responsible for
preventing unfair practices and enforcing protections.
• Public posting of credit card contracts: Today credit
card contracts are usually available only in hard
copy and not in plain language. Now issuers will be
required to make contracts available on the Internet
in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit
card terms and evaluate whether current disclosures
and protections are adequate.
• Holds regulators accountable to enforce the law:
Regulators will be required to report annually to
the Congress on their enforcement of credit card
protections
• Holds regulators accountable to keep protections
current:
• Regulators will be required to request public
input on trends in the credit card market and
potential consumer protection issues on a biennial basis to determine what new regulations or
disclosures might be needed.
• Regulators will be required either to update the
applicable rules, or to publish findings if they
deem further regulation unnecessary.
• Increases penalties: Card issuers that violate these
new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.

Cleans Up Credit Card Practices For Young
People at Universities
The act contains new protections for college students
and young adults, including a requirement that card issuers
and universities disclose agreements with respect to the
marketing or distribution of credit cards to students.

Eye on Community Development

• Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments
to the highest interest balance first, as consumers
expect them to do. The act also ends the confusing
and unfair practice by which issuers use the balance
in a previous month to calculate interest charges on
the current month, so called "double-cycle" billing.
• Requires Opt-In to Over-Limit Fees: Consumers will
find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to
process transactions that would place the account
over the limit.
• Restrains Unfair Sub-Prime Fees: Fees on subprime,
low-limit credit cards will be substantially restricted.
• Limits Fees on Gift and Stored Value Cards: The act
enhances disclosure on fees for gift and stored value
cards and restricts inactivity fees unless the card has
been inactive for at least 12 months.

Quarterly Features

DOCTOR CRA
by John Olson
Dear Dr. CRA:
My community partners have been asking more frequently about what my bank is doing to promote
financial education in our community. It’s becoming a more prominent issue and quality financial
education has become especially important in light of the financial crisis. I want to increase financial
education activity in my community, but will I get CRA credit for it?
										
										

Signed,
Ready to Step Up

Dear Ready,
Let’s take a look at what’s in the CRA Questions and
Answers document for our answer. The regulation mentions ways in which financial education activities may
be considered under the Lending, Service, or Investment
Tests for large institutions. For Intermediate Small Institutions, the sections on community development investment and service activities may be considered under the
Community Development Test.

Lending Test
For the Lending Test, we look to question .22(a)–1:, which
asks whether there are “types of lending activities that
help meet the credit needs of an institution’s assessment
area(s) and that may warrant favorable consideration as
activities that are responsive to the needs of the institution’s assessment area(s)?” One of these types of lending
that warrants favorable consideration is “providing loan
programs that include a financial education component
about how to avoid lending activities that may be abusive
or otherwise unsuitable.”

Investment Test
For the Investment Test, we look to question .12(t)–4,
which lists examples of qualified community development
investments. One of the examples listed is contribution to
“not-for-profit organizations serving low- and moderateincome housing or other community development needs,
such as counseling for credit, homeownership, home
maintenance, and other financial literacy programs.”

• Providing credit counseling, homebuyer and homemaintenance counseling, financial planning or other
financial services education to promote community
development and affordable housing, including
credit counseling to assist low- or moderate-income
borrowers in avoiding foreclosure on their homes;
• Establishing school savings programs or developing
or teaching financial education or literacy curricula
for low- or moderate-income individuals.
As you can see, there are several ways to get involved in
financial education as you prepare your CRA program,
but there are a few things to keep in mind:
• Remember that the definition of community development focuses on low- and moderate-income individuals, so you’ll want to focus on these populations
as you develop your own program or select community partners.
• In order to have your financial education activities
considered as “responsive” lending activities, which
don’t have the same income restrictions as the community development activities, you’ll want to make
sure that you’re pairing your lending with education
that equips borrowers with information that will
help them avoid abusive lending practices.
And, as always, if you’re not sure about how your
program will be considered in your CRA exam, don’t
be afraid to consult your supervisor while you’re developing your program!

Service Test
For the Service Test, we look to question .12(i)–3:, which
lists examples of community development services. A
couple of the examples include references to financial
education:

37

RESEARCH BRIEFS
The Impact of the EITC on Neighborhood
Economic Development

T

Telenovela with a Financial Message

M

ost financial education lessons are written in
English for an audience that’s familiar with American culture. As a result, many of these programs
may not appeal to immigrants who have limited English
language skills or are unfamiliar with local customs. Yet
many of these individuals could benefit from learning the
basics of financial management and the American financial system. How can we bridge the cultural gap in financial education? One innovative approach is the Nuestro
Barrio “telenovela,” a Spanish language television program
that delivers financial education through the engaging and
culturally relevant soap opera format. It may be entertaining, but is this telenovela an effective means for delivering
financial education to Latino immigrants?
Using data gathered from survey participants in the
Raleigh/Durham area, Spader, Ratcliffe, Montoya, and
Skillern analyze the effect of Nuestro Barrio in the context
of a well-known theory of behavior change. They find
that the show effectively raised viewer awareness about
the benefits of bank account use and positively changed
viewers’ attitudes toward banks. However, viewers demonstrated small but statistically insignificant gains in financial knowledge. Still, the authors suggest that because it attracts a wide audience with its entertaining format, Nuestro
Barrio may be an important tool for reaching households
that might not otherwise seek financial education.
Thus, the telenovela may have limited impact as a
standalone tool for financial education, but it could be
successful as part of a broader strategy for delivering financial education to Latino immigrants. Ongoing efforts
should continue to seek innovative ways to deliver culturally relevant content with wide appeal.
Spader, Jonathan, Janneke Ratcliffe, Jorge Montoya, and
Peter Skillern. 2009. “The Bold and The Bankable: How
the Nuestro Barrio Telenovela Reaches Latino Immigrants
with Financial Education.” Journal of Consumer Affairs,
Volume 43, Issue 1.

38

he Earned Income Tax Credit (EITC) is a refundable
tax credit for low- and moderate-income workers
that helps offset payroll and income taxes, allowing these individuals to keep more of the money they
earn. Research has shown that the EITC provides numerous benefits at the individual and family level, such as
reductions in poverty and greater labor force participation
and retention among low-income workers. But how do
these effects at the individual level affect the community
at large? In what specific ways, and to what extent, do
“people-based” policies like the EITC affect the “places”
in which low-income individuals live?
To answer these questions, Spencer analyzes the effect
of the EITC in Los Angeles during the late 1990’s and finds
that the policy ends up being a de facto investment in
poor neighborhoods, as low-income workers tend to live
in close proximity to one another. Using data from the
Internal Revenue Service and the U.S. Census, Spencer
finds that the program channeled about $495 million per
year into Los Angeles’ poor neighborhoods in 1997 and
1998. This injection of EITC dollars works out to roughly
$2 million per square mile in the poor areas of the county,
in contrast to just $850,000 per square mile for other
parts of the county. Thus, even though the EITC increases
income at the individual level, the program also channels
significant financial resources to poor neighborhoods.
Spencer also finds that the increase in financial capital
resulting from the EITC is associated with an increase in
the local retail job base in poor neighborhoods in Los
Angeles. These findings suggest that the EITC does have
an effect on the municipal-level economic base, reaching
those neighborhoods that are most in need of economic
development.
The significance of the EITC as a vehicle for investment in poor neighborhoods may lead policymakers and
researchers to further explore the relationship between
people-based antipoverty policies and place.
Spencer, James. 2007. “Neighborhood Economic
Development Effects of the Earned Income Tax Credit in
Los Angeles.” Urban Affairs Review, Volume 42, Number 6.

Quarterly Features

Payday Loans and Credit Card Debt

M

any Americans struggle to make ends meet
and their paychecks never seem to go far
enough. Individuals looking for an increase in
cash flow have few options–most turn to credit cards or
payday loans. Both options provide instant liquidity, but
payday loans are generally a much higher cost option.
Can consumers recognize these cost differences and
choose the lowest-cost credit option?
Agarwal, Skiba, and Tobacman find that consumers
aren’t very effective at choosing the lower-cost credit
option. Using a unique data set that merges loan records
from a large payday lender with transaction and credit
histories from a financial institution, they find that many
individuals had a credit card yet still chose to take out
payday loans. Two thirds of the matched sample had at
least $1,000 of available credit on their existing credit
cards when they took their first payday loans (the typical
payday loan is $300). These individuals are choosing the
higher cost payday loans, despite having access to lower
cost funds from their existing credit cards. The researchers also examine the effectiveness of credit scores in
predicting payday loan defaults, looking specifically at
FICO scores and Teletrack scores, which emphasize information from subprime lenders (car title lenders, rentto-own stores, and payday lenders). They find that Teletrack scores are eight times as powerful for predicting
payday loan default compared to FICO scores. Using
the two scores together further increases the ability to
predict payday loan default: conditional on the Teletrack scores, higher FICO scores predict significantly
higher repayment rates. The authors argue that credit
card companies may also want to consider a customer’s
use of payday lending and his or her Teletrack scores in
their own risk models: taking out a payday loan predicts
nearly a doubling in the probability of serious credit
card delinquency over the next year.
Consumers need to be made aware of the true costs
of their credit options in order to address to this “liquidity puzzle.” Also, lenders could use existing credit score
information to better assess the repayment ability of borrowers when extending lines of credit.

olicy efforts aimed at boosting homeownership
for underrepresented populations have been in
effect for over a decade, yet homeownership rates
for minority and low-income households remain below
those of white and high-income households. Differences in income and access to credit contribute to different
rates of “entering” homeownership, and most policies
are designed to make the purchase more affordable at
the front end. But, households also “exit” homeownership at different rates, which affects the ownership gap
between groups. Do populations that experience low
homeownership rates also experience high homeownership exit rates?
Using data from the Panel Study of Income Dynamics for the periods 1970-1997 and 1999–2005, Turner
and Smith find that low-income homeowners consistently have higher homeownership exit rates than highincome households. For the years prior to 1997, a good
part of this differential can be attributed to family situation, such as divorce, but the gap persists after 1997,
even though it cannot be fully explained by other observable characteristics, such as employment or wealth.
Hispanic households have significantly higher exit rates
relative to non-Hispanic households pre-1997, but the
difference in exit rates is no longer significant post1997: the authors conclude that low homeownership
rates post-1997 are due to low entry rates, not high exit
rates. In contrast, black households are not more likely
to exit homeownership pre-1997, but a racial gap in
sustainability appears to arise after that. 42 percent of
black homeowners in 1999 exit homeownership by
2005, whereas only 26 percent of non-black homeowners exit homeownership during this period.
This study suggests that homeownership has not
been a sustainable experience for black and low-income
households relative to other groups. Programs that help
underrepresented groups acquire a home are helping to
close the ownership gap, but policymakers should also
focus on sustaining homeownership over the long term.

Agarwal, Sumit, Paige Marta Skiba, and Jeremy
Tobacman. 2009. “Payday Loans and Credit Cards:
New Liquidity and Credit Scoring Puzzles?” NBER
Working Paper, No. w14659.

Turner, Tracy M. and Marc T. Smith. 2009. “Exits from
Homeownership: The Effects of Race, Ethnicity and
Income.” Journal of Regional Science, Vol. 49, No. 1,
2009, pp. 1–32.

Factors Affecting Exits from Homeownership

P

39

The American Recovery and Reinvestment Act
The American Recovery and Reinvestment Act of 2009 (ARRA) is estimated to cost about $787 billion over the next
several years, of which about $280 billion will be administered through states and localities.

National Distribution of ARRA Spending

National Distribution of ARRA Spending
Tax Relief*
1%
Tax Relief*

5%
7%
8%

37%

10%

State & Local
State & Local
Fiscal
Fiscal Relief**
Relief*
Infrastructure
Infrastructure
and
Science
and Science
Protecting the
Protecting the
Vulnerable
Vulnerable
Health Care
Health Care

14%

18%

Education and
Education
and Training
Training
Energy

Timeline for ARRA State Allocations
120
ARRA State Allocations (in $billions)

Quarterly Features

DATA SNAPSHOT
100
80
60
40
20
0
2009

2010

2011

2012

2013

2014

2015

ARRA Spending Per Capita by State

* Tax Relief - includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training
and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for
Education and Training, and $65 B for Energy.
**State and Local Fiscal Relief - Prevents state and local cuts to health and education programs and state and local tax increases.
Data as of July 8, 2009. Downloaded from www.recovery.gov.

40

2016

Quarterly Features

12th District ARRA Funds Received

ARRA(in
Grants
(in millions)
ARRA Grants
$millions)

30,000

24,445

25,000

20,000
15,000
10,000
5,000

4,845

6,571

2,608
1,297 1,390 1,580 1,611 1,852

0
HI

Percent of ARRA Funds Allocated

5.0%

AK

ID

NV

UT

OR

AZ

WA

CA

State Distribution of ARRA Funds Related to Community
Development

4.0%
3.0%
2.0%
1.0%
0.0%
WA

OR

CA

ID

CDBG (Entitlement and State)
Tax Credit Assistance Program
Title I Grants to Local Educational Agencies

NV

UT

AZ

AK

HI

Homeless Prevention
Weatherization Assistance for LI Families
Early Childhood Education*

*Early Childhood Education includes - Head Start, Early Head Start, and Child Care and Development Block Grant.
Data as of July 8, 2009. Downloaded from www.recovery.gov.

41

Endnotes
Financial Education for a Stable Financial Future
1. NFCC 2009 Financial Literacy Survey http://www.nfcc.org/NewsRoom/FinancialLiteracy/index.cfm
2. Woolsey, Ben and Matt Schulz. “Credit card statistics, industry facts, debt
statistics” Retrieved on June 19, 2008 from http://www.creditcards.com/creditcard-news/credit-card-industry-facts-personal-debt-statistics-1276.php
3. Acs, Gregory (2008). Unemployment and Income in a Recession. Recession
and Recovery Policy Brief, No. 1. The Urban Institute.
4. Bell, Elizabeth and Robert Lerman (2005). Can Financial Literacy Enhance
Asset Building? Opportunity and Ownership Project. The Urban Institute.
5. National Council on Economic Education (2007). Survey of the States. www.
ncee.net
6. Mandell, Lewis (2009). The Financial Literacy of Young American Adults: Results of the 2008 National Jump$tart Coalition Survey of High School Seniors
and College Students. The Jump$tart Coalition.
7.

Bernheim, B. Douglas, Daniel M. Garrett, and Dean M. Maki (2001). Education and Saving: The Long-Term Effects of High School Financial Curriculum
Mandates. Journal of Public Economics 80(3): 435–465.

18. Johnson, Elizabeth and Margaret Sherraden (2007). From Financial Literacy
to Financial Capability Among Youth. Journal of Sociology & Social Welfare,
September 2007, Volume 34, Number 3.
19. President’s Advisory Council on Financial Literacy (2008). Annual Report.
Available at http://www.treas.gov/offices/domestic-finance/financial-institution/fin-education/docs/PACFL_ANNUAL_REPORT_1-16-09.pdf
20. Lyons, Angela, Lance Palmer, Koralalage Jayaratne, and Erik Scherpf (2006).
Are We Making the Grade? A National Overview of Financial Education and
Program Evaluation. The Journal of Consumer Affairs. Vol. 40, No.2.
21. Lopez-Fernandini, Alejandra and Karen Murrell (2008). “The Effectiveness of
Youth Financial Education, Summary of a Convening Held July 15-16, 2008.”
The New America Foundation. http://www.newamerica.net/publications/
policy/effectiveness_youth_financial_education_1
22. For more information, please see the Federal Reserve Bank of San Francisco
Financial Education Resource Center webpage at http://www.frbsf.org/
community/issues/education/
23. Ahrens, Frank. “Bernanke Presses Financial Literacy For Minorities.” The
Washington Post, April 15, 2009; Page A16.

8. Hathaway, Ian and Sameer Khatiwada (2008). Do Financial Education Programs Work? Federal Reserve Bank of Cleveland Working Paper No. 08-03.

24. Kim, Barbara, Hyepin Im, and Joshua An (2007). “Planning for the ‘Golden
Years’ - Research Study of Korean Americans on Asset Building & Retirement
Planning Activities.” Korean Churches for Community Development report
submitted to the Insight Center for Community Economic Development.

9. The Office of the Comptroller of the Currency (OCC) published a report
detailing how the school-based bank savings programs operate, including
the benefits and potential risks to banks participating in these programs. See
www.occ.gov/cdd/Insights-Schoolbasedbank.pdf

25. Financial Literacy and Education Commission (2008). Research Priorities:
Results of the National Research Symposium on Financial Literacy and Education. http://www.treas.gov/offices/domestic-finance/financial-institution/fineducation/commission/ResearchSymposiumpaper12-8-08.pdf

10. FDIC (2007). “A Longitudinal Evaluation of the Intermediate-term Impact of the
Money Smart Financial Education Curriculum Upon Consumers’ Behavior and
Confidence.”

An Apple or a Donut?

11. Schreiner, Mark, Margaret Clancy, and Michael Sherraden. 2002. “Saving
Performance in the American Dream Demonstration.” Center for Social Development Report. St. Louis, MO: Washington University in St. Louis.

1

Benton, Marques, Stephan Meier and Charles Sprenger (2007). “Overborrowing
and Undersaving: Lessons and Policy Implications from Research in Behavioral Economics,” Federal Reserve Bank of Boston Community Affairs Working
Paper, May 2007.

2

While this assumption might seem unrealistic, it does provide economists with
the ability to build very accurate predictive models. For a paper that explains
the rationale and strengths of traditional economic theory, see Edward Lazear
(2007). “Economic Imperialism,” paper presented at Behavioral Economics and
Consumer Policy, Federal Trade Commission, Washington, D.C., April 20, 2007,
Available online at: http://www.ftc.gov/be/consumerbehavior/docs/agenda.
shtm

15. Bernheim, B. Douglas and Daniel M Garrett (2003). The effects of financial
education in the workplace: Evidence from a survey of households. Journal of
Public Economics, Volume 87, Issue 7-8, Pages: 1487-1519.

3

Foote, Chris (2008). “From Behavioral Economics to Freakonomics: Economics
in a Golden Age,” paper presented at the 2007 Economics Summit, November
19, 2007.

16. Lusardi, Annamaria (2004). Savings and the effectiveness of financial education. In: O. Mitchell and S. Utkus, Editors, Pension Design and Structure: New
Lessons from Behavioral Finance, Oxford: Oxford University Press, Oxford
(2004), pp. 157–184.

4

Camerer, Colin, et al. (2007). “Regulation for Conservatives: Behavioral
Economics and the Case for “Asymmetric Paternalism,” paper presented at
Behavioral Economics and Consumer Policy, Federal Trade Commission,
Washington, D.C., April 20, 2007, Available online at: http://www.ftc.gov/be/
consumerbehavior/docs/agenda.shtm

5

Meier, Stephan and Charles Sprenger (2008). “Discounting Financial Literacy:
Time Preferences and Participation in Financial Education Programs,” Federal
Reserve Bank of Boston Public Policy Discussion Paper 07‐5.

12. Garman, E. Thomas, Daniel A. Young, and Harry Love (2000). Successes in
Workplace Financial Education. Consumer Interest Annual, Volume 46.
13. Bernheim, B. Douglas and Daniel M Garrett (2003). The effects of financial
education in the workplace: Evidence from a survey of households. Journal of
Public Economics, Volume 87, Issue 7-8, Pages: 1487-1519.
14. Mandell, Lewis (2008). “Financial Education In The Workplace: Motivations, Methods, And Barriers.” Prepared for the Asset Building Program, New
America Foundation.

17. Annual Report of Presidents Council http://www.treas.gov/offices/domesticfinance/financial-institution/fin-education/docs/PACFL_ANNUAL_REPORT_116-09.pdf

42

6

7

Agarwal, Sumit, et al. (2007). “Stimulus and Response: The Path from Naïveté
to Sophistication in the Credit Card Market,” paper presented at Behavioral
Economics and Consumer Policy, Federal Trade Commission, Washington, D.C.,
April 20, 2007, Available online at: http://www.ftc.gov/be/consumerbehavior/
docs/agenda.shtm.
Choi, James, et al. (2002). “For Better or For Worse: Default Effects and 401(K)
Savings Behavior,” Pension Research Council, Working Paper No. 2002-2;
Madrian, Brigitte C. and Dennis F. Shea (2001). “The Power of Suggestion:
Inertia in 401(k) Participation and Savings Behavior,” The Quarterly Journal of
Economics 116: 1149- 1184.

8

Barr, Michael S., Sendhil Mullainathan, and Eldar Shafir (2008). Behaviorally
Informed Financial Services Regulation. New America Foundation: Washington, D.C.

9

Collins, J. Michael (2009). “YOU COULD LOSE YOUR HOME: The Effects of
State Policies Mandating Subprime Mortgage Risk Disclosures On Consumer
Evaluations of Loan Offers,” paper presented at the Sixth Biennial Community
Affairs Research Conference: Innovative Financial Services for the Underserved, Washington, DC, April 17, 2009.

10 Bertrand, Marianne, et al. (2009). “What’s Advertising Content Worth? Evidence
from a Consumer Credit Marketing Field Experiment,” forthcoming, Quarterly
Journal of Economics, available online at, http://www.dartmouth.edu/~jzinman/
11 Lacko, James M., et al., (2000). Report: Survey of Rent-to-Own Customers.
Washington, D.C.; Federal Trade Commission, available online at http://www.ftc.
gov/reports/index.htm.
12 Camerer, Colin, et al. (2007). “Regulation for Conservatives: Behavioral
Economics and the Case for “Asymmetric Paternalism,” paper presented at
Behavioral Economics and Consumer Policy, Federal Trade Commission,
Washington, D.C., April 20, 2007, Available online at: http://www.ftc.gov/be/
consumerbehavior/docs/agenda.shtm
13 Brown, Amy . “Behavioral Economics and Asset-Building: How Understanding
the Psychology of Financial Behavior Can Empower Participants and Improve
Program Outcomes,” brief prepared for CFED and funded by the Casey Foundation, available online at http://s3.amazonaws.com/alcdownloads/II.10_Behavioral%20Economics_Skricki.pdf

2. Bernanke, B.S. (2006) Financial literacy. Testimony before the Committee of
Banking, Housing and Urban Affairs of the United States Senate (May 23).
www.federalreserve.gov/boarddocs/testimony/2006/20060523/default.htm
3. Braunstein S. (2008) Financial literacy. Testimony before the Committee on Financial Services, U.S. House of Representatives, April 15. www.federalreserve.
gov/newsevents/testimony/braunstein20080415a.htm
4. The American Council on Consumer Interests commissioned a special issue
of the Journal of Consumer Affairs in 2008 (Vol. 42, No.2) focusing on financial literacy and public policy and a second special issue on financial literacy
is planned for 2010
5. The full research study is available at http://www.kansascityfed.org/carc2009/
papers.cfm
6. AIT generally takes place immediately after basic training; depending on the
course of instruction, it can last between 6 to 12 weeks. After AIT, the soldiers
are posted to their first official duty station. During the course of this study,
most air defenders stayed at Ft. Bliss or were deployed to Korea or Southwest
Asia.
7.

Monthly pay for an E1 (the lowest pay grade) with less than 2 years of experience was $1,400 per month in 2009 ($16,800 annually); monthly pay for an
E4 with between 2 and 3 years of service is $1,921 ($23,052 annually; U.S.
Military.com, 2009).

Tax Time as an Asset Building Opportunity
1. Milbourn, G. C. (2004). Improvements Are Needed to Ensure Tax Returns
Are Prepared Correctly at Internal Revenue Service Volunteer Income Tax
Assistance Sites. Retrieved July 31, 2007. www.treas.gov/tigta/auditreports/20
04reports/200440154fr.pdf ; O’Connor, M. (2001). Tax Preparation Services for
Lower-Income Filers: A Glass Half Full, or Half Empty? Tax Notes Today, 5-106.
2. Collins, J. M., & Baker, C. (2007). The Role of Asset-Building Services for
Community-Based Tax Preparation Programs. PolicyLab Consulting Group,
LLC for the Center for Economic Progress Ithaca, NY.
3. Ibid.

14 Thaler, Richard H. and Shlomo Benartzi (2004). “Save More Tomorrow: Using
Behavioral Economics to Increase Employee Saving,” Journal of Political
Economy, 12(1).

4. Ibid.

15 Thaler, Richard (2009). “It Doesn’t Have To Hurt: Government Should Use the
Lessons of Behavioral Economics To Get Us To Invest More For Retirement,”
Newsweek, Apr 20, 2009.

Sustaining Homeownership

Financial Education: Does It Work and How Do We
Know?
1. The analysis and conclusions set forth in this presentation represent the work
of the authors and do not indicate concurrence of the Federal Reserve Board,
the Federal Reserve Banks, or their staff. Mention or display of a trademark,
proprietary product, or firm in the presentation by the author does not constitute an endorsement or criticism by the Federal Reserve System and does not
imply approval to the exclusion of other suitable products or firms.

1. Special thanks to the staff of the housing departments in the four cities studied, including Patricio Zambrano-Barragán, Lisa Danzig and Elizabeth Gaumer
of New York City; Evelyn Friedman, Kevin McColl, Tony Lopez and Ron Farrar of
Boston; Seth Reimer of Chicago; Myrna Melgar and Doug Shoemaker of San
Francisco; and Doug Swoger, Yolanda Chavez, Brittanya Murillo, and Mirna
Urbina, of Los Angeles.
2. Randall S. Kroszner. “The Community Reinvestment Act and the Recent
Mortgage Crisis.” Speech delivered at Confronting Concentrated Poverty
Policy Forum, Board of Governors of the Federal Reserve System, Washington,
D.C., December 3, 2008. www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm; Elizabeth Laderman, and Carolina Reid. 2008. “Lending in
Low- and Moderate-Income Neighborhoods in California: The Performance of
CRA Lending During the Subprime Meltdown,” FRBSF Community Development Working Paper. 05-08. www.frbsf.org/publications/community/wpapers/2008/wp08-05.pdf.

43

Endnotes
3. William M. Rohe and Harry L. Watson, eds. (2007). Chasing the American
Dream: New Perspectives on Affordable Homeownership (Ithaca: Cornell
University Press).
4. Data from the NAHB-Wells Fargo Housing Opportunity Index. The Index
represents the share of homes sold that could be considered affordable to a
family earning the median income. It does not consider the cost of mortgage
insurance. The NAHB assumes a family can afford to spend 28% of gross
income on housing.
5. Robert Van Order, Simon Firestone and Peter Zorn (2007). “The Performance
of Low Income and Minority Mortgages” Ross School of Business Paper No.
1083.
6. In lieu of interest, loans are repaid with shared appreciation. Upon repayment
of the loan, a share of the appreciated value of the property is repaid equal
to the ratio of the purchase assistance loan to the original purchase price of
the home. For example, if the original purchase price was $200,000 and the
purchase assistance loan was $50,000 (25% of the purchase price), upon sale
of the property, the borrower would repay the original loan amount ($50,000)
plus 25% of the appreciated value in the property.
7.

44

The amount of subsidy for LAHD’s Low-Income Purchase Assistance Programs has changed over the years. In the beginning of the decade, the total
amount of purchase assistance and rehab was $35,000 plus a forgivable third
which was 10% of the soft second total. Then in 2001, the amount of purchase
assistance was increased to $60,000 and an additional $15,000 was available
for rehab and the forgivable third was done away with. In 2005 the amount of
purchase assistance was increased to $90,000 and the amount available for
rehab was increased to $25,000.

8. In some cases, this can be extended up to 50% with documented compensating circumstances.
9. Before ADDI funds were released, HPD used funds from its CDBG program to
fund a more limited downpayment of $10,000 to eligible borrowers.

San Francisco’s New Model for Mixed-Income Housing:
HOPE SF
1. For a more complete review of studies examining the impact of HOPE VI,
please see “A Decade of HOPE VI: Research Findings and Policy Challenges”
(Washington : Urban Institute, 2004). Also, see Wood, David (2007) “Public
Housing: Information on the Financing, Oversight, and Effects of the HOPE VI
Program” (Washington, DC: Government Accountability Office)
2. HUD website: http://www.hud.gov/offices/pih/programs/ph/hope6/grants/fy08/
3. San Francisco Housing Authority Website: http://www.sfha.org/
4. Heather Knight (2007). “Fixing mess at Hunter’s View won’t be quick, easy, or
cheap.” San Francisco Chronicle, September 17, 2007.

Reforms to Protect American Credit Card Holders
1. http://www.whitehouse.gov/the_press_office/
Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders/

New Community Development
Working Papers
Peer-to-Peer Lending and Community Development Finance
Ian Galloway, Federal Reserve Bank of San Francisco
Peer-to-peer (P2P) lending platforms facilitate debt transactions by directly connecting borrowers
and lenders on the internet. In the summer of 2008 the Center for Community Development Investments assembled a working group of community development leaders, investors, and Prosper
Marketplace, the largest P2P platform in the world, to discuss the potential community development implications of the innovation. This working paper documents this discussion and explores
P2P lending in greater detail. Part I offers background on P2P and the state of the P2P lending
industry; Part II outlines the potential community development finance implications of P2P; and
Part III discusses the working group and next steps necessary to successfully marry P2P technology
and community development finance.

Bank Accounts and Youth Financial Knowledge:
Connecting Experience and Education
Laura Choi, Federal Reserve Bank of San Francisco
Studies have shown that “experiential learning” can result in significant knowledge gains in a
number of subject areas, but how does “learning by doing” fit into the context of financial education? This new working paper explores this topic and analyzes data from the 2008 Jump$tart
survey of high school seniors to examine the relationship between bank account ownership and
student knowledge of personal finance. The paper finds that even after controlling for key socioeconomic and demographic variables, such as race and parental education, students with bank accounts scored significantly higher on the test of financial literacy, relative to their unbanked peers.
The results are informative for financial education delivery, particularly the importance of providing interactive opportunities for the application and practice of skills and knowledge.

The Untold Cost of Subprime Lending:
Foreclosures among Communities of Color in California
Carolina Reid and Elizabeth Laderman, Federal Reserve Bank of San Francisco
Using a unique data set that merges Home Mortgage Disclosure Act data with loan performance
data from Lender Processing Services Inc., this paper explores the relationship between race, subprime lending, and foreclosure in California. The paper finds that communities of color have been
disproportionately affected by the foreclosure crisis, and that these disparities stem from a series
of complicated and interrelated factors. The paper also shows that African Americans and Latinos
in California had access to very different mortgage markets, and that mortgage market channels
played an important role in the likelihood of receiving a higher-priced loan. Once we control
for the probability of obtaining a higher-priced loan, the differences in foreclosure rates among
minorities and whites shrink considerably. This paper provides compelling evidence for the need
to revisit consumer protection regulations and fair lending laws to ensure that minority borrowers
aren’t unfairly being steered into different mortgage market channels.

Available online at www.frbsf.org/publications/community/wpapers/

41

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