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By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, [email protected]

This post is part of an ongoing series to support our annual upcoming three-day learning event. The Personal Finance Virtual Learning Event will be held June 5-7 and this year will focus on the soft skills financial professionals need to effectively meet the needs of their clients and students. Learn more and register for sessions here:

In June 2017, the Consumer Financial Protection Bureau (CFPB) held a webinar called Principles for Effective Financial Education. In the webinar, the CFPB provided key insights that were gathered through its research and other best practices. The focus was on financial education that results in changed knowledge, skills, and attitudes of program participants and, ultimately, actions that they take to achieve greater financial well-being.

The CFPB defined financial well-being on the webinar as “A state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.” According to CFPB research, there are four elements of financial well-being:

  • Control over day-to-day, month-to-month finances (Present Security)
  • Capacity to absorb a financial shock (Future Security)
  • Financial freedom to make choices to enjoy life (Present Freedom of Choice)
  • On track to meet financial goals (Future Freedom of Choice)

According to CFPB research, financial education programs should contain seven key features. High-quality programs must: 1. Remain unbiased, 2. Be accessible, 3. Be evidence-based, 4. Have quality standards, 5. Define and monitor success, 6. Be appropriate in duration, and 7. Help learning stick.

The five CFPB financial principles for effective financial education are as follows:

  1. Know the Individuals and Families to be Served– Financial education programs can be more effective if they are matched to an individual’s specific challenges, goals, and circumstances rather than using a “one-size-fits-all” approach for all learners. Using this approach (e.g., starting with a needs assessment and focusing on client-driven goals) can help financial educators tailor programs according to learner needs and develop realistic expectations about the potential impact of programs.
  2. Provide Actionable, Relevant, and Timely Information– Personal finance information should be delivered in a way that translates knowledge into real life decisions and actions. For example, housing counseling programs have been shown to be effective by relating knowledge to a home-buying decision or goal. Ditto for financial education for Individual Development Account (IDA) program participants. The CFPB noted that technology can be effective to deliver information in small and timely increments.
  3. Improve Key Financial Skills- The CFPB found that people need three key skills to put financial knowledge to use: 1. Knowing when and how to find reliable information, 2. Knowing how to process financial information to make sound financial decisions, and 3. Knowing how to execute financial decisions. Financial educators should provide opportunities to practice financial behaviors and develop “if-then” plans and simplified, memorable, and actionable guidelines (e.g., Set a goal, Make a plan, Save automatically).
  4. Build on Motivation– Financial educators should frame financial decisions to highlight their connection to an important financial goal of learners. Two other key strategies are to provide people with opportunities to achieve small victories (i.e., successful outcomes) with tangible results and to assist with implementation planning (i.e., spelling out the specifics of successive steps that are needed to accomplish a financial goal).
  5. Make it Easy to Make Good Decisions and Follow Through– People’s decisions and actions are influenced by their environment and the way choices that are presented. Financial educators can help tilt external factors in consumers’ favor with strategies such as setting up automated reminders and text alerts to save, spend wisely, and save automatically and helping align consumers’ recurring bills with paydays.

For more information about CFPB research about effective financial education, read the full report.