Financial Literacy: A Federal Certification Process for Providers Would Pose Challenges
Published: 2011-06-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Financial literacy plays an important role in helping ensure the financial health and stability of individuals and families, and efforts to improve consumers' financial literacy have grown in recent years. Currently, hundreds of nonprofit, private, and governmental entities provide some form of financial education to Americans. The federal government does not certify or approve organizations in general that provide financial literacy, although the U.S. Trustee Program and the Department of Housing and Urban Development (HUD) have approval processes for financial literacy providers for the purposes of meeting requirements of, respectively, the bankruptcy process and certain housing programs. In response to a mandate in the Dodd-Frank Wall Street Reform and Consumer Protection Act, this report addresses (1) what is known about which methods and strategies are effective for improving financial literacy, and (2) the feasibility of a process for certifying financial literacy providers. To address these objectives, GAO reviewed relevant literature, focusing on evidence-based evaluations of financial literacy programs or approaches; conducted interviews in the federal, nonprofit, private, and academic sectors; and examined the lessons learned from the approval processes of the Trustee Program and HUD.
section_title: What GAO Found
paragraphs: Relatively few evidence-based evaluations of financial literacy programs have been conducted, limiting what is known about which specific methods and strategies are most effective. Financial literacy program evaluations are most reliable and definitive when they track participants over time, include a control group, and measure the program's impact on consumers' behavior. However, such evaluations are typically expensive, time-consuming, and methodologically challenging. GAO's review of 29 evidence-based studies evaluating specific programs or approaches indicates that several have been effective in changing consumer knowledge or behavior. For example, several of these studies showed that individualized one-on-one credit counseling, employer-provided retirement seminars, and education provided in a classroom setting have had effective outcomes. However, the diversity of these programs and their evaluation methods makes drawing generalizable conclusions difficult. As a result, it appears that no one approach, delivery mechanism, or technology constitutes best practice, but there is some consensus on key common elements for successful financial education programs, such as timely and relevant content, accessibility, cultural sensitivity, and an evaluation component. In addition, several mechanisms and strategies other than financial education have also been shown to be effective in improving consumers' financial behavior, including financial incentives or changing default options, such as through automatic enrollment in employer retirement plans. The most effective approach may involve a mix of financial education and these other strategies. While a federal process for certifying financial literacy providers appears to be feasible, doing so would pose challenges. Initiating and developing such a process would necessitate that Congress or federal agencies determine which entity would administer the certification, the types of providers that would be covered, the degree of oversight required, and other aspects of the process. Some financial literacy stakeholders with whom GAO spoke cited potential benefits to federal certification. For example, some noted that it might help improve the quality of financial education providers, help consumers identify competent providers, or create greater public awareness about financial education. However, as the experiences of the Trustee Program's and HUD's approval processes show, federal certification would require financial and staff resources for administering the process. Moreover, most financial literacy stakeholders with whom GAO spoke cited additional concerns, including the potential cost and administrative burden to certified entities, the challenge of creating a single process for certifying such a diverse field, and skepticism that certification would improve the quality of financial education providers. Further, the lack of consensus about which financial literacy strategies and approaches are most effective would make certification challenging.

section_title: Letter
paragraphs: Financial literacy—the ability to make informed judgments and to take  effective actions regarding money—plays an important role in ensuring the  financial health and stability of individuals and families. Economic  changes in recent years have further highlighted the need to ensure that  consumers can make informed financial decisions. For example, the  recent financial crisis revealed that many borrowers did not fully  understand the risks associated with alternative mortgage products.  Efforts to improve Americans’ financial literacy have grown in the past  decade, and although research on financial literacy has also grown, we still  know little about the effectiveness of these efforts. Currently, hundreds of  nonprofit, private, and governmental entities provide some form of  financial education to Americans. The federal government plays a role in  regulating or overseeing certain of these providers to meet statutory  requirements in selected cases, but there is no broad federal approval or  certification process for entities that provide general financial education.
This report responds to a mandate included in the Dodd-Frank Wall Street  Reform and Consumer Protection Act (Dodd-Frank Act), which directed  us to study ways of improving financial literacy and the feasibility of  certifying organizations that provide financial literacy. This report  responds to that mandate by examining (1) what is known about which  methods and strategies are effective for improving financial literacy, and  (2) the feasibility of a process for certifying financial literacy providers  and the benefits and challenges of doing so. For the purposes of this  report, “financial literacy providers” generally refers to organizations,  rather than individuals, and excludes entities that provide individualized  advice for compensation, such as investment advisers or financial  planners. In addition, our examination of a potential certification process  for financial literacy providers focused on a process that would be  operated or overseen by the federal government.
To address these objectives, we conducted a literature search of studies,  reports, and articles developed by academic researchers, the nonprofit  sector, and government agencies that evaluated the effectiveness of  financial literacy and education efforts. In addition, we conducted  interviews with and obtained related documents from representatives of  federal agencies whose missions involve consumer education or  protection, including the Consumer Financial Protection Bureau, Federal  Deposit Insurance Corporation (FDIC), Federal Trade Commission, Board  of Governors of the Federal Reserve System, Department of the Treasury  (Treasury), and Securities and Exchange Commission; nonprofit  organizations that provide or advocate for financial literacy and education;  representatives from the Financial Industry Regulatory Authority (FINRA)  and the banking and financial services industries; and selected academic  researchers who focus on financial literacy. To assess the feasibility of a  process for certifying financial literacy providers, we solicited the views of  these parties on that topic in semi-structured interviews. To help inform  the steps and resources that might be required for a certification process,  we reviewed the processes used by the Department of Justice’s U.S.  Trustee Program to approve and oversee credit counseling agencies and  debtor education providers in accordance with provisions of the  Bankruptcy Code and by the Department of Housing and Urban  Development (HUD) to approve and oversee organizations participating in  its Housing Counseling Program. We reviewed and analyzed related  documents and interviewed staff from these agencies. In addition, we  gathered data from the Trustee Program and HUD on staff and monetary  resources used for their approval processes and on the number of  approved entities. We determined that these data were sufficiently reliable  for our purposes. A more extensive discussion of our scope and  methodology appears in appendix I.
We conducted this performance audit from September 2010 to June 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Financial literacy has been defined as the ability to use knowledge and  skills to manage financial resources effectively for a lifetime of financial  well-being. To make sound financial decisions, individuals need to be  equipped not only with a basic level of financial knowledge but also with  the skills to apply that knowledge to financial decision making. Thus,  financial literacy encompasses both financial education—the process of  improving consumers’ understanding of financial products, services, and  concepts—as well as consumers’ behavior as it relates to their ability to  make informed judgments. In the United States, a number of trends have  emerged in recent years that underscore the importance of financial  literacy. For example, investment options and credit products have grown  in number and complexity. In addition, consumers are assuming greater  responsibility for their own retirement savings, with traditional defined- benefit retirement plans becoming increasingly rare. Evidence suggests  that many U.S. consumers could benefit from improved financial literacy.  In a 2010 survey of U.S. consumers prepared for the National Foundation  for Credit Counseling, a majority of consumers reported they did not have  a budget, and about one-third were not saving for retirement. In a 2009  survey of U.S. consumers by the FINRA Investor Education Foundation, a  majority believed themselves to be good at dealing with day-to-day  financial matters, but the survey also revealed that many had engaged in  financial behaviors that generated unnecessary expenses and fees and had  difficulty with basic interest and other financial calculations.
A wide variety of organizations provide financial education resources,  including nonprofit community-based organizations, consumer advocacy  organizations, financial services companies, trade associations, employers,  and local, state, and federal government entities. Some financial literacy  initiatives are aimed at the general population, while others target certain  audiences, such as low-income individuals, military personnel, high school  students, seniors, or homeowners. Similarly, some financial literacy  initiatives cover a broad array of concepts and financial topics, while  others target specific topics, such as managing credit, investing,  purchasing a home, saving for retirement, or avoiding fraudulent or  abusive practices. Efforts to improve financial literacy can take many  forms. These can include one-on-one counseling; curricula taught in a  classroom setting; workshops or information sessions; print materials,  such as brochures and pamphlets; and mass media campaigns that can  include advertisements in magazines and newspapers or on television,  radio, or billboards. Many entities use the Internet to provide financial  education, which can include information and training materials, practical  tools such as budget worksheets and loan and retirement calculators, and  interactive financial games. Youth-focused financial education programs  are generally tied to a school curriculum. In 2009, 13 states had  requirements for a course in personal finance education prior to high  school graduation, and 34 states required personal finance education  standards to be implemented to some extent in the curriculum, according  to a survey by the Council for Economic Education.
In 2009, more than 20 federal agencies had initiatives related to improving  financial literacy. In some cases, federal agencies develop and provide  financial education directly. For example, FDIC has developed and  disseminated Money Smart, a comprehensive financial education  curriculum, and the Federal Trade Commission has developed numerous  brochures and Web resources on topics such as credit products, identity  theft, and fraudulent schemes. In other cases, federal agencies provide  grants or other support to nongovernmental organizations that provide the  direct financial education. For example, in fiscal years 2009 and 2010,  Treasury’s Financial Education and Counseling Pilot Program provided  grants to eligible community and other organizations to provide financial  education and counseling services to prospective homebuyers. The  multiagency Financial Literacy and Education Commission, which was  created in 2003, was charged with, among other things, developing a  national strategy to promote financial literacy and education, coordinating  federal efforts, and identifying areas of overlap and duplication. The  commission is chaired by the Secretary of the Treasury and Treasury’s  Office of Financial Education and Financial Access provides its primary  staff support. In addition, the Dodd-Frank Act required the establishment  of an Office of Financial Education within the Consumer Financial  Protection Bureau, and the director of the bureau will serve as Vice Chair  of the Financial Literacy and Education Commission.
The federal government does not generally certify or approve financial  literacy providers or regulate the content of the services they provide,  except in certain instances. For example, the Bankruptcy Code requires  individuals to receive budget and credit counseling from an approved  provider before filing a petition for bankruptcy and also requires  bankruptcy petitioners to complete an instructional course on personal  financial management in order to have their debts discharged. As such,  the Department of Justice’s U.S. Trustee Program approves providers who  meet certain criteria to provide these services. In addition, HUD approves  housing counseling agencies to provide certain services and awards  competitive grants to approved agencies to fund those services.
section_title: Although Definitive Evidence Is Lacking on What Is Most Effective in Improving Financial Literacy, Some Initiatives Have Yielded Positive Results
subsections: section_title: Relatively Few Evaluations Have Measured Financial Literacy Programs’ Effect on Consumer Behavior
paragraphs: While there is a fairly extensive literature on financial literacy, relatively  few evaluations of financial literacy programs have been published that  use empirical evidence and even fewer evaluations measured a program’s  impact on the participants’ behavior. One reason for this may be that the  field of financial literacy is relatively new and many programs have not  been in place long enough to allow for a long-term study of their  effectiveness; for example, many of the key federal financial literacy  initiatives were created only within the past 10 years. In the view of some  experts and practitioners in the field of financial literacy with whom we  spoke, the approaches that are most effective in meaningfully improving  consumers’ financial behavior are not fully known.
After conducting a literature search, we identified 142 papers published  since 2000 that addressed the value or effectiveness of financial literacy  and were authored by individuals or organizations that appeared to have  significant experience or expertise in the field. We focused our review on  29 studies we identified among this group that met four additional  criteria. First, they evaluated the outcomes of a specific program,  approach, or policy. Second, they used empirical evidence—that is, they  used data rather than anecdotal evidence. Third, they were based on  original data collection rather than reviews of existing literature. Finally,  they were determined to be sufficiently reliable and methodologically  rigorous for inclusion in our review.
The evaluations of financial literacy programs that are most reliable,  useful, and definitive include three key elements, according to some  experts with whom we spoke and literature that we reviewed: they  measure behavioral change, track participants over time, and use a control  group. The extent to which the studies we reviewed incorporated these  elements varied:    Measure behavioral change: Of the 29 studies we reviewed that evaluated  the effectiveness of a financial literacy program or initiative, 22 measured,  among other things, its impact on the participants’ behavior. The  remaining seven studies did not measure the program’s impact on  behavior but instead measured outcomes such as improvements in  knowledge, attitude, or anticipated behavior. In general, the ultimate goal  of financial education is to favorably affect consumer behavior, such as to  promote improved saving and spending habits, wise use of credit, and  avoidance of fraudulent or disadvantageous financial products. A financial  education program may be of limited effectiveness if, for example, it  increases participants’ knowledge of retirement savings issues but does  not actually affect, on average, participants’ behavior through increased  retirement contributions or other measures.
Track participants over time (longitudinal): Eighteen of the 29  evaluations we reviewed were longitudinal—they involved the repeated  examination of the study participants over time. Longitudinal studies of  financial education programs can be important because these programs  often seek to affect long-term outcomes, such as improved credit scores or  increased retirement savings, that may occur several months or years after  the end of the program. For example, a financial education program that  seeks to increase homeownership would, ideally, track whether  participants had become successful homeowners over a period of many  years.
Involve a control group: Seven of the 29 evaluations we reviewed used a  control group—that is, the evaluation measured participants in the  financial education program against a comparison group that did not  participate in the program. Use of a control group helps to isolate the  impact of a financial education program from other influences, such as  changes in the overall economy, and provides a baseline against which to  compare the program’s effect. It also can help avoid selection bias because  individuals who choose to participate in a financial education program  may be those who are most interested and motivated to change or who  place a greater value on their future.
Experts in financial literacy and program evaluation have cited many  significant challenges to conducting rigorous and definitive evaluations of  financial literacy programs that include these elements. For example,  measuring a change in participant behavior is much more difficult than  measuring a gain in knowledge, which can often be captured through a  simple post-course test. Measuring behavior often relies on self-reported  information, which can be inaccurate, or may require tracking credit  scores, account balances, or other data that may be proprietary. Moreover,  many organizations lack the financial resources or expertise to conduct  program evaluation, particularly long-term evaluation involving a control  group, which can be especially time and labor intensive. This is often the  case when evaluations require tracking populations that are more  transient in nature, such as college-aged individuals. In addition, because  many variables can affect consumer behavior and decision making,  ascribing long-term changes to a particular program is difficult. Moreover,  some of the evaluation literature we reviewed noted that longitudinal  studies using a control group and measuring behavioral change cannot be  practically or realistically applied to all programs.
Consequently, many evaluations rely on other measures that are less  complex and less resource intensive to measure, such as knowledge gains,  changes in attitudes, or outputs. One academic review of financial literacy  evaluations found that the majority of financial education programs it  reviewed only measured program outputs, such as the number of  individuals served or the volume of materials distributed. The 2008  National Research Symposium on Financial Literacy and Education noted  that one challenge in developing and implementing successful program  evaluation for financial education is the field’s variety of core content,  delivery methods, and target populations, as well as differences in the  goals and objectives of specific programs. Therefore, identifying a  common set of reliable methods and measures that can be used to make  broad-based comparisons across programs can be difficult. For example,  the appropriate evaluation for a media campaign that seeks broadly to  increase consumer awareness may be very different from the evaluation of  an individualized counseling program.
section_title: Although Some Financial Education Programs Have Shown Positive Results, Generalizing Those Results Is Difficult
paragraphs: The 29 evaluations of financial education programs we reviewed showed  that some programs are effective in changing consumer behavior or  otherwise demonstrating positive outcomes. For example, certain  programs using approaches as diverse as individualized one-on-one credit  counseling, employer-provided retirement seminars, and education  provided in a classroom setting have each been shown to have effective  outcomes. However, the heterogeneity among the programs evaluated and  the nature of the evaluations themselves make generalizing or drawing  conclusions about exactly which methods and strategies are most  effective in improving financial literacy difficult. In addition, the studies  we reviewed did not always have consistent results. For example, studies  examining the effectiveness of state-mandated financial education have  sometimes had conflicting conclusions. As a result, it appears that no  single approach, delivery mechanism, or technology necessarily  constitutes the best practice for improving financial literacy.
Results of the studies we reviewed show that individual financial literacy  programs have had positive results. Further, some of these programs have  had a positive impact on participants’ financial behavior and not just on  their knowledge. Of the 29 studies we identified as meeting our criteria, 15  evaluated classroom-based initiatives aimed at young people, 8 evaluated  classroom-based initiatives aimed at adults, and 6 evaluated other delivery  mechanisms, including one-on-one counseling and content offered via the  Internet, newsletters, and video. In addition, two of the studies assessed  financial literacy programs operated by the federal government: FDIC’s  Money Smart and the U.S. Army’s Personal Financial Management  Training. (Additional information on the 29 studies that we focused on is  in app. II.)
subsections: section_title: Youth Classroom Education
paragraphs: We identified 15 studies that evaluated the effectiveness of classroom- based programs or curricula designed to improve financial literacy among  elementary, high school, or college students. Generally, these studies  found that classroom curricula on general financial education, which  covered topics such as spending, saving, and budgeting, increased  students’ knowledge of these topics. Ten of the 15 studies also assessed  the impact of a program on students’ subsequent behavior and found  mixed results. Examples of studies that address youth classroom  education include the following:    The National Endowment for Financial Education’s High School Financial  Planning Program, a high school curriculum on basic financial planning  concepts, was evaluated in 2003-2004 by independent academic  researchers. The study found that students who participated in the  program experienced significant improvement in their financial  knowledge, behavior, and confidence by the end of the course. In addition,  about 60 percent of participants had positively changed their spending and  savings patterns 3 months after the program had ended.
In 2008, an outside research firm assessed Junior Achievement’s Finance  Park, a 6-week economics education program designed for middle school  students that combined classroom instruction with a daylong role-playing  exercise. Using surveys conducted before and after students had  participated in the program, the study found statistically significant  improvement in students’ content knowledge, such as their ability to  develop a personal budget. It also found that their confidence in monetary  decisions and ability to be successful had increased.
A 2007 study by researchers at Ohio State University used a Web-based  survey of university alumni to investigate the impact of personal finance  education delivered in high school and college. The study found that  participating in a high-school or college-level personal finance course did  not result in improvements in savings rates among participants.  Individuals who had participated in a college-level personal finance course  were found to have higher levels of knowledge about investment issues,  although no such effect was found for individuals who had taken a  personal finance course in high school.
In addition, we identified four studies that attempted to assess the effect  of legislative mandates that exist in certain states requiring school districts  to include personal finance instruction in middle school or high school  curricula. As noted earlier, as of 2009, 13 states required students to take  a personal finance course as a high school graduation requirement. Three  of the studies we reviewed reported that students in states that mandated  financial education were more likely to have greater financial knowledge  or better financial behaviors, such as increased rates of saving. For  example, a 2001 study used a national survey to determine the long-term  behavioral effects of high school financial curriculum mandates. The  study found that respondents who graduated when state-mandated  financial education was in effect had higher saving and wealth  accumulation rates than those respondents who had graduated prior to  such a mandate. In contrast, a study conducted in 2009 by researchers at  Harvard Business School came to a different conclusion. Reviewing data  from three U.S. Censuses, the researchers found that individuals whose  curriculum included state-mandated financial education had saving rates  identical to those of students in the same state who graduated prior to the  state mandate. However, there are limitations to the methodologies used  to assess the effect of legislative mandates. For example, some of these  studies rely on proxy measures, such as when the participant likely  graduated from high school, to determine whether the person participated  in a mandated financial education program. Further, these studies do not  typically discern the impact of the mandate from other important factors,  such as changes in the overall economy, that affect financial behaviors.
section_title: Adult Classroom Education
paragraphs: We identified eight studies that reviewed the effectiveness of classroom- based programs or curricula designed to improve financial literacy among  adults. Some of these programs provided general financial education and  others focused on particular topics, such as preparing for retirement. In  addition, some of the programs were aimed at a general population, while  others targeted specific populations, such as service members or  individuals with low incomes or substantial debt. With some exceptions,  programs reviewed were found to be effective in improving financial  knowledge and behaviors, particularly among participants with the least  education or who faced significant financial challenges. Examples of these  studies include the following:    A 2007 study conducted by FDIC evaluated Money Smart, a  comprehensive financial education curriculum designed to help low- and  moderate-income individuals enhance their financial skills and create  positive banking relationships. The study surveyed individuals prior and  subsequent to their participation in the program and followed up by  telephone 6 to 12 months after their final class. The study found that  participants in the Money Smart training were more likely to engage in  positive behaviors after completing the course, including opening deposit  accounts, saving money in a mainstream financial institution, and adhering  to a budget.
Researchers studied the effect of a 2-day financial education course taught  to soldiers by college instructors. Soldiers who finished the course  completed a follow-up survey of financial behaviors and the results were  compared to those of a control group of soldiers who had not taken the  course. Soldiers who had taken the financial education course were more  likely to have engaged in positive behaviors, such as comparison shopping,  saving, and paying bills on time. However, when the researchers  controlled for other factors, only two sets of behaviors were associated  with the financial education course. First, those soldiers who had the  financial education course were more likely to know the difference  between discretionary and non-discretionary spending. Second, contrary  to what might be expected, those soldiers who had taken the course were   less likely than the comparison group to report using a formal spending  plan and more likely to report using an informal spending plan.
section_title: Other Delivery Mechanisms
paragraphs: Six of the studies we reviewed evaluated financial literacy initiatives that  were not delivered in a classroom setting. These studies included  assessments of credit counseling and housing counseling delivered one- on-one, counseling provided via the Internet, and content delivered  through newsletters or on video. In general, these studies suggest that a  variety of different delivery mechanisms can be effective in improving  financial literacy. Examples include the following:    A 2011 study compared outcomes for individuals who received face-to- face credit counseling with similarly situated consumers who opted for  counseling via technological methods, such as telephone or Internet.  Counseling outcomes were measured using data from participants’ credit  reports 1 or more years following the original counseling. Delivery of  credit counseling via the telephone or Internet was found to generate  outcomes no worse than—and in some cases better than—face-to-face  delivery of counseling services.
A study conducted by researchers from Freddie Mac in 2001 compared the  loan performance over time of homebuyers who received pre-purchase  homeownership counseling with participants in the loan program who did  not receive such counseling. Those borrowers who received one-on-one  counseling were less likely to have a 60-day delinquency on their loans  during the study period than other borrowers with equivalent  characteristics who had not had counseling. However, borrowers who  received counseling via the telephone or through a course of home study  showed no reduction in delinquency.
Increasingly, technological resources are being used to provide and  evaluate financial literacy. In particular, the Internet has proved to be an  important tool for disseminating information and education about  financial issues to consumers, and one study found that the number of  Web sites that provided financial education almost doubled between 2000  and 2005. Some organizations have used interactive video games to  provide financial education, particularly for youth. For example, Junior  Achievement has developed an online version of its Finance Park  simulation to complement its traditional in-person interactive model.  Technology can also be used to evaluate program effectiveness. A panel of  experts convened by the New America Foundation in 2008 noted that  online tools, such as interactive Web tools that allow students to set and  measure their progress towards financial goals, can be used to collect data  to assess the behavioral impact of a financial education program. These  online tools provide flexibility to capture a number of measures on an  ongoing basis for a large population.
The Financial Literacy and Education Commission and many federal  agencies have recognized the need for a better understanding of which  programs are most effective in improving financial literacy. For example,  the commission’s original national strategy in 2006 noted that more  research and program evaluation were needed so that organizations are  able to validate or improve their efforts and measure the impact of their  work. In response, in October 2008, the Department of the Treasury and  the Department of Agriculture convened, on behalf of the commission, the  National Research Symposium on Financial Literacy and Education, which  discussed academic research priorities related to financial literacy. The  commission’s new 2011 national strategy sets as one of its four goals to  “identify, enhance, and share effective practices.” The new strategy sets  objectives for reaching this goal, which include encouraging research on  financial literacy strategies that affect consumer behavior, establishing a  clearinghouse for evidence-based research and evaluation studies,  developing and disseminating tools and strategies to encourage and  support program evaluation, and forming a network for sharing research  and best practices. At the same time, because of fiscal constraints, the  overall level of future federal resources that will be devoted to financial  literacy research and evaluation is unclear. For example, the Social  Security Administration requested no funding in its fiscal year 2012 budget  justification for its Financial Literacy Research Consortium, which  provides research grants to improve financial literacy and retirement  planning; the consortium had been funded at about $9.2 million in fiscal  year 2010 and had estimated obligations of $10 million in fiscal year 2011.
section_title: Stakeholders Cited Certain Common Elements Desirable for Financial Literacy Programs
paragraphs: Despite limited empirical evidence on the effectiveness of financial  literacy programs, experts and practitioners in the field of financial  literacy generally have identified certain elements that they consider  desirable in almost any financial literacy program. The views of these  stakeholders are not necessarily based on concrete data but rather on  anecdotal evidence, experience in the field, and a broader body of  research on program design and behavioral economics. For example, in  2004, Treasury’s Office of Financial Education and Financial Access  published a list of the elements of a successful financial education  program, which was intended to guide financial education organizations in  developing programs and strategies. Similarly, in 2005, the Organization  for Economic Cooperation and Development issued a set of principles and  good practices to help guide financial education and awareness  programs. Some nongovernmental organizations have also developed  recommended practices for financial literacy programs. For example, the  Jump$tart Coalition for Personal Financial Literacy has developed best  practices for personal finance education materials. Based on the  guidelines of these organizations and our interviews with experts and  practitioners, the following elements are considered desirable for  successful financial literacy programs:    Content that is relevant and timely. Financial literacy programs may be  more effective if they are relevant to their target audience. For example,  people need different kinds of financial information at different phases of  their lives. College students may need to learn how to be prepared to enter  the workforce, working adults may need information on managing credit  and investing for retirement, and retirees may need information on  managing their retirement funds. In our 2004 forum on financial literacy,  experts noted that financial education is most effective when it comes at  the right time—that is, at the “teachable moments” that occur when the  information is applicable to events in a person’s life. Some experts have  argued that financial education should be linked to specific products and  programs—for example, embedded into government income support  programs.
Delivery methods that are appropriate for the audience or topic. While  financial education programs can be delivered in a broad variety of  formats, a program may be more effective if its delivery method is adapted  so that it is appropriate to its target demographic, engaging to participants,  and well-suited to the objectives of the program. A 2010 panel of experts  convened by the National Endowment for Financial Education highlighted  the importance of tailoring the delivery method for financial education to  the audience and the program, noting that individuals possess varying  levels of financial knowledge and that these differences need to be taken  into account in program design. For example, many experts have said  that youth programs can be more effective when they include a hands-on  activity, such as a simulation, which can make the information more true- to-life and relevant to the participants. Similarly, research indicates that  young adults may prefer to receive financial education through the  Internet.
Accessibility and cultural sensitivity. Programs should be accessible to  the population they seek to serve. Many stakeholders noted the  importance of offering education at times and locations that are  convenient to the target audience. Further, the success of a program can  depend on content that is understandable and culturally sensitive. As we  have reported in the past, cultural differences can play a role in financial  literacy and the conduct of financial affairs because different populations  have dissimilar norms, attitudes, and experiences related to managing  money. In addition, a report by the Lutheran Immigration and Refugee  Service states that existing financial literacy and education materials often  do not effectively serve some immigrant populations because they do not  incorporate linguistic idioms and cultural values, such as gender roles and  religious beliefs.
Use of partnerships. Developing partnerships among organizations  involved in delivering financial education can have several benefits,  including making more efficient use of scarce resources, facilitating the  sharing of best practices, and effectively reaching targeted populations.  For example, when Freddie Mac was developing and implementing its  CreditSmart program, which initially was geared toward the African- American community, it partnered with five historically black colleges and  universities. Program representatives told us that using these trusted  intermediaries contributed to the program’s effectiveness. In addition,  partnerships can help connect appropriate content with an effective  delivery mechanism. For example, financial institutions, which have  expertise in money matters, sometimes provide financial education  content to schools, which can serve as an efficient means of directing that  content to students.
Program evaluation: An evaluation component, ideally built into a  financial literacy program, helps to determine whether programs are  having a positive impact on participants’ attitudes, knowledge, or  behaviors. Effective evaluation often depends on establishing specific  goals and identifying performance measures that can be used to track  progress toward meeting goals, according to stakeholders at Treasury and  other organizations. As previously discussed, given the resources required  for evaluation, the extent to which program impact can be tracked and  measured may vary based on the nature and scope of the individual  program.
Trained and competent providers. As we have previously reported,  teacher quality is an important school-level factor influencing student  learning. However, a 2009 study sponsored by the National Endowment  for Financial Education found that less than 20 percent of teachers and  prospective teachers reported feeling very competent to teach the  personal finance concepts surveyed, including money management and  saving. To help offset this lack of subject matter expertise, guidelines  from the Organization for Economic Co-operation and Development  recommend that specific financial education materials and tools be  provided to the teachers. The Jump$tart Coalition for Personal Financial  Literacy has encouraged that financial education materials provided to  teachers include a number of specific elements, including student learning  objectives and assessment tools, background information, lesson plans,  and activities.
Sustainability. Programs should have the necessary resources for long- term sustainability and success. Treasury’s Office of Financial Education  and Financial Access has noted that a successful financial literacy  program should be developed for long-term success, as evidenced by  characteristics such as continuing financial support, legislative backing, or  integration into an established course of instruction.
section_title: Alternatives and Complements to Traditional Financial Education Have Been Shown to Improve Consumer Behavior
paragraphs: Financial education may not be the only approach—or necessarily always  the best approach—for improving consumers’ financial behavior. As noted  earlier, generally the goal of a financial literacy program is to improve a  consumer’s financial behavior or produce positive outcomes, such as  participation in a retirement savings plan, timely repayment of credit, or  the opening of a deposit account in lieu of using a check-cashing service.  One tool for achieving such outcomes is financial education. However,  alternative strategies or mechanisms, sometimes in conjunction with  financial education, have also been successful in improving financial  behavior. Insights from behavioral economics, which blends economics  with psychology, have been used to design strategies apart from education  to assist consumers in reaching financial goals without compromising  their ability to choose approaches or products. These strategies recognize  the realities of human psychology, including procrastination and inertia,  inability to stick to plans, difficulty in processing complex information,  and the desire for conformity.
Literature we reviewed indicated that strategies for improving consumer  financial behavior or outcomes that were alternative or complementary to  traditional financial education can be effective. Examples of such  strategies include the following:    Changing the default option. A default is the choice people make when  they do not deliberately choose an alternative. Because people are prone  to inertia and procrastination, the default option often becomes the most  common choice when making financial decisions. For example, in recent  years, some employers have adopted automatic enrollment policies for  their defined contribution plans—retirement plans under which  participants accumulate retirement savings in individual accounts, such as  a 401(k) plan. Under automatic enrollment, workers are enrolled into the  plan automatically, or by default, unless they explicitly choose to opt out.  As we have previously reported, studies have shown this mechanism to be  effective for increasing participation in retirement plans. For example,  one study of employees hired before and after their company adopted  automatic enrollment found that the retirement plan participation rate of  those hired before automatic enrollment was 37 percent at 3 to 15 months  of tenure, compared with 86 percent for the group hired after.
Using commitment mechanisms. Strategies that commit people to  specific actions in the future can be an effective way of influencing  behavior. For example, a program called Save More Tomorrow asked  employees to commit to increasing their retirement plan contribution rates  well in advance of each scheduled pay increase. The program sought to  use this commitment mechanism to help employees who would like to  save more but lack the willpower to act on this desire. An evaluation of  this program found that 78 percent of employees offered the program  joined, and 80 percent of those who joined remained in the program for  several pay raises, with their savings rate increasing, on average, by 10  percentage points over a period of 40 months.
Using monetary incentives. Using incentives with tangible monetary  benefits can also be effective in changing behavior. For example, studies  have shown that employees are more likely to contribute to a retirement  plan if their employer provides matching contributions, and the amount  that an employee contributes to a plan can be influenced by the formula  for the matching contribution. Research shows that programs that offer  monetary matches can provide concrete rewards that encourage  individuals to take specific actions. In one experiment, low- and middle- income clients of a tax return preparation firm were randomly offered a  match of 0, 20, or 50 percent on their tax refunds that would be  contributed to an individual retirement account. Higher matches,  combined with information received from tax professionals, raised the  participation rate in the savings plan and the amount of the contribution.  Similarly, an experiment compared a random selection of eligible lower- income people who received individual development accounts—which  provide a match for savings made for certain purposes—with a control  group that was not offered these accounts. Four years into the program,  the individual development accounts increased homeownership rates of  prior renters by 7 to 11 percentage points relative to the control group.  However, the study found that there was almost no impact on other  targeted uses, such as post-secondary education or retirement savings. In  addition, a follow-up study conducted 10 years after the start of the  program found that the homeownership rates for those who did not  receive access to the individual development accounts were similar to  those who did, suggesting that the benefits diminished over time.
Simplifying financial decisions. Reducing the complexity of financial  information provided to consumers and simplifying the choices they need  to make can motivate consumers to take action. A few studies have shown  that more investment options are correlated with reduced participation in  participant-directed retirement plans, possibly because of too many  choices or information overload. Further, as we have noted in prior  reports on Social Security information and credit card disclosures, certain  practices help people understand complicated information, such as writing  information in clear language, using straightforward layout and graphics,  and making options easy to compare in a single document. In one  experiment, newly hired staff at an orientation seminar randomly received  either a standard packet of information on supplemental retirement  accounts, an additional planning aid designed to simplify enrollment, or an  even simpler planning brochure. Simpler planning information was  associated with significantly higher participation rates in retirement   accounts, with enrollments for the three groups of 7, 21, and 27 percent,  respectively.
Leveraging the peer effect. People are often more comfortable making a  choice when they know that others in their peer group have made the  same choice. Incorporating individuals’ tendency to want to follow their  peers can help motivate consumers to take action. In an experiment  conducted at a large university, a random sample of employees in certain  departments were promised a monetary reward for attending a benefits  fair that presented information about tax-deferred account retirement  plans. Employees were more likely to attend the fair—and ultimately to  participate in the retirement plan—if colleagues in their department  received a monetary award, even if the employees themselves received no  such award. Another study found that an effective tool for increasing  participation in retirement accounts was to present videos encouraging  participation that included fellow employees with certain characteristics  similar to the target audience.
Much of the literature and the experts we spoke with have noted that  these various strategies to improve consumers’ financial behavior and  subsequent outcomes should not be viewed as a substitute for financial  education but rather as a complement to it. The most effective approach to  improving consumers’ financial decision making and behavior may be to  use a variety of these types of strategies in conjunction with financial  education.
section_title: While Certifying Financial Literacy Providers Is Feasible, Doing So Would Pose Challenges
subsections: section_title: A Certification Process Could Take Many Forms Depending on Its Underlying Goals and Scope
paragraphs: If the federal government were to develop a process for approving or  certifying financial literacy providers, a variety of approaches could be  taken. At present, the federal government does not have a process for  approving or certifying most organizations that provide financial  education, with two notable exceptions. As previously mentioned, the U.S.  Trustee Program approves credit counseling agencies and debtor  education providers to meet requirements of the U.S. Bankruptcy Code.  In June 2005, the Trustee Program established its Credit Counseling and  Debtor Education Unit to implement new statutory provisions.  Approximately 166 credit counseling agencies and 265 debtor education  providers were approved by the Trustee Program as of March 2011. In  addition, since 1968 HUD has had a process for approving housing  counseling agencies through its Housing Counseling Program, and as of  April 2011, there were 2,758 agencies participating in the program, of  which HUD had approved 1,047. These agencies provide a variety of  housing counseling services and are the only ones that can provide  counseling to meet the mandatory counseling requirements of certain  housing programs, such as the Federal Housing Administration’s Home  Equity Conversion Mortgage Program. Some nongovernmental entities  also have certification processes or confer designations that are related to  financial literacy. For example, the Institute for Financial Literacy—a  nonprofit organization that provides financial literacy information and  services—has recently implemented an accreditation process for  organizations that provide financial education, which will be based on  standards it has developed. Some professional and trade organizations  also confer designations—such as Certified Financial Educator—to  individuals to indicate that certain examination, educational, or other  requirements have been met. Some designations require a certification  examination; an accredited degree, training, or relevant experience in the  financial services industry; and continuing education.
The existence of the Trustee Program’s and HUD’s approval processes for  credit counseling and debtor education and housing counseling  organizations, respectively, suggests that it would be feasible for the  federal government to implement an approval or certification process that  would encompass financial literacy providers more broadly. However,  initiating and developing such a process would require that Congress or  the relevant federal agency or agencies address a number of issues,  including the goals of the program, who would administer the process,  what type of providers it would cover, what criteria or standards would  apply to providers, and what degree of ongoing oversight would be put in  place:    What are the goals of the certification process? As we have reported  in the past, defining a program’s mission, strategic goals, and desired  outcomes is critical. The scope, structure, and design of any certification  process for financial literacy providers would depend on what it set out to  achieve. For example, a certification process whose primary goal was to  protect consumers from low-quality or unscrupulous providers might have  different characteristics and design from a process whose primary goal  was to promote public awareness of financial education.
What entity would administer the certification? A federal agency  could operate a certification process directly or, alternatively, it could  oversee or charter a nongovernmental entity to do so. Some stakeholders  in the field of financial literacy told us that if a federal entity were to take  on this responsibility, the Department of the Treasury, the Financial  Literacy and Education Commission, or the Consumer Financial  Protection Bureau would be plausible candidates. One representative of a  federal agency suggested that several federal agencies could be involved,  certifying providers that cover the topics or address the target audience  under each agency’s purview. Another model would be for the federal  government to charter a nongovernmental intermediary that would  implement the certification, with a federal agency overseeing that  intermediary. This would be similar to HUD’s process of approving  intermediary organizations that then oversee and provide subgrants to  branches and affiliates that provide the actual counseling to consumers.  For example, NeighborWorks America, a federally chartered nonprofit  corporation with its own nationwide network, receives federal funds to  provide grants, training, and technical assistance to agencies that provide  housing counseling. As a HUD-approved intermediary organization,  NeighborWorks must ensure that its affiliates meet the criteria for HUD  approval and HUD does not approve each affiliate independently.
What entities would be covered? A wide range of entities provide some  form of financial education, including community-based organizations,  large national nonprofits, trade and professional associations, credit  counseling agencies, colleges and universities, credit unions, and private  companies. Further, some of these entities provide broad financial  education, while others focus on very specific topics. One step in  developing a federal process for certifying financial literacy providers  would be to determine the scope of the entities that would be eligible.  Some stakeholders with whom we spoke noted that trying to encompass  all types of financial literacy providers could be unrealistic. For example,  applying consistent criteria and standards among programs using very  different approaches and delivery mechanisms would be difficult. One  representative of a federal agency suggested that there be separate  certification processes based on the topics covered. The Institute for  Financial Literacy, according to its representatives, has opted for a  broader scope in developing its organizational accreditation, which is  open to organizations that provide financial education either exclusively  or as part of a wider range of services, in which case only the relevant  activities are accredited.
What criteria would be used? Criteria would need to be developed for  determining the certification of financial literacy providers. These criteria  could include financial soundness, governance structure, size, populations  served, reputation, and nonprofit status, among others. Criteria could also  address the expertise and capacity of providers, including years of  experience and staff knowledge in economics and personal finance  education. Some stakeholders told us that for-profit companies that  market or sell financial products should be ineligible, presumably because  they may not provide unbiased information or may be more likely to use  financial education to help sell products. Along these lines, only nonprofit  organizations and units of government are eligible to become HUD- approved housing counseling agencies. By contrast, the Bankruptcy Code  does not require entities approved to fulfill the debtor education  requirement to be nonprofits, although it does require approved credit  counseling agencies to be nonprofits. Some bank representatives told us  that, within their industry, many entities provide financial education as a  legitimate community service and do not use it to market products. One  federal agency noted that a code of ethics could also be included as part of  the certification process to help address these issues.
Should certification include content standards? One option for  certification would be to require that certified providers include in their  programs certain content standards, such as specific topics that must be  covered, or to require that certain core competencies be addressed. Such  standards could provide consistency and quality in the program content  offered by certified financial literacy providers. For example, one financial  literacy advocate told us that such standards would help teachers identify  high-quality content for financial education incorporated into classroom  instruction or after-school programs. The Trustee Program’s interim final  rule on procedures and criteria for debtor education providers specifies  the topics that must be covered in the personal financial management  instructional course required of bankruptcy filers prior to discharge of  their debt. HUD’s Housing Counseling Program Handbook states that  HUD has the option of requiring, promoting, or incentivizing the adoption  and implementation of housing counseling and education standards.  However, HUD does not generally specify the content its approved  housing counseling agencies must cover. An alternative to specific  content standards would be to certify curricula or programs in lieu of  providers. The certifying entity would need to assess those curricula  periodically to determine that the information offered to consumers is  accurate, up-to-date, and relevant.
What level of oversight would be conducted? A federal process for  certifying financial literacy providers would likely require some form of  oversight to help ensure continued compliance with any statutory or  program requirements. The level of oversight for certified entities could be  fairly limited, such as a simple reporting requirement on activities  performed. Alternatively, oversight could be more comprehensive and  include such things as more detailed reporting requirements, complaint  resolution, quality reviews, and administrative proceedings to remove  entities when necessary. In addition, providers could be required to  reapply regularly. For example, the Trustee Program requires approved  credit counseling agencies and debtor education providers to reapply  annually, and HUD assesses approved housing counseling agencies for  reapproval at least every 3 years.
section_title: Federal Certification of Financial Literacy Providers Could Have Certain Benefits
paragraphs: Some representatives of federal agencies and organizations that provide or  advocate for financial literacy cited potential benefits that could result  from implementing a federal process for certifying financial literacy  providers:  Improve overall quality. A federal certification process could potentially  improve the quality of organizations that chose to apply for certification  and would need to meet a certain set of qualifications and standards. For  example, Trustee Program officials told us that their approval process for  financial education providers for the purposes of the bankruptcy process  may have encouraged higher standards among those providers. In  addition, a certification process could raise the quality of the financial  education community overall. For example, HUD officials noted that their  Housing Counseling Program has helped set a standard for the industry as  a whole.
Encourage greater program evaluation among providers. A certification  process could help to increase program evaluation efforts by encouraging  provider organizations to assess their ability to meet certification  standards and by requiring certified providers to report on outcomes.  Representatives from one financial literacy organization told us that  organizations that are interested in continuous improvement could benefit  from such a process.
Help consumers identify competent providers. From the consumer  standpoint, a federal certification of financial literacy providers could  serve as a federal “stamp of approval.” Representatives from one trade  association told us that certification could assist consumers and others in  distinguishing among providers.
Increase public awareness. A federal certification process could help  draw public attention to the issue of financial literacy. Potentially, it could  give providers additional visibility, which could raise the profile of  financial literacy and encourage consumers to seek out these resources.
Weed out poor quality providers. Federal certification could help to weed  out poor quality or abusive financial literacy providers, according to a few  stakeholders with whom we spoke, presumably because consumers might  avoid providers that had not been certified.
Aid in building capacity. Federal certification possibly could aid some  financial literacy providers in garnering outside funding from foundations  or other sources that they rely on for support. Recognition by a federal  agency could provide legitimacy to nonprofit organizations that could help  them leverage other resources. In addition, two financial literacy  stakeholders suggested that the federal agency overseeing certification  could serve as an information clearinghouse for providers. This could  allow them to more readily access information on best practices, financial  education resources, and the results of research on financial literacy  issues. Certification might also provide networking opportunities among  certified providers, who might share information and resources among  themselves.
section_title: A Certification Process Could also Pose Challenges
paragraphs: A federal certification process for financial literacy providers would face  certain challenges and potential downsides. Most notably, developing,  implementing, and operating a federal process for certifying financial  literacy providers would involve financial costs and staff resources for the  federal agency administering the process. While each certification or  approval process is unique, the experiences of the Trustee Program and  HUD may offer insights into the potential resources that a broader  certification process for financial literacy providers might entail.
subsections: section_title: Experiences of the Trustee Program and HUD
paragraphs: The Trustee Program spent $6.1 million between fiscal years 2005 and 2007  to develop its Credit Counseling and Debtor Education Unit, which was  created in 2005 to administer the approval of credit counseling agencies  and debtor education providers. In fiscal year 2010, the Trustee Program  spent $1.6 million in salaries and benefits for the unit, according to agency  officials. The number of full-time equivalent staff assigned to the unit  between fiscal years 2007 and 2010 ranged from 13 to 18, with field staff  assisting on a rotational basis. For fiscal year 2011, 11 full-time equivalent  staff had been assigned to the unit. These staff have been responsible for  developing application forms and procedures, approving and monitoring  credit counseling agencies and debtor education providers, and taking  steps to help ensure that filers were meeting requirements. Because  approved entities must submit an application each year, staff review  hundreds of applications and reapplications annually, according to agency  officials. The officials told us that based on their experience, any federal  government process requiring periodic review and enforcement would  require substantial resources. In addition, the rulemaking process related  to approving credit counseling agencies and debtor education providers  has been lengthy. For example, the Trustee Program is still using the  interim final rules it proposed in July 2006. While it issued proposed rules  in 2008, as of May 2011, neither final rule had been approved.
HUD has estimated that the cost of administering its Housing Counseling  Program will be $18.8 million for fiscal year 2012, with the majority going  toward salaries and benefits. This amount does not include the grants that  HUD makes to some of those agencies. Estimates for prior years were not  readily available, according to HUD, because until recently the cost of  administering the housing counseling program was not segregated.  Because responsibilities for the Housing Counseling Program are spread  across the agency, HUD officials did not provide an exact number for full- time equivalent staff devoted to approving and overseeing housing  counseling agencies. However, they estimated that approximately 200 staff  members nationwide have significant responsibilities within the program.  Those responsibilities include collecting and reviewing applications,  processing reapprovals, monitoring approved agencies, and providing  them with education and outreach. HUD staff conduct regular reviews of  approved agencies—which can include conducting onsite visits—to  determine if their performance meets program standards and requirements  or to address risk-related issues. In December 2004, HUD first published  proposed rules that set forth the eligibility requirements, performance  standards, and administrative procedures required of approved housing  counseling agencies. The final rule became effective in October 2007.  HUD staff told us that the initial development of the approval process for  housing counseling agencies was relatively resource-intensive. HUD’s  handbook for the program provides guidance to its staff and to program  participants, including the branches, affiliates, or sub-grantees of approved  intermediaries. HUD also recently created standard operating procedures  for staff to follow in conducting performance reviews. The Dodd-Frank  Act established an Office of Housing Counseling within HUD, but federal  budget constraints could delay its establishment and reduce the scale of  HUD’s activities.
As noted earlier, some financial literacy stakeholders suggested that if a  federal certification process is to be implemented, the financial education  offices of either Treasury or the Consumer Financial Protection Bureau  could be among the appropriate choices to implement this process.  According to a Treasury official, the Office of Financial Education and  Financial Access within Treasury has an allocation of six full-time  equivalent staff for fiscal year 2011. The level of staff needed to operate a  program for certifying financial literacy providers would clearly depend on  the specific scope and nature of the program, but current staffing levels at  Treasury’s financial education office would likely be insufficient to take on  such a responsibility. According to staff at the Consumer Financial  Protection Bureau, its Office of Financial Education was still being staffed  as of May 2011.
section_title: Other Considerations
paragraphs: While viewpoints varied, in general, a majority of the representatives of  nonprofit and private sector financial literacy organizations, academic  experts, and representatives of federal agencies with whom we spoke  believed that the disadvantages of implementing a federal certification  process for financial literacy providers outweighed the advantages. While  such a process would be feasible, many stakeholders commented that it  might not be the most productive use of the scarce federal resources  available for financial literacy. In addition to the federal resources that  would be required, several other challenges, disadvantages, and other  factors were cited:    There would be administrative costs for the entities being certified.
Representatives of financial literacy organizations and others noted that  applying for and maintaining federal certification would result in some  administrative cost and burden for the participating organizations. Our  review of public comments submitted in response to the Trustee  Program’s 2008 proposed rules found that some participating  organizations noted the administrative burden caused by the requirements  for the credit counseling and debtor education approval process, and one  organization noted that it dedicated more than 100 employee hours each  year to complete its application. The resources needed for administrative  requirements such as these could act as a barrier to participation in any  certification process for certain financial literacy providers—particularly  smaller, community-based organizations.
Financial literacy providers are highly diverse. Financial literacy is a  wide-ranging field covering many different types of organizations, topics,  and delivery mechanisms. For example, financial education can be  provided in one-on-one counseling, in a classroom setting, via the Internet,  as a set of curricula, or via broadcast or print media. A single uniform  certification process covering financial literacy providers as a whole may  be impractical or inappropriate. Moreover, the varying nature of providers  and programs could require that certification include multiple processes.
Whether certification would improve provider quality is unclear. Several  stakeholders with whom we spoke questioned whether a federal  certification process for financial literacy providers would help distinguish  between higher-quality and lower-quality providers. They also noted that  some high-quality providers might not even apply for certification if the  benefit was not clear to them or the administrative burden appeared  significant. Further, one stakeholder raised concern that the criteria  required for financial literacy providers to be certified would create a  “floor” of basic qualifications rather than actually serve to promote high  standards. As we reported in 2009, there were issues related to counseling  provided by HUD-approved housing counseling agencies for HUD’s  reverse mortgage program. We found that HUD’s internal controls did not  provide reasonable assurance that counseling providers were complying  with program counseling requirements and, as a result, some prospective  borrowers may not have been receiving the information needed to make  informed decisions about obtaining a reverse mortgage.
Whether consumers would recognize or use the certification is unclear.  Several stakeholders were skeptical that many consumers would select a  financial literacy provider based on whether or not the provider had been  federally certified. For example, staff at one federal agency noted that a  certification process in and of itself would not necessarily result in greater  consumer confidence in the advice they receive from certified providers.
A certification process may not weed out bad actors. One potential goal  of federal certification of financial literacy providers would be to help  weed out unqualified or unscrupulous providers, but how certification  would achieve that goal is not clear.
Financial literacy certification may not be an appropriate role for the  federal government. Several stakeholders questioned whether certifying  financial literacy providers is an appropriate role for the federal  government. In addition, staff at two federal agencies noted that the  federal government should be prudent about certifying organizations  because the certification could be misrepresented as an endorsement  beyond what certification actually signified—that the organization met  certain prescribed criteria.
There is a lack of consensus on what is effective in improving financial  literacy. As discussed earlier, the most effective ways of improving  consumer financial literacy are still not fully known. Several financial  literacy experts noted that there is not yet consensus or consistency  within the field on specific standards or core concepts that financial  literacy programs should include. As a result, certifying financial literacy  providers may be premature.
Some representatives of nonprofit and private sector financial literacy  organizations, academic experts, and representatives of federal agencies  with whom we spoke noted that there may be alternatives to a federal  certification process that could still help achieve some of the same goals.  For example, federal agencies could develop voluntary national standards  or continue to promote core competencies and leading practices, such as  those that have been identified by the Financial Literacy and Education  Commission. Another potential option would be to require financial  literacy provider organizations receiving federal funds to adhere to  specific guidelines, which could address such areas as the information that  organizations provide to consumers. Some stakeholders also noted that in  lieu of a certification process, the federal government might promote  provider competency more directly, such as by offering or funding  additional training or technical assistance.
section_title: Agency Comments
paragraphs: We provided a draft of this report for review and comment to the  Consumer Financial Protection Bureau, Department of Justice, FDIC,  Federal Trade Commission, HUD, Securities and Exchange Commission,  and Treasury. We incorporated technical comments from these agencies  as appropriate. In addition, the Consumer Financial Protection Bureau  provided a written response, which is reprinted in appendix III. The  bureau noted the responsibilities it was given under the Dodd-Frank Act to  promote financial education, with the overarching goal of improving  consumers’ ability to make informed choices in the financial services  marketplace. The bureau said it believed that before any decision to create  a federal financial literacy certification program could be made there  would need to be additional exploration of the program’s pros and cons,  goals, potential methods, and alternatives.
We are sending copies of this report to the appropriate congressional  committees, Consumer Financial Protection Bureau, Department of  Justice, FDIC, Federal Trade Commission, HUD, Securities and Exchange  Commission, Treasury, and other interested parties. In addition, the report  will be available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8678 or cackleya@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs are on the last page of this  report. GAO staff who made major contributions to this report are listed in  appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objectives were to examine (1) what is known about which methods  and strategies are effective for improving financial literacy, and (2) the  feasibility of a process for certifying financial literacy providers and the  benefits and challenges of doing so. For the purposes of this report,  financial literacy providers generally refers to organizations, rather than  individuals, and excludes entities that provide individualized advice for  compensation, such as investment advisers or financial planners. In  addition, our examination of a potential certification process focused on a  process that would be operated or overseen by the federal government.
To address our first objective, we conducted a literature search to identify  studies, reports, and articles related to the effectiveness of financial  literacy and education efforts. We identified these documents through a  search of ProQuest and ECO databases, which was augmented with a  general Internet search based on key words to link financial literacy and  education with effectiveness. We also asked for recommendations for  papers from academic experts and from representatives of organizations  that we interviewed, and we used the bibliographies of the studies we  reviewed to identify additional studies. We categorized the identified  studies based on their relevance to our objective and other characteristics.  We limited our search to studies published since 2000 to help ensure that  the material was still relevant. The focus of our search was on documents  that addressed the effectiveness of financial literacy initiatives or  programs and methods of evaluation; we generally excluded from our  search documents that included only broader discussions of financial  literacy or the extent to which consumers are financially literate. In  addition, we reviewed papers that addressed the effectiveness of strategies  for improving consumer behavior that are alternative to financial  education and papers that addressed the application of behavioral  economics to financial literacy and behavior. We limited our review to  published works that were authored by academic researchers, think tanks,  government agencies, or private or nonprofit organizations that we  assessed to have a reasonable degree of experience or expertise in the  field of financial literacy and education. We performed our searches from  September 2010 to May 2011.
In total, we reviewed 142 studies that were identified through this search.  We then screened these studies to identify those that met the following  additional criteria: (1) represented original research (as opposed to a  review of existing research); (2) used empirical evidence—that is, used  data rather than anecdotal information; (3) evaluated the outcomes of a  specific program, approach, or policy; and (4) were determined by a GAO  methodologist to be sufficiently relevant and methodologically rigorous  for inclusion in our report. While we attempted to be thorough in our  search methods, the 29 studies that met these criteria may not reflect all  published studies that exist and meet these criteria, and do not reflect any  studies that may exist that were unpublished or were not readily  accessible. Of these 29 studies, 12 were published in peer-reviewed  journals. In addition to these studies, we reviewed other studies and  papers that addressed strategies for improving financial literacy that are  separate from financial education (such as changes in retirement default  options) that we deemed sufficiently reliable for our work because they  were published in peer-reviewed academic journals, written by noted  experts in financial literacy, or widely cited in the field of financial literacy  and education.
We also conducted interviews with—and obtained documentation as  applicable from—representatives of federal agencies whose missions  involve consumer education and protection, including the Consumer  Financial Protection Bureau, Federal Deposit Insurance Corporation,  Board of Governors of the Federal Reserve System, Federal Trade  Commission, Department of the Treasury, and Securities and Exchange  Commission; the Financial Industry Regulatory Authority; nonprofit  organizations that provide or advocate for financial literacy and education,  including AARP, American Association of Family & Consumer Sciences,  Consumer Federation of America, Employee Benefit Research Institute,  Institute for Financial Literacy, Jump$tart Coalition for Personal Financial  Literacy, Junior Achievement, National Endowment for Financial  Education, National Foundation for Credit Counseling, and New America  Foundation; one international organization, the Organization for Economic  Co-operation and Development; and one financial services company,  Freddie Mac. In addition, we held interviews with representatives of the  American Bankers Association and the Credit Union National Association,  and we also held group interviews with representatives of individual  community banks and credit unions that are members of those entities. We  also interviewed six academic researchers who focus on financial literacy.
To address our second objective, we conducted an Internet search for  articles, studies, or position papers related to the feasibility of a process  for certifying financial literacy providers. In addition, we solicited views  on the feasibility of such a process from the representatives of federal  agencies, nonprofit organizations that educate or represent consumers,  financial institutions, and other organizations cited above, as well as the  six academic experts with whom we spoke. Using a semi-structured  interview approach, we gathered their views on the potential advantages,  disadvantages, and challenges of a certification program, as well as  options for how it might be structured and implemented, which federal  entity might be responsible for it, and how it might be overseen. We also  reviewed documentation from and interviewed representatives of two  nonprofit organizations, the Institute for Financial Literacy and the  American Association of Family & Consumer Sciences, both of which have  developed programs for certifying individuals or organizations that  provide financial education.
In addition, for illustrative purposes, we gathered information on two  existing processes within the federal government for approving  organizations that provide some form of financial education. These were  the processes conducted by (1) the Department of Justice’s U.S. Trustee  Program for approving credit counseling agencies and debtor education  providers to meet certain requirements of the Bankruptcy Code, and (2)  the Department of Housing and Urban Development (HUD) for approving  housing counseling agencies under the Housing Counseling Program. We  reviewed relevant documents related to these processes, including  application forms, final and proposed rules, and program handbooks and  guidance. In addition, we requested from the Trustee Program and HUD  their estimated expenditures and staffing levels in fiscal years 2010 and  2011 related to the approval and oversight of providers under their  respective programs, and data on the number of providers participating in  their credit counseling and debtor education and housing counseling  programs, respectively. We also obtained information from the  Department of the Treasury and the Consumer Financial Protection  Bureau on staffing levels for their financial education offices. We  interviewed agency staff with program responsibility and discussed their  methods for compiling the data, and we determined that these data were  sufficiently reliable for our reporting purposes. For the Trustee Program,  we also used information that we had collected for a prior report on the  costs associated with their credit counseling and debtor education  program during fiscal years 2005 through 2007. We also interviewed  representatives of the Trustee Program and HUD to learn of their agencies’  experiences in developing and implementing their approval processes, and  to gather their views on the benefits and challenges that might be faced if a  federal entity were to undertake an approval or certification process for a  broader class of financial literacy providers.
We conducted this performance audit from September 2010 to June 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Literature Review of Selected Published Research Evaluating Financial Literacy Programs
paragraphs: This appendix includes studies of evaluations of financial literacy  programs that met our criteria for inclusion in our in-depth review of  selected studies. Table 1 provides an overview of the 29 studies, their  authors, type of program covered, program or approach evaluated,  evaluation method, and key findings.
section_title: Appendix III: Comments from the Consumer Financial Protection Bureau
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jason Bromberg (Assistant  Director), Bernice Benta, Tania Calhoun, Daniel Newman, Jennifer  Schwartz, Andrew Stavisky, and Seyda Wentworth made key contributions  to this report.