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Effectiveness of Financial Education on Financial Management Behavior and Account Usage: Evidence from a ‘Second Chance’ Program

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Abstract

The Get Checking™ program is a “second chance” program that aims to provide financial education to consumers who were reported to ChexSystems by a previous financial institution for account abuse or mismanagement. Using data collected from Indiana participants of the program, the first goal of this study is to investigate the success of the program in impacting financial management behavior of the participants. The second goal is to investigate the change of participants’ actual behavior in terms of account usage and asset-building after the completion of the program. The findings show that the program was successful in positively influencing the financial management behavior of Non-whites in terms of recording transactions and communicating with financial institutions. Also, financial management skills emphasized in the program, especially communicating with financial institutions, have a significant positive effect on the actual behavior of the participants in terms of obtaining a loan. Among the heterogeneous group of the unbanked, findings shed light on the demographic groups, such as Non-whites and young adults that could benefit the most from this type of financial management education.

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Notes

  1. For more information on this program, see http://www.fdic.gov/consumers/consumer/moneysmart/.

  2. See http://www.getchecking.org/ for more information about the program.

  3. The industry reports that in approximately 11,000 financial service centers, 180 million checks totaling $55 billion are processed annually.

  4. Gale and Carney (2001) acknowledge that having a bank account is endogenous to the asset holding behavior. Therefore, their findings do not imply that giving a bank account to a household would cause the household’s financial asset ownership to rise.

  5. The follow-up surveys were mailed to the participants 1–3 years after they completed the program.

  6. This model estimates the effect of financial management skills that were obtained during the course. If the participants were already recording transactions, reconciling bank statements with their check register, planning a budget, or communicating with financial institutions before they had participated the Get CheckingTM program and did not report a change of behavior, the estimated coefficients on these variables would underestimate the true effect of these variables on opening a savings, asset, or loan account.

  7. The coefficient estimate of Non-whites who communicated with financial institutions is the sum of the coefficients of Non-white (0.279), Behaviour_Communication (−0.154) and Non-white * Behaviour_Communication (1.319) and equals to 1.444 (p-value < 0.01). The estimate is significantly different than the estimate of Non-white who did not communicate with financial institutions (0.279).

  8. The estimate of Non-whites who communicated with financial institutions (1.444) is significantly different than the estimate of Whites who communicated with financial institutions (−0.154).

  9. The coefficient estimate of Non-whites who communicated with financial institutions is the sum of the coefficients of Non-white (0.044), Behaviour_Communication (1.285) and Nonwhite * Behaviour_Communication (−1.035) and equals to 0.294. The estimate is significantly different than the estimate of Whites who communicated with financial institutions (1.285).

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Acknowledgements

We thank Bharathi Nagarajan for her assistance with the collection of the data and Patryk Babiarz for excellent research assistance. We also thank Angela C. Lyons and Jeanne Hogarth and the seminar participants at the 2006 Federal Reserve Research Forum for Closing the Wealth Gap: Building Assets among Low-Income Households.

Author information

Authors and Affiliations

  1. Purdue Extension Marion County, 6640 Intech Blvd., Suite 120, Indianapolis, IN, 46278-2012, USA

    Rebecca Haynes-Bordas

  2. Department of Consumer Sciences and Retailing, Purdue University, 812 W. State Street, West Lafayette, IN, 47907-1262, USA

    D. E. Kiss & Tansel Yilmazer

Authors
  1. Rebecca Haynes-Bordas
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  2. D. E. Kiss
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  3. Tansel Yilmazer
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Corresponding author

Correspondence to Tansel Yilmazer.

Appendix

Appendix

Accounts & financial management behavior of those who responded to the follow-up survey by age and race

Variable name

Under age 25 percentages N = 24

Over age 25 percentages N = 136

Whites percentages N = 84

Non-whites percentages N = 74

Opened checking account

100.00

97.06*

97.62

97.30

    Checking account still open

91.67

90.44

88.10

93.24

Opened saving account

43.48

58.78

51.85

61.97

    Saving account still open

41.67

56.62

50.00

59.46

Asset accounts

25.00

13.24*

9.52

24.32*

    Certificates of deposit

8.33

4.41

3.57

6.76

    Retirement savings

12.50

5.15

2.38

10.81*

    Other asset accountsa

20.83

8.09†

7.14

13.51

Loan accounts

33.33

13.24†

22.62

10.81*

    Mortgage

12.50

6.62

10.71

4.05

    Car loan

25.00

6.62†

10.71

8.11

    Other loan accountsb

4.17

3.68

7.14

1.35†

Restitution completed

    1 month

54.17

37.50

40.48

39.19

    2−3 months

4.17

5.88

4.76

6.76

    4−5 months

4.17

1.47

1.19

2.70

    6 months

0.00

2.94†

1.19

4.05

    Did not owe

29.17

40.44

44.05

32.43

    Still repaying

8.33

11.03

8.33

13.51

    Differences in behavior

    Recording

79.17

74.26

70.24

81.08

    Reconciling

41.67

55.15

53.57

54.05

    Budgeting

54.17

69.85

64.29

70.27

    Communicating

45.83

44.12

36.90

52.70*

  1. aOther asset accounts includes money market accounts, college education savings, and business accounts
  2. bOther loan accounts includes credit card accounts, personal loans
  3. † p-value < .1; * p-value < .05. ** p-value < .01

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Haynes-Bordas, R., Kiss, D.E. & Yilmazer, T. Effectiveness of Financial Education on Financial Management Behavior and Account Usage: Evidence from a ‘Second Chance’ Program. J Fam Econ Iss 29, 362–390 (2008). https://doi.org/10.1007/s10834-008-9115-x

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