Literature Review
Financial Literacy is defined as the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy (Vitt et all, 2000). Specifically, it also means the ability to know credit-scores, which decides the amount a person pays to borrow money, read credit reports, interpret bills, insurance policies, student and loan documents, compare the pros and cons of credit cards of different credit card companies, and calculate interest rates. (Gross, 2005)
People who are financially illiterate are more likely to make mistakes in the real world. (Chen & Volpe, 1998). They make poor decisions in investing, retirement planning, and mortgages, and can fall into debilitating debt or bankruptcy. (Lusardi & Mitchell, 2007; Mandell, 2001) In the long run, consumers' poor financial decisions lead to large-scale financial crisis such as one that the United States is experiencing now. Thus, consumer financial literacy is an important factor in maintaining a country's prosperity -- a fact that is acknowledged by The Organisation for Economic Co-operation and Development, stressing the need for financial literacy education. (Bryant, 2009)
But where do citizens receive financial literacy education? Unfortunately, schools -- where one would assume to find this education -- fall short. Youths graduate from secondary school with little knowledge on financial literacy. First and foremost, there is a lack of personal finance education in school curricula; as Chen & Volpe (1998) note, "most of the higher education institutions put little emphasis on students' personal finance education." Even for those schools which do offer financial education, there is still something lacking in the quality of education offered. According to Lewis Mandell, professor of management at State University of Buffalo, the problem is that most teachers who teach financial curricula in schools have never been taught finance in colleges. (Straus, 2004) The financial concepts they teach students lack practical use and don’t tie with what’s happening in the real-world.
Without school intervention, sources of information with regards to personal finance are personal experience, and to a lesser degree friends, family, and mass media (Braunstein & Welch, 2002). However, studies also show that "traditional" methods for youths to learn financial literacy via these methods -- such as receiving allowances (theoretically, giving them an exercise in handling money), having discussions with parents, owning stocks, and owning credit cards -- are not working, (Mandell, 2007) as the following statistics show:
Age is one common factor in this group that affects financial literacy. Youths are less exposed to financial issues and thus, have less experience in making decision that inform them about financial matters. (Chen & Volpe, 1998) Having limited knowledge to begin with hinders their ability to become more financially literate, as many innovations (ex. Different options online) require a baseline knowledge of financial concepts. (Braunstein & Welch, 2002)
It is critical to reach this age group for several reasons. First, according to Mandell (2007), patterns of spending typically develop during adolescence, continuing on through adulthood. Secondly, fifty percent of high school graduates enter the workplace directly, emphasizing the need for financial literacy education for youth. Third, college is expensive for many low-income youth, and high school students need to learn financial concept to save enough money for college.
The Brookings Institute estimated that low income communities in California have the highest concentration of high cost fringe financial outlets (e.g., payday lenders, check cashers, pawn shops and high cost international money wiring outlets) in the State. In addition to charging high fees, the fringe services do not offer standard financial services (such as savings accounts, checking accounts, IRAs, financial counseling services, etc) where residents can begin to develop their assets and financial literacy. Without alternatives, residents have little choice but to use these payday lenders and see their already precarious financial circumstances deteriorate. These businesses pose a serious threat to the economic development and health of our communities. In recent years, there has been a proliferation of predatory or “pay day” lenders, rent-to-own stores, high-cost money wiring stores and check cashers in low income communities and in communities of color across the United States and in our community in San Francisco. In the last two decades, the fringe financial services industry has exploded- there are more than 2,500 payday lenders alone in California-- more than McDonalds and Starbucks combined. In 1990 there were virtually none. These businesses pose a serious threat to the economic development and health of our communities. They exploit the lack of affordable financial services and strip hard-earned money from community members through exorbitant fees on check-cashing services and on payday loans in particular (MCSF, 2008).
People who are financially illiterate are more likely to make mistakes in the real world. (Chen & Volpe, 1998). They make poor decisions in investing, retirement planning, and mortgages, and can fall into debilitating debt or bankruptcy. (Lusardi & Mitchell, 2007; Mandell, 2001) In the long run, consumers' poor financial decisions lead to large-scale financial crisis such as one that the United States is experiencing now. Thus, consumer financial literacy is an important factor in maintaining a country's prosperity -- a fact that is acknowledged by The Organisation for Economic Co-operation and Development, stressing the need for financial literacy education. (Bryant, 2009)
But where do citizens receive financial literacy education? Unfortunately, schools -- where one would assume to find this education -- fall short. Youths graduate from secondary school with little knowledge on financial literacy. First and foremost, there is a lack of personal finance education in school curricula; as Chen & Volpe (1998) note, "most of the higher education institutions put little emphasis on students' personal finance education." Even for those schools which do offer financial education, there is still something lacking in the quality of education offered. According to Lewis Mandell, professor of management at State University of Buffalo, the problem is that most teachers who teach financial curricula in schools have never been taught finance in colleges. (Straus, 2004) The financial concepts they teach students lack practical use and don’t tie with what’s happening in the real-world.
Without school intervention, sources of information with regards to personal finance are personal experience, and to a lesser degree friends, family, and mass media (Braunstein & Welch, 2002). However, studies also show that "traditional" methods for youths to learn financial literacy via these methods -- such as receiving allowances (theoretically, giving them an exercise in handling money), having discussions with parents, owning stocks, and owning credit cards -- are not working, (Mandell, 2007) as the following statistics show:
- JumpStart Survey of Financial Literacy (High School students) - participants only got 48.3% of the questions correct
- President's Advisory Council on Financial Literacy's National Financial Literacy Challenge - average score of over 46,000 participants was only 56%
- In Charles Schwab's 2007 Teens & Money Survey, although 63% of teens surveyed claimed they knew a lot about money management, only 51% knew how to write a check, only 34% knew how to balance a checkbook, and only 26% knew how credit card fees work
- The Project of Student Debt discovered that there was a 6% increase in the average debt per college student from 2006 to $20,098 in 2007
- Strauss (2004) found that credit card debt amongst college students rose to $3000 in two years from 1998 to 2000, a 45% increase.
Age is one common factor in this group that affects financial literacy. Youths are less exposed to financial issues and thus, have less experience in making decision that inform them about financial matters. (Chen & Volpe, 1998) Having limited knowledge to begin with hinders their ability to become more financially literate, as many innovations (ex. Different options online) require a baseline knowledge of financial concepts. (Braunstein & Welch, 2002)
It is critical to reach this age group for several reasons. First, according to Mandell (2007), patterns of spending typically develop during adolescence, continuing on through adulthood. Secondly, fifty percent of high school graduates enter the workplace directly, emphasizing the need for financial literacy education for youth. Third, college is expensive for many low-income youth, and high school students need to learn financial concept to save enough money for college.
The Brookings Institute estimated that low income communities in California have the highest concentration of high cost fringe financial outlets (e.g., payday lenders, check cashers, pawn shops and high cost international money wiring outlets) in the State. In addition to charging high fees, the fringe services do not offer standard financial services (such as savings accounts, checking accounts, IRAs, financial counseling services, etc) where residents can begin to develop their assets and financial literacy. Without alternatives, residents have little choice but to use these payday lenders and see their already precarious financial circumstances deteriorate. These businesses pose a serious threat to the economic development and health of our communities. In recent years, there has been a proliferation of predatory or “pay day” lenders, rent-to-own stores, high-cost money wiring stores and check cashers in low income communities and in communities of color across the United States and in our community in San Francisco. In the last two decades, the fringe financial services industry has exploded- there are more than 2,500 payday lenders alone in California-- more than McDonalds and Starbucks combined. In 1990 there were virtually none. These businesses pose a serious threat to the economic development and health of our communities. They exploit the lack of affordable financial services and strip hard-earned money from community members through exorbitant fees on check-cashing services and on payday loans in particular (MCSF, 2008).
Current Marketplace
The need for financial literacy programs has not gone unnoticed. Employers, the military, state cooperative extension services, community colleges, faith-based groups, community-based organizations, and banks are some of the groups that provide these kinds of programs. (Braunstein & Welch, 2002). We have found numerous programs and applications of existing programs.
To summarize, here are the learner-focused features we enjoyed, and may possibly adapt, into our final product:
Here are some learner-focused features that we did not like, and will avoid in our application:
Mini-games
The majority of these mini-games are currently multiple choice-type, with the developers incorporating graphics or storylines to make them more appealing to the target audience. Our main concern is that although these types of applications may appear engaging, they are simply multiple choice quizzes.- hintsmcq, forassessment
◦ Visa and the National Football League have teamed up to help teach financial concepts with Financial Football, a fast-paced, interactive game that engages students while teaching them money management skills. Students click kickoff to start the game and then get a set of questions they have to answer. As you keep answering questions you run down the field, but when you get a question wrong you get tackled by the other team. Questions/concepts include taking money out of bank accounts, reporting lost credit cards, calculating interest rates, collision insurance, information on credit reports, assets and liabilities, examples of public records, advantages and disadvantages of owning credit cards, advantages and disadvantages of renting an apartment, building credit histories, issuing credit cards through credit unions, getting social security money back from paychecks, importing goods with changes in currency rates, and behavior of telemarketers. Teams compete by answering these financial questions and earn yardage and score touchdowns. The game has downloadable modules that teach the fundamentals, strength training, defensive spending and the game plan.
◦ The "Smart Money Quiz Show" is designed to teach you about banks and credit while you try to get out of debt by answering questions. You start out with $10,000 of debt. Work through each category of questions below. You must answer all of the questions, and each question is worth money. If you answer a question incorrectly, your debt will increase by the amount that question is worth. By answering the questions correctly, you will decrease your $10,000 debt. If you're successful, you will have no debt by the time you've answered all the questions, and your Current Balance will be $0 or above. When this happens, congratulations! You've managed to Get-Out-of-Debt.
◦ "We're using the idea of video games, a market that is exploding, to reach out to low- and middle-income Americans to teach good credit habits in a fun and engaging manner." In Celebrity Calamity, it's 7:30 a.m in the morning. You have to find a job. You click a celebrity to apply for a job. You have to manage your celebrity's money. In order to manage your celebrity's money, you need to shop for items through your celebrity's checking card account and collect your celebrity's earnings. You have to use the credit and debit cards that come with the checking account to purchase items and make sure the account stays positive. If you use a credit card, you have to pay the money and if you use the debit card, you've already paid money through your checking account. Once you've got a job, you can get more jobs by collecting money in the second round. You climb up the ladder of jobs of a coffee fetcher, loafer gopher, an impersonal assistant, a muddle manager, a schedule wrangler and an executive partner.
◦ You have to match credit terms for their descriptions like a multiple choice test. You need to click on bubbles in the first column under a list of sentences for example - "Getting something now and paying it later" to terms in the second column for example - cosigner, credit, interest. Everytime you circle a bubble correctly, part of your virtual credit card builds on your screen like a puzzle. If you answer all the questions correctly, your entire virtual credit card builds up. Good for reviewing terms, but getting the terms wrong does not give any feedback, just a beeping sound.
◦ You get nine questions about restitution fund, dmv license fee, booking, finger printing, and photo fees. You have to read the description of fines and circle the cost of that fine. As you circle the fines, you have a total cost counter where you see the total cost of your fine. The aim is to select how much you're fined if you drink & drive.
Diagnostic
By answering questions, these applications would allow users to give more information about themselves.
◦ a quiz where teens choose whether they agree or disagree with certain scenarios; at the end of the quiz, it displays what the teen's money profile is (ex. by saying what matters most to the teen -- such as security, fulfilment, status, etc.). The questions presented were interesting and relatable; instructions were clear. However, after the diagnosis is given, there is no further information.
◦ allows teens to calculate how much they spend a month on gas. Cute graphics. Helpful resource that can be used in real life. However, the example given was full of numbers and was not interesting at all.
◦ Asks teens what kind of lifestyle they would like, and how they would need to prepare financially for it.
Budgeting simulations
These kinds of games allow users to experience creating budgets. What we liked about these websites was they provided some sort of context with regards to real-life applications of creating budgets.
◦ allows teens to check out the expenses they may be incurring for the entire month, and see how it all adds up.
allows teens to check how to plan for an upcoming big expense (ex. prom) by listing out related expenses and seeing how it all adds up, and if the teen can pay.
Websites
There were several websites targeted towards the teen population. These frequently had bright colors and eye-catching layouts in order to entice the population. They would make use of text, graphics, videos, and games. However, we found in these cases that the information would not typically be well-organized.
◦ A lot of the information was basically these PDF files that were uploaded on the website. It was a mix of the some quizzes to do and then a short description of the results. A lot of the articles assumed that the user had a base knowledge of financial concepts and terms.
◦ Similar to the previous website, assumes that the user has a base knowledge of financial concepts and terms. Describes how things happen but does not answer what -- uses some scenarios that are unrealistic.
What we liked about existing programs that we will adapt in our financial literacy game:
To summarize, here are the learner-focused features we enjoyed, and may possibly adapt, into our final product:
- Skills, not just knowledge. There were some applications that aimed to teach skills such as budgeting versus merely defining terms.
- Usage of realistic scenarios. There were a few applications which employed scenarios such as buying gas for a car or going to a prom as a background for learning skills such as budgeting and calculating expenses. We thought these were very helpful in seeing how these skills could be applied in real life.
- Ability to project into the future. In the application "Reality Check," teens could see how much money they would have to earn in order to sustain the lifestyle they would like to have. This is a good exercise in that it shows how the skills are not just limited to short-term activities (ex. in the previous bullet point, buying gas or going to a prom) but in fact skills that will be useful in the near future
- Pre and post- scenario based assessment. Some effective ways of assessment were those that gave kids scenario-based questions that required them to actually do some number calculations in regards to budgeting, savings, etc. These questions are very practical and could easily be applied to real life.
Here are some learner-focused features that we did not like, and will avoid in our application:
- Bare feedback. There were some applications that did not offer constructive feedback when the users made an incorrect choice, simply just saying "Wrong" or giving a beeping sound.
- Formal wording. A few applications were worded in a way that we -- as graduate students -- had a difficult time understanding. We will be adapting language that is easy for the target audience to comprehend.
- Disconnect between activity and learning concepts. In the effort to make the application more engaging, there were a lot of games that we found -- however, these games were not related to the financial concepts at all.
- No organization of topics; discrete information that does not paint the bigger picture. There would be some very good information available, but these would be organized in such a way that it was not clear how the information was related to each other.
- Targets only a very specific niche. For example, football lovers or people who are interested in celebrities.
- Difficult to understand instructions. In the attempt to make the learning more game-like, the challenges were too complicated so that we gave up prematurely on the game.
Mini-games
The majority of these mini-games are currently multiple choice-type, with the developers incorporating graphics or storylines to make them more appealing to the target audience. Our main concern is that although these types of applications may appear engaging, they are simply multiple choice quizzes.- hintsmcq, forassessment
- Financial football
◦ Visa and the National Football League have teamed up to help teach financial concepts with Financial Football, a fast-paced, interactive game that engages students while teaching them money management skills. Students click kickoff to start the game and then get a set of questions they have to answer. As you keep answering questions you run down the field, but when you get a question wrong you get tackled by the other team. Questions/concepts include taking money out of bank accounts, reporting lost credit cards, calculating interest rates, collision insurance, information on credit reports, assets and liabilities, examples of public records, advantages and disadvantages of owning credit cards, advantages and disadvantages of renting an apartment, building credit histories, issuing credit cards through credit unions, getting social security money back from paychecks, importing goods with changes in currency rates, and behavior of telemarketers. Teams compete by answering these financial questions and earn yardage and score touchdowns. The game has downloadable modules that teach the fundamentals, strength training, defensive spending and the game plan.
- Smart Money Quiz Show
◦ The "Smart Money Quiz Show" is designed to teach you about banks and credit while you try to get out of debt by answering questions. You start out with $10,000 of debt. Work through each category of questions below. You must answer all of the questions, and each question is worth money. If you answer a question incorrectly, your debt will increase by the amount that question is worth. By answering the questions correctly, you will decrease your $10,000 debt. If you're successful, you will have no debt by the time you've answered all the questions, and your Current Balance will be $0 or above. When this happens, congratulations! You've managed to Get-Out-of-Debt.
- Celebrity Calamity
◦ "We're using the idea of video games, a market that is exploding, to reach out to low- and middle-income Americans to teach good credit habits in a fun and engaging manner." In Celebrity Calamity, it's 7:30 a.m in the morning. You have to find a job. You click a celebrity to apply for a job. You have to manage your celebrity's money. In order to manage your celebrity's money, you need to shop for items through your celebrity's checking card account and collect your celebrity's earnings. You have to use the credit and debit cards that come with the checking account to purchase items and make sure the account stays positive. If you use a credit card, you have to pay the money and if you use the debit card, you've already paid money through your checking account. Once you've got a job, you can get more jobs by collecting money in the second round. You climb up the ladder of jobs of a coffee fetcher, loafer gopher, an impersonal assistant, a muddle manager, a schedule wrangler and an executive partner.
- Credit Terms
◦ You have to match credit terms for their descriptions like a multiple choice test. You need to click on bubbles in the first column under a list of sentences for example - "Getting something now and paying it later" to terms in the second column for example - cosigner, credit, interest. Everytime you circle a bubble correctly, part of your virtual credit card builds on your screen like a puzzle. If you answer all the questions correctly, your entire virtual credit card builds up. Good for reviewing terms, but getting the terms wrong does not give any feedback, just a beeping sound.
- The Cost of Drinking & Driving
◦ You get nine questions about restitution fund, dmv license fee, booking, finger printing, and photo fees. You have to read the description of fines and circle the cost of that fine. As you circle the fines, you have a total cost counter where you see the total cost of your fine. The aim is to select how much you're fined if you drink & drive.
Diagnostic
By answering questions, these applications would allow users to give more information about themselves.
- Find out your money personality
◦ a quiz where teens choose whether they agree or disagree with certain scenarios; at the end of the quiz, it displays what the teen's money profile is (ex. by saying what matters most to the teen -- such as security, fulfilment, status, etc.). The questions presented were interesting and relatable; instructions were clear. However, after the diagnosis is given, there is no further information.
- Gassing Up
◦ allows teens to calculate how much they spend a month on gas. Cute graphics. Helpful resource that can be used in real life. However, the example given was full of numbers and was not interesting at all.
- Reality Check
◦ Asks teens what kind of lifestyle they would like, and how they would need to prepare financially for it.
Budgeting simulations
These kinds of games allow users to experience creating budgets. What we liked about these websites was they provided some sort of context with regards to real-life applications of creating budgets.
- Roadtrip to Savings
- Check it Out
◦ allows teens to check out the expenses they may be incurring for the entire month, and see how it all adds up.
- Plan Your Dream Prom
allows teens to check how to plan for an upcoming big expense (ex. prom) by listing out related expenses and seeing how it all adds up, and if the teen can pay.
Websites
There were several websites targeted towards the teen population. These frequently had bright colors and eye-catching layouts in order to entice the population. They would make use of text, graphics, videos, and games. However, we found in these cases that the information would not typically be well-organized.
- Money Talks
◦ A lot of the information was basically these PDF files that were uploaded on the website. It was a mix of the some quizzes to do and then a short description of the results. A lot of the articles assumed that the user had a base knowledge of financial concepts and terms.
- Sense and Dollars
◦ Similar to the previous website, assumes that the user has a base knowledge of financial concepts and terms. Describes how things happen but does not answer what -- uses some scenarios that are unrealistic.
What we liked about existing programs that we will adapt in our financial literacy game:
- Avatars: We will create avatars like the virtual celebrity the player controls in Celebrity Calamity. These avatars will go to college and the high school students will manage their financial assets. The students will decide if the avatar should buy an mp3 player, clothes, or books. They will track all of their spending habits giving them a chance to budget and learn the expenses a college student has to pay prepping them for their upcoming college. This activity will be most beneficial to high school juniors and seniors.
- Realistic Scenarios: Topics such as taking money out of bank accounts, calculating interest rates, information on credit reports, assets and liabilities, advantages and disadvantages of owning credit cards, and issuing credit cards through credit unions from Financial Football will be adapted to a community based game which has a one-week long playing time. A student walks down a street to his school. On day one, he picks up a football magazine from his neighborhood department store on his way and discover he's lost his credit card. He finds out from the shopkeeper how to get his credit card back. On the next day, he then goes to a credit union and finds out which credit card is a good fit for high school students. He picks the credit card with the best savings interest rate. In this manner, the game involves elements of his community - his school, shopkeeper, local credit union in a realistic scenario over a period of one week and the student learns financial concepts. The setting will be a simulated community setting for low-income high school students.
- Money Counters: The cost counter in "The Cost of Drinking and Driving" could be adapted similarly to develop a personal money counter for budgeting in our financial simulation. Students will engage in real-life situations like buying a car and make a budget for buying the car, buying gas everyday, unexpected repairs, weekly washes and such. It could be replicated for another situation such as buying prom essentials as in "Plan Your Dream Prom." The idea is to give them practical experience in cost estimation.
- Virtual Coins: "Credit Terms" would say that everytime a student passes a stage or task in our financial literacy game, they receive virtual coins and their money bag fills up. There's a bag created on the screen that grows in size, similar to the virtual credit card in Credit Terms which builds on the screen like a puzzle if you answer all the questions correctly. This is a fun user-interface that will be interesting to high school students.
