A conversation with ... Claudia Parliament and Dick Todd
Community Dividend discusses financial literacy with Claudia Parliament, professor of applied economics at the University of Minnesota and director of the Minnesota Council on Economic Education, and Richard M. Todd, Community Affairs Officer and vice president of risk management at the Federal Reserve Bank of Minneapolis.
Published November 1, 2002 | November 2002 issue
The National Council on Economic Education (NCEE), founded in 1949, is a nonprofit organization devoted to helping young people understand and function in the global economy. Through a nationwide network of state councils and university-based centers, the NCEE provides training and materials designed to help teachers of grades kindergarten through twelve (K-12) instill an understanding of economics and personal finance in their students.
To learn more about the council's activities and the effectiveness of economic and financial literacy education, Community Dividend spoke with Claudia Parliament, professor of applied economics at the University of Minnesota and director of the Minnesota Council on Economic Education (MCEE), one of the state councils organized under the NCEE; and Dick Todd, Community Affairs Officer and vice president of risk management at the Federal Reserve Bank of Minneapolis.
Community Dividend: Claudia, would you briefly explain the mission and activities of the MCEE?
Claudia Parliament: Our mission is to provide Minnesotans with the economic and financial understanding they need to function effectively in a complex global environment. We accomplish that by providing professional development for teachers, student programs, and quality curriculum materials, and we conduct research and community outreach.
We believe that the best way to increase economic and financial literacy is to work with students and youth, and the way to reach them is to prepare their teachers. Those teachers will teach students every year for many years, so providing professional development opportunities for them is the best way to introduce and maintain economic and financial literacy in the K-12 curriculum.
CD: The NCEE was organized more than 50 years ago. Do you think there's a greater need for financial education today than there was a few decades ago?
CP: Definitely. The whole financial services industry has become much more complex than ever before, in terms of options and the ease with which consumers can get involved in various credit and investment opportunities. As the complexity has increased, the need for understanding has increased, and financial education has become a pressing need.
Dick Todd: I agree entirely. We're asking people at young ages to make complicated decisions in this area. We need to give them the skills to make those decisions well.
CP: And I think there's a growing awareness, probably as a result of globalization and the increasing interdependence of our economies, that we must understand our economic system, since it affects our country and reaches down into our homes. I think many people are realizing that students need to understand more about the synergy between economics and financial education—that you can't have financial literacy if you don't understand the economic system within which you're operating.
CD: Our cover story discusses financial literacy training for K-12, adult homebuyers and employees. How do you assess the efficacy of these programs? And do they seem to be successful so far?
CP: The U.S. Department of Agriculture's Cooperative Extension Service, in conjunction with the National Endowment for Financial Education, studied the impact of 10 hours of financial literacy instruction on high school students. The students' knowledge and understanding improved, based on a pre- and post-content test. Three months after the training, the majority said they had improved their spending habits and, most importantly, started to save.
To evaluate our own efforts, we test the teachers who go through our program to see if they've increased their content knowledge. We generally get a 30 percent increase in understanding after only a two-day workshop. We haven't researched the impact on the students' knowledge, because our energies are focused on providing the next training program, but that'd be a good research project to undertake—to see how students change their use of credit and how their net worth and their savings rates are affected.
DT: A recent study of adults found that savings rates and net worth were higher for individuals who went through school systems where financial education was mandated. It also found evidence that these effects are strongest among people whose parents were judged to be poor financial managers. In general, other studies in this area tend to show that financial literacy training has its strongest effects among the people who seem to be the most financially vulnerable.
CD: There's a possibility that the people who seek out financial literacy education may be more motivated or financially literate than the average person. Does this pose a problem for assessing the effectiveness of the training?
CP: Yes, but instead of focusing on that issue, I prefer to focus on a solution. The solution is to provide financial literacy education at the elementary and middle school level, and to make it part of the curriculum, so it's not an option. Elementary and middle school students are a captive audience, so you can reach all income levels and all ethnic and racial groups. Introducing the training at that level follows the 4-H model, where you educate the kids and they bring the information home to their parents. In the materials that we're encouraging educators and school districts to use, the students have take-home assignments to work on with their parents or guardians. It seems like we're just trying to get the adults to help the students, but we're also reaching out to the adults and providing them with financial education.
CD: So that's one way to reach a broader audience. How do you reach other people who aren't inclined to seek out financial literacy training on their own?
CP: Cooperative Extension makes an effort to reach a broad audience. The Minnesota Extension Service has a capacity area called Family Resource Management, and personal finance is a high priority within that area. I think the extension services in every state put a similar priority on personal financial literacy.
CD: Do you think increased financial literacy can combat predatory lending?
DT: In my view, if people are learning the basics of financial literacy—like how to do comparison shopping, for example—then that's helping to address the predatory lending problem. Consumers who borrow from predatory lenders obviously aren't doing enough comparison shopping.
CP: I agree. Our efforts aren't focused specifically on trying to avoid predatory lending, but we teach the fundamentals that people need to know in order to be informed consumers—like basic decision-making skills, and how to budget, save and do comparison shopping. I support the principle that the more informed consumers are, the less likely they'll be to fall victim to predatory lending.