Credit Union Times (CFED)
By: Peter Strozniak
June 6, 2014
Do school branches combined with financial education more effectively teach students the knowledge to build a sound financial future?
A team of researchers from the Corporation of Enterprise Development in Washington, D.C., and the Center for Financial Security at the University of Wisconsin-Madison wanted to answer that question in a new study Assessing Financial Capability Outcomes.
Thirty-six states have adopted personal finance standards as part of high school curricula. But researchers contend previous studies on the efficacy of high school education courses were limited, mixed or inconclusive because the research didn't use rigorous experimental methods. Researchers also suggested high school is too late to teach financial education and that it should begin as early as elementary school.
Through the AFCO study and in collaboration with the $1.4 billion Royal Credit Union in Eau Clare, Wis., and the Happy State Bank in Happy, Texas, researchers set out to prove or disprove this hypothesis: Whether students were more likely to improve and retain their financial knowledge through classwork combined with the experience of opening and using an account at a school branch compared with students who received only classroom financial lessons.
Researchers claim the AFCO study is the first-of-its kind examination to assess the effectiveness of financial education that used rigorous experimental methods. The study involved 4th and 5th graders at school districts in Eau Claire, Wis. and Amarillo, Texas during the 2011-2012 and 2012-2013 academic years.
RCU launched its first school branch program in 1993, and now operates 27 school branches run by students throughout northwest Wisconsin. Happy State Bank started its financial education program in 1997 at one elementary school, which has been expanded to 30 schools throughout the Texas panhandle.
From the study's results, researchers compiled four major insights that may be useful for credit unions considering launching or improving their own financial education program for students - the future members of credit unions.
1. Doing Means Learning
Students with school branch accounts who completed classroom financial lessons demonstrated greater knowledge gains compared to students who received only classroom instruction, according to the study.
Teachers observed that students with accounts seemed to be more engaged in classroom lessons because the accounts they held made their learning relevant. While there was no evidence that a school branch had a direct impact on financial knowledge, the access to a school branch was related to students who more actively used their accounts and increased the students' perceptions of the ease of savings and that banks or credit unions were useful, the study said.
But what also may be interesting to credit unions is that in schools with higher rates of economically disadvantaged students, school branches can potentially persuade unbanked parents to open checking and savings accounts.
"The experience of opening a savings account for a child through their local school may make parents who themselves are unbanked more comfortable with financial institutions and more likely to open an account," according to the study.
Although the NCUA and FDIC have been encouraging financial institutions to form partnerships with schools, many do not open school branches because of security, liability and other risks. Educators worry about children being targeted or bullied on "bank days" when they bring money to deposit at the school branch, the study noted. And institutions are concerned about the risk of taking deposits such as the ability to issue receipts and carrying the cash back and forth to the branch.
The study suggested additional outreach and guidance might help ameliorate these issues and encourage school branches.
2. Committing to Investment
The AFCO study also concluded that just five hours of classroom financial education (without school branches) does appear to increase financial capability, including the students' financial knowledge and financial behavior such as opening and using accounts.
Additionally, the study showed classroom lessons also improved the students' attitudes toward savings and financial institutions. These gains in financial knowledge were also found to last for a year after students completed their lessons.
However, the study emphasized that training and supporting teachers -- and the political will to secure that support -- was critical to the success of the financial education program.
At the Eau Claire School District, for example, teachers attended a three-hour training session and were compensated $100 for time spent preparing for lessons outside the normal workday.
In addition to receiving training on financial education lessons, classroom materials and lesson plans, teachers had the option to attend financial education lessons so they would become comfortable with teaching the concepts to students.
Alternatively, when teachers were unavailable, volunteer RCU educators stepped in to teach the lessons. The credit union had a team of 12 educators who taught elementary school students about savings, financial decision making and money management.
Because of the wide array of financial education programs available, the study also suggested schools get professional guidance to select and implement the appropriate classroom materials, lesson plans and training.
3. Modest Incentives Work
A $25 seed deposit, provided by a private foundation, offered randomly to students in Amarillo led to an 18% increase in student bank accounts.
Eau Claire school students, encouraged to set a savings goal and track their progress, also could earn small prizes for every fourth deposit they made.
School branch programs that are interested in offering an incentive or a match often question what incentive is the right incentive and what amount is the right amount, the study noted. Programs that don't have account withdrawal restrictions also are interested in whether the seed deposit will be withdrawn.
Although the AFCO study did not test different types and amounts of incentives, the results from Amarillo suggested that even a modest incentive can work to encourage more account openings.
The study also suggested that even without withdrawal restrictions, students and their families leave the seed deposits in their accounts.
4. Regulatory Guidance Needed
According to the AFCO study, financial institutions need guidance on state and federal regulations and other requirements to design and deliver financial products for the rapidly-growing field of children's savings programs.
Federal rules of the Bank Secrecy Act, including the know-your-customer requirements, and the Customer Identification Program rule are top concerns among credit unions and banks.
For example, financial institutions have raised concerns about the kinds of information and documents required at the time of account opening that would satisfy the CIP rule.
"In large-scale child savings programs in particular, gathering this kind of information for every child can be onerous at best, and is often administratively cost prohibitive," the study stated. "Requesting identifying information or verification documents also can result in reductions in child participation if parents are unwilling or unable to produce the required documents."
In the AFCO study, the account opening process for Amarillo school banks was complicated by parents' immigration status and documentation HSB required to open accounts, resulting in the decision to offer two types of accounts, joint accounts and child-only accounts. Opening child-only accounts provided a solution because the accounts are standard saving accounts intended for use by children for making small transaction.
Nonetheless, the study said additional written guidance from regulators would help financial institutions gain a clearer and deeper understanding of what is permissible and could help more credit unions and banks open in-school branches.