PROspective Vol II No I January 2011

Recently, a study conducted by researchers at Florida State University, The Development of Superior Personal Investing Performance*, found that certain behaviors assist household wealth accumulation:

The implications of these findings for financial literacy programs and the American householder is that household wealth accumulation is likely to benefit from the following practices: better communication between householders about the household’s finances; active garnering of financial information from employers and financial professionals; and attempts to forecast the wealth required for retirement and frequent monitoring of the household’s current financial status in relation to that goal. It is also likely to benefit from attempts to keep on the “right side” of interest; that is, to save and thus earn interest on those savings and to avoid debt and thus avoid paying interest and late fees on those debts.

This study is typical of the research into behaviors of investors by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. The Foundation is also charged with translating its research into educational resources useable for average investors. We asked John Gannon of the FINRA Foundation to address some questions regarding investor behavioral research.

Chuck Miller: Describe the work of the FINRA Foundation.

John Gannon: The mission of the FINRA Investor Education Foundation is to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life. Established in 2003, FINRA Foundation envisions a society characterized by universal financial literacy.
 
The FINRA Foundation supports innovative research and educational projects aimed at segments of the investing public that could benefit from additional resources.
 
These resources come in various forms. Our grants allow researchers to explore investor behavior and develop practical ways to avoid costly mistakes and prepare for the future. Grant funding also helps nonprofit organizations ensure that reliable financial and investor education is available to all who need it, when they need it—at the workplace, online 24/7, or wherever it’s most effective.
 
By sharing research and tools broadly, the FINRA Foundation adds to the collective wisdom about how best to help investors. Such information also shapes our directed programs. When we work on behalf of military service members and their families, with older Americans nearing or in retirement, or with students in all parts of the country, we have the opportunity to apply the latest research and adapt innovative strategies to their circumstances and needs.
 
Our goal is to reach more and more investors each year, educate them on their own terms, and teach them how to protect themselves in a world that is complex and dynamic.

CM: Does the Foundation have any special education programs for unique sets of investors?

JG: While many of our grants target specific audiences, the FINRA Foundation has two programs that target specific groups of investors:

1. The Military Financial Education Project delivers free, unbiased financial education tools and training to service members, their spouses and on-base financial educators through a variety of programs and public awareness initiatives. A partner in the U.S. Department of Defense Financial Readiness Campaign, the project’s primary goal is to help military families manage their money with confidence.
 
Launched in February 2006 using fine money levied against firms for misleading sales practices targeting military personnel, this multi-faceted program includes:
 
• A comprehensive website—www.SaveAndInvest.org—that provides tools and information on a wide range of financial topics, including credit management and duty station changes;
• Moneytopia, a serious e-learning financial simulation game for service members and youth;
• On-the-ground training to support the military's current Personal Financial Management program;
• Fellowships that allow military spouses to earn a career-enhancing credential (the Accredited Financial Counselor™ certificate) while providing volunteer financial counseling to the military community; and,
• Face-to-face financial education forums at military installations worldwide to motivate families to take responsibility for their financial well-being.

2. FINRA Foundation-funded research shattered the stereotypes of senior investment fraud victims. The fraud victim profile was counterintuitive in many respects. For instance, victims were often financially knowledgeable men.
 
The influence tactics used by fraudsters were shown to be sophisticated and highly effective. These findings forced regulators and advocates alike to rethink how best to approach the challenge of equipping older investors with the tools and information they need to resist investment scams.
 
The FINRA Foundation initiated a campaign designed to reduce the incidence of fraud among investors ages 55 and over by helping them:
 
• Recognize they are vulnerable to financial fraud;
• Identify persuasion techniques; and,
• Reduce risky behaviors by asking questions and checking information.

CM: What changes has the Foundation made in its education programs in the past few years?

JG: In the last few years, we have tried to focus our grant programs more on distribution of existing financial information instead of the creation of new content.  That’s why we have created two new grant programs in partnership that focus on distribution.

The Smart investing @ your library grant program http://smartinvesting.ala.org/ is administered jointly by the FINRA Investor Education Foundation and the American Library Association. This special grant program funds public library efforts to provide library patrons with access to effective, unbiased financial education resources.

Grant recipients—public libraries and public library networks across the country—use a variety of technologies and outreach strategies to bring quality financial and investor education opportunities within easy reach of diverse groups of library patrons at no cost to them. The grantees partner with an array of organizations, including schools, universities and local agencies, to expand the impact of the services and resources enabled by the grants.

Through the program, library patrons are empowered to make smart financial decisions, both for long-term investing and day-to-day money matters. The program is especially concerned with helping those who have limited access to this kind of information.

In its first three years (2007-2009), Smart investing@your library awarded grants totaling $3.2 million to 43 public libraries and library networks throughout the United States. The program continues to add new grantees.

The FINRA Foundation and the United Way of America launched a new grant program in 2009 called Financial Education in Your Community to help community-based organizations provide effective and unbiased financial education.

Community and non-profit organizations are integral to neighborhood social networks. They can craft programs relevant to local needs and preferences. They also offer education and services in venues that are neutral, non-threatening and convenient.
 
Financial Education in Your Community grants are awarded to community-based organizations that have demonstrated the ability to reach and engage working individuals and families through effective social marketing techniques. Successful projects build or sustain community partnerships and address local needs by introducing new and creative approaches that significantly improve participant outcomes. The first twelve grants under this program were awarded in December 2009.

The Foundation is currently working with a partner to study institutional practices around providing guidance on student loans, and whether education programs can be developed to improve decision-making around managing student loans.

*Executive summary prepared for the Financial Industry Regulatory Authority Investor Education Foundation under grant 2007-06-015, entitled "The Development of Superior Personal Investing Performance", Eccles, Ward, and Goldsmith