Tuesday, December 17, 2013

OH Treasurer Pushes Financial Literacy

Josh Mandel, Treasurer of Ohio, has an OpEd in the Cincinnati Enquirer pushing financial literacy efforts in his state.  His key point:
Over the course of a child’s education, parents and teachers work hard to help students gain proficiency in subjects they will need to be successful later in life like reading, writing and arithmetic. Unfortunately, basic financial skills, including managing a budget, balancing a checkbook and building a savings reserve, are often overlooked.

Friday, November 8, 2013

Update on Texas Insurance Licensing

This blog has noted before curious data from Texas that suggests the state was not doing enough to ensure entry into the financial profession was free and fair.  As a follow-up, there is some good news coming out of Texas.  The state's pass rate for the life insurance licensing exam is up to the mid-60s this year.  The state will publish a demographic report next month, and we will get a real understanding of how how much progress is being made.

 One unintended consequence of allowing barriers to entry to remain in the financial profession is that consumers have a limited pool of professionals through which they can access the advice and tools necessary to achieve financial security. It is critical that every community has access to financial advice and tools.

As this Blog stated in its earlier Texas post:
Given the CFS mission to help ensure that working-class Americans have access to financial tools and advice – including agents who represent a vital link to products like IRAs and life insurance, CFS has done a fair amount of work on how financial professionals are licensed and get into the business. That work has uncovered instances where the evidence suggests that state licensing requirements, particularly licensing exams, may be serving as an unfair and unnecessary barrier to entry into the profession - - to the detriment of consumers. While licensing is important and meant to protect consumers, consumers are not protected if the pool of professionals on which they can rely is artificially limited.

Thursday, October 17, 2013

The Surprisingly Complex World of Financial Literacy Education

The New York Times this month published a column on the surprisingly complex world of financial literacy education.  The column was pegged to a study released this month that students who receive financial literacy skills in school may not remember them by the time they are taking out mortgages or getting credit cards.

The purpose of the study is not to suggest school finance education is worthless, but to encourage folks to think about other ways and places to educate Americans about how to make good choices.

The article notes a number of ways.  Check it out.

Wednesday, September 11, 2013

More Research on the Hispanic Market

On the heels of last month's post about the Hispanic life insurance market, there is this new research from LIMRA suggesting more of the same.  In their new "Financial Protection for Hispanics" survey, the research organization found that the growing Hispanic population has a growing need for life insurance.

Interestingly, one tip offered by LIMRA to "smart advisors" is to take into account the bilingual needs of many families.  Diversity among financial professionals is something CFS has long advocated.  On this point, our research suggests regulators need to do a better job of ensuring that licensing requirements do not screen diversity out of the financial industry.

Related to this LIMRA survey, for example, is research from Texas showing extremely high licensing failure rates among agents who would serve Spanish speaking families in the state.   Of the 130 agents who took the Spanish version of the Life agent exam in 2012, just 21 passed the first time.


While there a host of reasons someone passes or fails a licensing exam, such high failure rates in Texas suggest the exam is due for a review.  The LIMRA survey suggests families need it ASAP.

Latest on Fiduciary Rule

InvestmentNews has the latest update on the Department of Labor's expected fiduciary regulation.  According to their article, the regulation will not be released next month as some had expected.

Those who expressed concerns about the original rule's impact on smalls savers appear to still have reason for fear, as comments from the DOL in the article suggest many problematic provisions still exist.

Read more...

Thursday, August 8, 2013

Reaching Multicultural Markets

There is a thought provoking piece at LifeHealthPro this month about how insurance companies can reach multicultural markets and ensure communities like the Hispanic community have access to tools like life insurance.

According to the article, Hispanics are the most underserved population by the industry.  Thirty-four percent of Hispanic families have life insurance, compared to 62 percent of the general population.

The piece suggests that "one of the best ways to penetrate a market is to hire, train and educate professionals who are part of those markets."

While that is good advice in theory, it can be difficult in practice.  As CFS has researched and featured on this blog, state licensing requirements often screen diversity out of the financial profession.  Those agents most likely to work in underserved communities are often the least likely to get a license.

Here is recent data from Virginia detailing who gets a life insurance license on the first try in the Commonwealth.  Notice that 40 percent of Hispanic candidates get a license on the first try, compared to 76 percent of Caucasian test takers.  Why?  What can be done to make the process more fair?


Answering that question is important.  If one key to better serving the Hispanic market is recruiting more Hispanic agents, then states need to do a better job of making sure the profession is open to all.

An Interesting Take on Financial Literacy Education

There is an interesting piece over at good.is about the need to radically reinvent financial literacy education.

The key point:
Instead of teaching these outdated modes of financial literacy, programs should strive for financial capability, which can best be achieved through relevant, timely, actionable, and ongoing education. Instead of counting the number of terms students memorize and forms they recognize, financial educators should measure student mastery through behavioral change and other tangible, financial outputs.
What do you think? Is the approach to financial literacy education outdated?

Tuesday, July 16, 2013

Report Card on State Financial Literacy Efforts

The Center for Financial Literacy at Champlain College is out with its "National Report Card on State Efforts to Improve Financial Literacy Efforts."  Depending on where you live, the results are either encouraging or a sign of more work to do.  Chances are there is more work to do.

Key point:
What the grading shows is that we have a long way to go before we are a financially literate nation. Just 40 percent of states were given grades that you would want your children to bring home from school — grades A or B. Sixty percent of states have grades of C or less, with 44 percent having failing grades of D or F. Clearly, as a nation, we should be able to do better.
Find out how your state ranked

Wednesday, June 26, 2013

How Much Do Americans Have in Savings?

A new survey by Bankrate.com is out and looks at Americans savings.  The results are not pretty.
Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
State and federal leaders should keep these stark facts in mind as they advance policies through their respective bodies.  One easy litmus test for all financial proposals should be: does this proposal make it easier for more Americans to save?

Tuesday, June 18, 2013

CBC, CHC & CAPAC Members Express Concern about DOL Fiduciary Rule

According to Financial Advisor magazine:
Members of the Congressional Black, Hispanic and Pacific Asian caucuses have asked the Department of Labor to not harm their constituents in revising the definition of a fiduciary.
The concern expressed in the letter is about small savers who traditionally work with financial professionals who are paid via commission to open and maintain IRAs.

The article explains that:
If commissions on these types of accounts are prohibited [under the new rule] and advisors are restricted to charging fees, many financial advisors will be put out of business and millions of IRA holders will be priced out of the market for financial advice, [Christopher Paulitz of FSI] says. This will disproportionately hurt minorities and women who hold the majority of small IRA accounts, he says.
Media reports suggest the DOL rule will be released sometime after July.  Dozens of members of Congress have asked the DOL to protect small savers' ability to work with the financial professionals of their choice.  As this article suggests, it is still unclear if the DOL has listened.  

Wednesday, May 29, 2013

Pru Surveys the African American Market

Our last post looked at the unmet need for consumers who are looking to work with female financial professionals.  Prudential is out with a study this month uncovering another unserved market: the African American market.

According to the study:
Those blacks polled report an overall sense of detachment from the financial services industry, as blacks are 13 percent less likely than the general population to have been contacted by a financial adviser. Though half of African-Americans surveyed say they believe working with a financial adviser would help them make better financial decisions, only 19 percent actually have one.
Surveys like this are one reason CFS works to knock down barriers to entry into the financial services profession encountered by those most likely to work on America's Main Streets.

Tuesday, May 7, 2013

A Need for Diversity in the Financial Industry

There's a great article in InvestmentNews this week about how consumer demand for women financial advisors has not been met by the industry's recruiting and retainment.

Key point:
Cerulli Associates Inc. estimates that only 7.9% of advisers who work directly with clients are women. Estimates from the Bureau of Labor Statistics showed 36% of advisers were female in 2010, but that included all professional women who worked for advisers, as well. That amount is actually an increase from 31% in 2009. The government measure has been around the 30% level for about a decade.
“There's a disconnect with market demand,” said Kim Dellarocca, head of practice management for Pershing LLC. Investor surveys show time and again that a large number of women prefer to work with other women.
In a study last year, Pershing found that 70% of women would like to work with a female adviser, though only about 20% of women do.
One component of the work by the Coalition for Financial Security is to help shine a light on the need for more diversity in the financial profession.  Whether it is shining a light on barriers to entry like unfair licensing practices or highlight articles like this that show the need for better recruitment, CFS is hoping to keep this subject on the front burner.  Every American and every community deserves access to the advice and tools necessary to live the American Dream.

Wednesday, May 1, 2013

Another Take on Financial Literacy

The WSJ's Personal-Finance blog is out with an alternative take on financial literacy efforts.

Interesting point:
You could easily argue that technological literacy and medical literacy are at least as important to people’s well-being as financial literacy is. Even so, most of us just call the help desk when our computers don’t work, and nearly all of us call a doctor when we’re sick. That’s partly because we’re lazy (I don’t feel like learning how to reformat my hard drive), partly because we’re busy (I don’t have time to read every article on acid reflux in the New England Journal of Medicine) and partly because we’re rational. In a capitalist system built on specialization and the division of labor, it makes sense to trust the folks at the Genius Bar to fix your MacBook better than you can and to assume the orthopedist knows more about repairing your anterior cruciate ligament than you ever will.
This organization would obviously not agree with everything in the Blog, but it is an interesting discussion.

Wednesday, March 27, 2013

Will DOL Fiduciary Rule Have Disparate Impact on African-American Savers?

Word in Washington is that the Department of Labor (DOL) will soon re-release its expanded fiduciary regulation.  The regulation will govern how financial advisors can provide advice to savers, including those who use IRAs.

Today InvestmentNews is out with coverage of a letter the Congressional Black Caucus (CBC) sent the DOL urging them to consider the rule's impact on the African American community.  The concern is that the rule may force advisors out of the small-saver market in favor of only working with those who have more assets.

An expert from the letter:
“We maintain concerns that if the re-proposal reflects the department's initial fiduciary proposal, it could disparately impact retirement savers and investment representatives in the African-American community,” states the letter, signed by Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, and fellow Democratic Reps. Gregory Meeks (N.Y.), Gwen Moore (Wis.), Emmanuel Cleaver (Mo.), Al Green (Texas), William Lacy Clay (Mo.), Terri Sewell (Ala.) and David Scott (Ga.).
It goes on to note that:
“If brokers who serve these accounts are subject to [the Employee Retirement Income Security Act's] strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations,” the lawmakers wrote. “If that occurs, it could cause IRA services to be unattainable by many retirement savers in the African-American community.”
Research by CFS and others demonstrates that contact with a financial professional can be the difference between a consumer taking advantage of a financial tool like life insurance or an IRA and not using the savings vehicle.   As such, the DOL should proceed with caution.  Many communities in America are underserved by financial professionals.  We should be working to get them more access to the tools necessary to achieve the American Dream, not less.

Tuesday, March 19, 2013

New EBRI Retirement Numbers

The Employee Benefit Research Institute is out with a new study of retirement savings.  The picture, as you might imagine, is bleak.  The Wall Street Journal has a write up.

Key point:
Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.
Lawmakers and regulators in Washington, DC, will be wrestling with a number of policy areas that involve retirement in the next year. The EBRI survey shows there is a crisis. Washington must help, not make it worse.

Monday, March 4, 2013

Boston Globe on Financial Literacy

The Boston Globe had an interesting article on financial literacy over the weekend.  The paper discusses a program at Harvard sponsored by the college's credit union.  While the fact that even Harvard students need lessons in money is interesting, the article goes into one of the vexing problems in the area of financial literacy research.  No one is yet sure what works.
Many researchers and industry groups are now trying to figure out which programs work best. The National Endowment for Financial Education suggests that students are most likely to retain information if it is covered comprehensively over time — not in one-time lessons. And adults are likely to learn more about ­finances in the workplace, working with advisers, or other alternatives to staid classroom lectures.
The last point is interesting.  How do we get to adults who are outside of school yet very much need to learn more about money?

Wednesday, February 27, 2013

New Study Says Real Estate at the Heart of Wealth Gap

A new study out today from the Institute on Assets and Social Policy has found that the wealth gap between white and black families is primarily the product of real estate and low paying jobs.

Key point:
Despite that progress, the wealth gap between whites and blacks nearly tripled among study participants, going from $85,000 per family in 1985 to $236,500 in 2009. Overall, the median net worth of whites in the study was $265,000 in 2009, compared with $28,500 for blacks. A broader survey done by federal officials has found even larger disparities, with blacks having a nickel of wealth for every dollar of wealth owned by the median white family.
The study found that black families typically bought homes later in life and in areas that did not appreciate in value as much.

What are some of the solutions to closing the gap?  Housing is still a primary driver of wealth growth, so one key remains making sure all Americans have access to responsible, low-cost financing.

Monday, February 11, 2013

Interesting Program in Nebraska

A lot of the public policy focus around financial literacy looks at ways to teach money skills in the classroom.  An interesting program from the State Treasurer in Nebraska is offering scholarships to students who compete in a financial literacy challenge.  Nebraska recently included personal finance in its curriculum.  This contest is a way to build and reinforce what is happening in the classroom.

Take a look:
Team members who get first place in the state competition will each get a $2,000 contribution to a college savings plan. Second-prize winners each will get a $1,000 contribution, and third-place winners will get a $500 contribution. Stenberg commended the Nebraska Department of Education's inclusion of personal finances in its recently revised social studies standards, and he said the importance of financial literacy can be seen in the failed mortgage loans that preceded the recession and in rising credit card debt and student loan defaults.

Tuesday, February 5, 2013

Surprise! Americans have low life insurance IQ

This blog has dedicated a series of posts to examining markets that are underserved by financial professionals.  Often, the focus of posts is the cause, or why markets are underserved - - such as burdensome regulation.  This post - with an assist from new research by LIMRA - - looks at the affect.

What happens when the middle-market is underserved by professionals such as life insurance agents?  Surprise!  Americans don't understand it and don't use it.

According to LIMRA:
LIMRA provided a life insurance IQ test to 4,000 Americans in order to gauge their knowledge and comprehension of life insurance and it found that less than a third passed the 10 question exam with 55 percent getting fewer than five questions correct. Less than one percent of those surveyed answered all 10 questions correctly.
When only 1/3rd of Americans can pass a quiz about the importance of life insurance, is it any wonder that usage of the product is at an all-time low?

Certainly every stakeholder has a role to play in tackling this problem.  Companies must make an effort to reach underserved markets, while state regulators must make sure the profession is open and accessible to all who are qualified to work.

Tuesday, January 15, 2013

Checking in on Insurance Licensing

This blog - like the Coalition for Financial Security - - likes to keep tabs on the relationship between the regulation of financial professionals and Americans' access to the tools necessary to achieve the American Dream.  CFS's research has concluded that there are not enough financial professionals working in middle-class communities.  CFS's research has also shown that those most likely to work in middle-class communities are the least likely to get licensed as financial professionals.

Last year, we showed how state licensing regulations could change overnight simply because a new vendor administers licensing tests.  In that case, it got more difficult to get an insurance license in Ohio when a new tester came to town.  This month we will look at individual states.  

The chart below shows the first-time pass rate on the Life Insurance agent exam in Florida.  As the chart shows, one out of two testers passes the exam the first-time.   For comparison, in states like New Jersey, Illinois or Tennessee, the pass rate approaches 70 percent.   At points last year in Florida, the pass rate dipped into the mid-40s. 



Why do we see these differences in exams that are essentially measuring the same thing?  Are would-be agents in New Jersey or Tennessee smarter than would-be agents in Florida?  Doubtful. Do the states have different regulatory hurdles for the same profession? Apparently they do.  

The key question going forward are 1) should they; and 2) what is the impact on consumers?  These are questions that CFS continues to explore. 





What's REALLY Undermining Retirement Security?

Washington has done a lot of looking at retirement security in the last few years.   We've witnessed debates about how to get Americans to save more and how to protect savers from supposed conflicts of interest that likely don't exist (fiduciary anyone?)  The Washington Post is out today with a look at another angle in the crisis, Americans withdrawing from retirement savings to pay current expenses.

Key point:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
In terms of solutions, there is one interesting idea at the end. Encouraging workers to establish "emergency savings accounts" that could be withdrawn tax free AND THEN "plowing money" into tax-sheltered retirement savings.

Interesting stuff. Unlike some other debates, this would appear to be a real problem that deserves attention.