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A Financial Literacy and Financial Services Program for Elementary School Grades

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					A Financial Literacy and Financial Services Program for Elementary School Grades - Results of a Pilot Study by A.D. Grody, D. Grody, PhD, E. Kromann, J. Sutliff ABSTRACT This study examines the effectiveness of teaching financial literacy to elementary school children and extending such learning into an age-appropriate digital world of online support services. We utilize a picture book and a story relevant to the students ‘real life’ experiences and conceptual understanding of future rewards. We hypothesize that using materials geared toward developmental levels of cognitive ability and psychological readiness will readily engage students’ understanding of delaying gratification, saving, earning or paying interest, and other fundamentals of personal finance. Financial decision making theories for adults rely on the assumption that they are rational beings and have an underlying knowledge of basic financial concepts. Children’s financial decision-making lacks the requisite education in key foundational concepts underlying the basics of such elemental concepts as interest, credit and loans. This study sought to develop a successful tool to fill the gap in early financial education by teaching the “production” concepts of finance as a mechanism to better understand the “consumer” components, and thereby supply a missing foundational element for ongoing financial well-being into adulthood. We report on the first implementation of the pilot program, the reading of a story book relating money concepts through children’s daily interactions with the visual manifestations of financial transactions. We organize the students into a pilot and control group and demonstrate empirically that the reading of the book improves financial literacy. We combine a school librarian’s reading of the book to the pilot group with a field trip to a bank for both groups. We provide material to bond the child with the parent’s continuation of reading of the book, and in future interactions with the bank We speculate on the implications of the study result’s positive outcome on future financial literacy programs in elementary school grades, and on into secondary education levels, combining elements found in the curriculums of math, economics and social studies. We postulate a role for financial institutions in the reinforcement of the learning experience and, more importantly, in the delivery of age-appropriate financial products and services. We demonstrate an economic reward for financial institutions in embracing child financial literacy programs in elementary school grades and in extending the learning and implementation components through integration of age appropriate online banking services and socialization websites. Key words: Financial Literacy, Child Financial Literacy, Children’s Education, Elementary School Education

Electronic copy available at: http://ssrn.com/abstract=1132388

Background Authors Vitt, Anderson, Lyter, et al., (2002) define personal financial literacy 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....literacy in the context of personal finance is sometimes referred to as economic literacy” The authors go on to note that, “General education determines occupation and income, which in turn influences place of residence, social contacts, consumer choices, and activities. Financial Literacy education shapes the life course in other ways by enhancing access to investment income, asset accumulation, and asset protection.” Johnson and Sherraden (2007) believe financial literacy is a helpful but not a sufficient idea. Participation in economic life should maximize life chances and enable people to lead fulfilling lives. This requires knowledge and competencies, ability to act on that knowledge, and opportunity to act. This is more likely when people are able to convert knowledge into action. This includes linking individual functioning to social institutions, and pedagogical methods that enable them to practice and gain competency in this functioning. The authors refer to this as “financial capability.” The authors suggest that differences in people's access to resources and institutions affect young people's ability to absorb and act on knowledge and skills learned in financial education classes. Although teaching financial concepts to these children may increase their financial knowledge and build financial decision-making skills - i.e., increase financial literacy - these gains in human capital may do little to increase financial capabilities in the absence of access to mainstream financial institutions. Practically, if policymakers and practitioners aim to increase financial capabilities, it is vital not only to develop standards and learning opportunities, but also to increased access to financial institutions. The authors believe that while managing a savings account may contribute to children’s ability to understand concepts related to saving and investment education, linking the experiential process with access to financial institutions may be best used to promote learning. However, the authors note, most financial education programs that employ experiential learning do not provide access to financial institutions. On Jan 22, 2008 President Bush announced the establishment of an Advisory Council on Financial Literacy to recommend how to better educate people from all walks of life about matters pertaining to their finances and their future.1 President Bush said “We want people to own assets; we want people to be able to manage their assets. We want people to understand basic financial concepts, and how credit cards work and how credit scores affect you, how you can benefit from a savings account or a bank account.” The President appointed Charles Schwab, the Chairman of financial services company Charles Schwab Corporation, as the Chairman of the Advisory Council. Mr. Schwab in accepting the appointment stated "Financial literacy is the gateway to financial fitness. In

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Electronic copy available at: http://ssrn.com/abstract=1132388

today's complex financial world, even the most affluent people can lack the knowledge and understanding to make good financial choices. This isn't just an issue confined to a particular age group or socioeconomic class it's something that touches Americans of all ages and walks of life." The Current State of Childhood Financial Education With such importance placed on financial literacy it is quite startling to discover that mandatory educational curriculum in finance and economics is still very low in the United States. According to the National Council on Economic Education (2007) survey, while progress continues to be made in the teaching of economics and personal finance in our nation’s schools only seven states require students to take a Personal Finance course as a high school graduation requirement. Economics, traditionally part of the core Social Studies curriculum, is now included, to at least some extent, in the educational standards of all states. 41 states (up from 38 in 2004 and 28 in 1998), now require these standards to be implemented. 17 states require students to take an Economics course as a high school graduation requirement (up from 14 in 2004 and 13 in 1998). However, only 22 states require the testing of student knowledge in Economics, three fewer than in 2004. Personal Finance, a newer subject in comparison with Economics, is now included, to at least some extent, in the educational standards of 40 states (up from 34 in 2004 and 21 in 1998). 28 states (up from 20 in 2004 and 14 in 1998), now require these standards to be implemented. Still, however, only 7 states require students to take a Personal Finance course as a high school graduation requirement (up from 6 in 2004 and 1 in 1998), and only 9 states require the testing of student knowledge in Personal Finance (up from 8 states in 2004 and 1 in 1998). In 2005 state legislators introduced more than 75 bills and resolutions on personalfinance training in public schools, up from about 30 in 2004.2 However, according Burmaster, Mahaffey, George, et al. (2006) only one State, Wisconsin, has a fully mandated program of Personal finance instruction in the elementary school grades. While the issues of economics and financial education have been on the radar-screen for some time, and most states have made at least some efforts here it is also apparent that, at present, there is no consistent approach concerning the issue of personal financial education. Like all types of education, financial education begins with teaching the basics that will provide an individual with a foundation for analyzing increasingly complex financial problems. Introducing the youngest students to financial education basics in school helps them to develop the building blocks they will need to make good financial decisions throughout their lives. One cannot expect a first time home owner to comprehend the mortgage closing process or a retiree to make informed investment and spending decisions regarding retirement income if they have not been given an understanding of the basic concepts of personal finance. Even more importantly, existing educational curriculum lacks a comprehensive program of educating children about either the structure or mechanics of the financial industry, a prerequisite, in our opinion, to truly making sense of financial concepts.

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The best and most obvious starting point is in schools. No better venue exists to reach a large segment of the youth population than through the school system. The evidence shows that youth financial education can make a difference. Individuals graduating from high schools in states that mandate personal finance education courses have higher savings rates and net worth as a percentage of earnings than those who graduate from schools in states without such a mandate. Teaching financial education in school starts the process of preparing children to become competent consumers and managers of household wealth. Educators and legislators should consider financial literacy and investor education as a basic feature of K-12 education. In their 2006 study, The National Association of State Board’s of Education (2006) stated that all students should receive comprehensive financial and investor education and that the earlier a student begins learning these concepts, the more opportunities schools will have to impact behavior. Further the study suggested utilizing public/private partnerships (including educational institutions, consumer groups, nonprofit organizations, and private sector companies) that offer financial education programs in order to obtain support for teaching financial and investor education concepts. Alan Greenspan the former Federal Reserve Board Chairman summed up the importance of financial literacy programs by noting that “Improving basic financial education at the elementary and secondary school level is essential to providing a foundation for financial literacy that can prevent younger people from making poor financial decisions that can take years to overcome.” 3 Quantifying the Financial Literacy Gap As in any other academic subject the earlier we are expose children to the basics the more fully they will understand them and integrate them into their daily experiences. Students in the kindergarten through 12th grade (K-12) obtain an education in Public Schools, Private Schools, or in Home-Schooling environments. Recent statistics released by the Ray. B and the National Home Education Research Institute (2003) estimate that there were 48.5 million students in Public Schools, 6.3 million students in Private Schools, and 2.1 million students in Home-Schooling. Haussar, W. and the National Center for Education Statistics (2005) projects that there will be approximately 50 million public school students and 6.7 million private school students by 2014. Concerns about how U.S. students compete internationally have increased. Parents are spending more today on education services to keep their children competitive. According to a Boston Consulting Group analyst, demographic trends are adding to the development of a kid-centric society. Parents are increasingly having only one child later in life, and they are having children at a time when they have more disposable income.4

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Studies have shown that parents typically assume the primary role in teaching their children about money management (American Savings Education Council, 1999; Lyons, 2003; Palmer et al., 2001). The study by the American Savings Education Council found that approximately 94% of students used their parents as a source of financial information. However, studies have overwhelmingly shown that parents do not adequately prepare their children for financial independence and students are not educated about personal finance and money management. Parents generally do not explicitly talk to their children about money management. In a study by Norvilitis et al (2003), about 30% of students said that their parents rarely or never discussed with them issues such as the importance of saving, investing and setting financial goals. Some states, New York included, mandate the teaching of economics at the primary school levels. Studies by Walstad, W.B., and Rebeck, K. (2006) utilizing National Council on Economic Education standardized tests, such as the BET (Basic Economic Test) for elementary students have shown economic literacy gains as demonstrated in pre and post test data in comparison to control groups. The most effective educational means have generally been shown to be ‘practice oriented’ in student learning outcome measures. A national economics test administered in 2006 by the National Assessment of Educational Progress of 11,500 students in 590 public and private schools concluded that “students are pretty shaky on the way governments and the financial system works”. Further it was noted that “Scores on economics proficiency was not necessarily higher between those who took some economics courses and those who didn’t” suggesting that environmental factors are at work here. The study suggested that early intervention and reinforcement of externalities in teaching can be harnessed to accelerate financial literacy. 5 Fearing financial illiteracy among kids, states are requiring students to learn more about money matters. Legislators and school boards are slowly getting on with requiring schools to provide economics and personal finance, and to work economics into math and history courses. But it is slow going because of the need for teacher training and fitting new courses into existing syllabus and graduation requirements.6 A Charles Schwab survey in 2006 on children’s financial situation found that “a growing number of teenagers have access to credit cards, and many are in debt. Nearly a third of 13-18 year-olds average debt was $230, but 14% of those in debt owed $1000 or more.” Another survey by Schwab in March, 2007 found that “most teens have unrealistic expectations about their earnings potential and know little about investing basics.” High-school seniors failed the 2005-2006 test on personal finance and economics administered b the Jump$tart Coalition for Personal Financial literacy with an average score of 52.4%. The test is designed to test basic knowledge of spending, the role of credit and saving and investing. The Executive Director of the Jump$tart Coalition said “we need to look at financial education not as a one-shot deal. It needs to be available at several points and early. They need to get it in a formal education and at home.”

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The Jump$tart Coalition for Personal Financial Literacy, which develops national standards for financial literacy, determined that the average student who graduates from high school lacks basic skills in the management of personal financial affairs. Many are unable to balance a checkbook and most simply have no insight into the basic survival principles involved with earning, spending, saving and investing. Many young people fail in the management of their first consumer credit experience, establish bad financial management habits, and stumble through their lives learning by trial and error. The Coalition’s objective is to encourage curriculum enrichment to ensure that basic personal financial management skills are attained during the K-12 educational experience. Educators at Wharton warned that “helping children and teenagers learn the rudiments of free markets, entrepreneurship, credit, spending, saving and investing is one of the most important, yet usually neglected components of a young person’s education” 7 Harold McGraw III, Chairman, President and CEO, The McGraw-Hill Companies commenting on the New York State Education Department’s Financial Literacy Certification test for high schoolers in cooperation with the New York Financial Literacy Coalition said “Financial literacy is about preparing young people to make better choices. It encompasses life skills that are integral to self-sufficiency and empowerment, and it helps level the playing fields so that every child has the same opportunity to participate and succeed in our society.” 8 Linking Childhood Cognitive Abilities to Financial Literacy Programs In our pilot program we have recognized the gap between children’s cognitive abilities and the literature and financial tools used to teach financial literacy to this group. A review of the standards for kindergarten through high school (K-12) educational curriculum advocated by the National Council on Economic Education (economics) and the Jumpstart Coalition (personal finance) is ambitious, but the varied educational material deployed, especially at the elementary grades, fall far short of its goals. Currently many parents and even banks still promote a “Piggy Bank” as the primary savings tool to train their children. Even online resources rely on the antiquated animal as the single symbol of savings for children. One such resource, “learntosave.com” has two cartoon pig characters, farmer dressed, male and female, helping children learn about saving9 The “money savvy pig” has one pig, but with four slots, one for each savings objective - save, spend, donate and invest, as defined in the money savvy pig mantra of the Money Savvy Generation.10 According to a study by Schug and Hagedorn (2005) “100 percent of children ages five to seven own a piggy bank, change cup, or something similar”. Although putting money in a vessel does help children save, it fails to teach important “financial institution” concepts that are the backbone of an adult experience in saving and spending money. Piggy banks do not earn interest and will certainly not give you a line of credit. In fact studies have shown that parents in times of hardship have actually “liberated” their children’s savings with the plan to replace it later. Yorkshire bank reported on research claiming “1.3 million parents will borrow money this January”.11 Couple these findings with the credit epidemic that faces most Americans

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today and it is clear that financial education needs to start earlier and with a more focused delivery. This gap in the financial education of our youth has been taken up by many. Interactive games such as the Stock Market Game from the Securities Industry Association, and the Stock Market simulation from Stock-Trak are popular “teaching” tools but teach only about stocks. They turn up in classrooms and are embedded with lesson plans. However, the lessons plans contain little or no discussion of mutual funds, diversification, asset allocation or holding for the long term. It’s an attention grabber but falls far short of informed teaching. However, when properly conceived the use of these interactive tools can be used to both teach and entertain, with the proper focus on early stage financial literacy. 12 Financial services firms are racing to develop tools and curriculum to offer free to schools, in return for carrying their corporate logos. Citigroup’s web based online savings tutorial is taught by an elderly cartoonish-looking owl in a cap and gown. Citibank and Capital One Financial Corp co-sponsored a financial literacy summit for top educators. Concern is the appropriateness of using financial firms teaching material as they have a vested interest in getting their marketing message in front of their future customers.13 Here, banks are aggressively campaigning to build brand awareness among teen and preteens, including their parents, in launching new services. US Bancorp provides kids as young as five with passbooks and awards them prizes such as stick-on tattoos when they make a deposit, and music downloads when they reach $100. At Keycorp’s Keybank children who open a DinoSaver account receives dinosaur toys and quarterly newsletters. At USAA children can invest as little as $20 in their First Start Growth Fund which invests in child-identified companies such as Google and Pepsico, This fund has accumulated $228 million in assets. Some new accounts allow kids to own debit or ATM cards in their own name, wherein they receive statements and access their accounts online. Some banks are allowing children as young as 10 to borrow money, but with their parents as co-signers. Commenting on this growing focus on child friendly financial products, Dr. Lewis Mandell, who surveys high-school seniors on their knowledge of financial basics for the Jump$tart Coalition, says “It is very useful for kids to have some vehicle that gives them feedback and a sense of accomplishment. “It’s far more useful to see at the end of the year how much interest you have made.” 14 As part of an £11.5 million boost to personal finance education, the UK’s Children, Schools and Families section of its Treasury Ministery will teach children how to open a bank account, understand basic financial concepts like interest rates and learn important skills to plan for their financial future. The money will be used in both primary and secondary schools to teach children financial skills that will help them to manage their personal finances. Teachers have been asked to use these Child Trust Funds (CTFs) as a way of talking about financial education in maths lessons. A range of financial materials will be based upon the CTF, allowing teachers to bring finance to life via the children’s CTFs. 7

The CTF is a long-term savings and investment account for all children born on or after 1 September 2002. The CTF was launched to strengthen the saving habit of future generations, promote financial education and ensure that at age 18 every child has access to a financial asset. The UK Government will give every eligible child at least £250 to start the fund with a further payment of £250 when a child turns 7. 15 One innovative approach to implementing CTFs is the Clydsdale PLC (Yorkshire Bank) bank’s Cybersave Account which challenges children to “accumulate savings, fight off cash-draining enemies, build up interest and save as much as they can.” The story has the child as an expert Money Maker. Their mission is to accumulate savings in their account by keeping their money “out of the clutches of the enemies who want to drain their cash, like the Cash-Eating-Sofa and the Greedy Piggy Bank.” To keep their savings levels high they need to bank all their bonuses, like pocket money and Saturday job wages. The closing admonition is that by banking your money and keeping it safe, you can build up your savings into a tidy lump sum. Remember, the bank says,” the more you have in your account the more interest you earn on your money. The aim of the game is to save up for the big things you really want. And remember, this isn't a game. This is real life!!” 16 Similarly, a bipartisan coalition in the US Congress introduced the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act which would set up a “KIDS Account” at birth for every child in America which they can later use to pursue post-secondary education, buy their first home, or build up a nest-egg for retirement. The ASPIRE Act calls for each child’s KIDS Account to be endowed with a one-time $500 contribution at birth. Children living in households with incomes below national median income will be eligible for both a supplemental contribution of up to $500 at birth as well as the opportunity to earn $500 per year in matching funds for amounts saved in the account. Financial education would be offered in conjunction with the accounts.17 Begun in 1980, Save for America (2005) is a federally sponsored school banking program, co-sponsored by the US Departments of Treasury and Education, and operated in partnership with local financial institutions and schools or youth organizations. Save for America uses the Department of Education-approved school savings curricula, and also provides a no-fee savings account to participating youth. The financial education curriculum is designed for use by teachers and parents, and is available for grades kindergarten through sixth grade. Deposits are made at school, typically on a weekly basis, and transferred by parents and other volunteers to the financial institution. As of 2005, the program reports that over two million youth have graduated from the program. Banks are looking to attract lifelong clients, using incentives like free plane tickets and iPods, accounts with no monthly fees or minimum balance requirements, and higher money market interest rates. 18 One program, The BabyMint Program is offered by Vesdia Corporation, which describes itself as the nation’s leading micro investing technology company.19 Through the BabyMint nationwide network of retailers and name brands their "savings engine" enables individual investors to save for a child's college tuition or for other major life events without incurring out-of-pocket expenses. BabyMint members receive rebates up to a 30% on every-day purchases made through BabyMint’s network of hundreds of merchants (e.g., Target.com, 1-800-

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FLOWERS.COM, Gap.com). Rebates can be sent via check, directed into another BabyMint member’s account, have them deposited directly into a college savings account (529 Plan or Coverdell Educational Savings Account) or make payment to a student loan account. Extending the Classroom Our pilot study program is geared to achieving the national standards for both economic and financial literacy but with the objective of earlier intervention in the learning process. Early intervention has been shown to advance both the skill development and cognitive development of children (Cunha, et al, 2005). Early intervention in our program is accomplished through innovative child story books for both home and school reading, school work book materials, bank visitation programs, and child specific products and services, delivered through a series of parent-child-school-financial institution touch points that this program encourages. In this later regard, banks are obligated under both state and federal regulations to observe The Community Reinvestment Act (2006). Among other things, the Act and its implementing regulations authorizes State Banking Departments’ to evaluate an institution’s performance. It is important to note that the CRA does not contain any formulas, dollar figures or lending ratios that must be achieved by an institution in a specific community. Rather, what constitutes a satisfactory level of lending, investment and service by an institution is determined in the context of many different factors, including: opportunities presented by a specific community (i.e., demographic and economic factors); the institution’s product offerings and business strategy; institutional capacity, constraints, and other factors. Although the CRA does not contain any punitive measures (i.e., sanctions) for poor performance, an institution may be prevented from concluding an expansionary transaction (i.e. merger, new branch, etc), if the bank has a poor CRA record. An institution’s financial literacy and education programs for low and middle income (LMI) individuals may also be considered “community development services” and thus CRA eligible. With regard to the particular forms of support that may be eligible, any type of grant support (either monetary or in-kind) would receive favorable consideration, as would donations of time for teaching, organizing educational seminars, or meeting with local community organizations to develop support for the program. In a collaborative study of many federal agencies, the National Strategy for Financial Literacy (2006) identified challenges to children’s financial literacy including finding room for financial education in the school day, the lack of teacher preparedness on the issue, and a lack of awareness of effective materials and curricula. They further concluded that while the K-12 environment is key to addressing the need for more financial education, non-school venues also offer promising options. The study further concluded that integration of financial education into established curricula permits schools and educators to meet their obligations to teach required courses while simultaneously exposing students to valuable financial literacy lessons. For example, second graders learning basic addition can use coins not only to understand the value of

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money, but also to begin practicing their arithmetic. Middle school students studying percentages in math class can be taught about the compounding of interest rates. However, the current educational literature, teaching aids and school curriculum for the elementary school age group appear to be variations of the same old theme of teaching kids solely through old age piggy bank savings and numeration techniques. Depending on their age, children are taught addition and subtraction with pennies, dimes, and quarters and multiplication and division for interest and dividend calculations. Now, while these concepts are certainly still valued, this was an earlier generations’ world of finance, not the concepts of finance our children have been born into. Our premise is that understanding the relationship of work and money, money and ATM machines, money and investments, credit cards and tangible product acquisition, bill payment mechanisms, monthly statements, retirement savings, taxes, deficits, et al is a more fundamental and current foundation for a financial education for children in our modern age. For many of America’s youth, financial literacy is still not a reality. Each year, young Americans spend roughly $150 billion, yet they do not have a strong understanding of basic financial concepts such as annual percentage rates, inflation, and interest. According to the Department of Education’s National Center for Education Statistics (2002), more students who dropped out of college cited financial reasons, rather than academic ones, for their decision Children generally can start receiving an allowance around age 4 or 5, when most begin to understand how money works. According to Pliner, Freedman, Abramovitch, et al. (1996) children who are given an allowance learn how to handle money more responsibly, and are more sophisticated money managers. Kotlikoff and Bernheim (2001) found that people who had an allowance, bank account, or investment when they were children saved more of their income as adults. Unfortunately the way money works in our modern world is far different then the way it worked in prior generations. Then every family had a European or Asian immigrant grandparent teaching thrift to the next generation from lessons learned from the great worldwide depression. Today children are confronted with the visual cues and media messages of a far different financial system. Even the icon of thrift, the Piggy bank, a remarkably improper symbol that has come to be the mainstay of a child’s savings focus, is being called into question. Children, first encouraged by their parents, store coins in simple jars, cartons with a bank’s logo, locker boxes decorated with children’s favorite cartoons. Parents, accompanying their children into bank lobbies, empty them into coin counting machines where a receipt is printed, taken to the teller and deposited in the child’s’ savings account . Reinforcing Concepts in Children’s Financial Literacy Programs Another foundational hypothesis of the pilot program is that attempts to teach the “economics” of finance to children would be best served by using the “tools” of finance. The Child Finance Series of books under study in this pilot program first teach the more 10

relevant and visual “mechanics” of the financial system as the formal introduction to a child’s financial education. Danziger (1958) suggests that children understand consumer relationships before they understand production because they have more personal experience with the former. Here the pilot program distinguishes itself from all other teaching material for this age group, teaching first the workings of the financial system (the more visible production process) as a basis for understanding the less visible and tangible consumer relationship (savings, credit, investing, etc.). See an excerpt from the pilot story book used in the study program, Where the Money Grows!! - Exhibit I. Further, these story books can also be used as an important teaching tool for parents at home whom studies have shown are reluctant and poor at talking to and educating their children about money. The educational material is presented in a matter of fact yet engaging format of ‘money education’ providing practical understanding for children, and parental incentive to provide experiential exposure to such learning process through visiting a bank and opening accounts for their children. We also believe that teaching children about finance will motivate parents to provide the banking products and services to support their children’s financial education and financial needs. Promoting children’s ‘financial health’ beginning at such an early stage of development, similar to other early stage life learning experiences, can have the greatest impact on a child’s outlook on the financial discipline necessary for future financial success. Further development of the story books contemplates transforming them into interactive videos. Here, tests of children aged 3-5 show they do better on tests than others when they learn from an engaging video personality. Engaging a child through a video screen requires a social setting to be created where the interacting screen personality talks and gestures directly to the child and the child can respond verbally to the personality on the screen.20 Beyond videos is the contemplation of extending the learning experience to the newest application of technology, that of kid centric social websites and virtual worlds. A variety of Internet companies are launching kid friendly virtual worlds, hoping to win their loyalty for the many years to come of Internet surfing, exploring, socializing, learning and online transactions. InterActiveCorp and Dow Jones have recently announced a joint venture to create a personal finance Web site within this Kid friendly virtual world concept.21 Disney, Warner Brothers, Viacom and others see these virtual worlds replacing the Saturday morning cartoon fare that has been the mainstay of children’s imaginary life for over 50 years. 22 It is not too difficult to imagine the blending of the learning experience of a Sesame Street program with these virtual worlds. Here the classroom experience is melded with the imaginary world of child’s play in a practical setting of online kid friendly banking and payment capabilities, savings mechanisms and other real world financial experiences. Extending the visit to the bank, the purchase of a toy, the saving for a bicycle, the accumulation of a college fund, into this virtual world can only serve to reinforce financial literacy.

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Core Testing Methodology The test for program impact in the pilot stage was composed of two phases, a pre and post test for both the class/group exposed to the program and a control group with no exposure. The target demographic is third graders, near the end of their school year. An Elementary School in Suffolk County, New York was host to the study. The school consists of grades K-6 and has a total student population of 194. The third grade class had 31 students, 16 in the control group and 15 in the pilot group. The pre and post tests consisted of the same set of questions but asked in different sequences (see Children’s Questionnaires Exhibits II & III). Questions were asked by each of the home room teachers with the correct multiple choice answer indicated by the students. The pilot group answered the first questionnaires in their home room and then was taken to the library where the book, Where the Money Grows!!©, was read by the school librarian. The control group had the pre and post test administered to them by the home room teacher without having the book read to them. Both classes where then taken by bus to visit with the bank Children were given the book to take home along with a savings coin box and a questionnaire for the parents to respond to. Specifically, the testing proceeded as follows: • • • Questionnaires read by classroom teachers and answers provided by students by circling multiple choice responses, both pilot and control group School librarian reading of Where the Money Grows!!© to pilot group Re-sequenced questionnaires read by classroom teachers and answers provided by students by circling multiple choice responses, both pilot and control group School bus takes both pilot and control classes to visit to the Bank’s branch Gifting of book to visiting students for home reading, with request to fill out parent questionnaire (see Parent Questionnaire - Exhibit IV) as to helpfulness of program Financial literature also distributed by bank to each student Boys/girls branded cartoon figure money “locker boxes” also distributed as savings device Invitation for child/child's parents revisit to bank Initial product exposure at bank – ATM machines, teller stations, vault, coin counting machines Parent questionnaire filed out over a subsequent period

• •

• • • • •

Variables being tested • • • Effect of reading book on children’s financial literacy Effect of visit to bank on children’s financial literacy Effect on children’s financial literacy after repeated readings of book and/or repeated visits to bank

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Findings The results of our study show first, that the message of money not growing on trees, a much maligned cliché used by generations of parents to describe the concept of earning and saving money has been misinterpreted by children to a remarkable degree. Here, responses show a remarkable indoctrination of children to associating trees and money. No question was more resilient to change, regardless of the lesson taught from our story book, then the response to Question 1 - Where does money first come from?
Question 1. Where does money first come from School Bank Store Trees One student did not provide answer 0 11 1 4 16 0 10 1 5 16 0 6 0 8 14 0 11 0 4 15 expected -27% from wrong answer expected +33% to correct answer Control Group Before After Test Group Before After Comment Significance Chg%

Here both groups averaged a 40% response rate to the answer “trees” prior to reading the book. After reading the book, the pilot group reduced the incorrect answer percent by 50%, with 27% still responding “trees”. The control group responses pre and post the administration of the questionnaire was 25% versus 31%, within the normal range of random variability. It was suggested that this response could also have been affected by the image of the money tree on the cover of the book. (Note: the control group did not have the book read to them between answering the two questionnaires, both identical, one questionnaire simply being a re-sequencing of the other). It appears from the response to Question 3 - Where can we use Bank ATM cards? that all the students mostly knew that ATM cards (or rather money cards in general) where used everywhere, they probably saw their Mothers and Fathers take it out all the time - they probably had no idea that it was called an ATM card nor did they associate it with the machine called an ATM machine - its only when the book began to teach them to differentiate the use of the ATM card that they began to discriminate their answers.
Question Control Group Before 3. Where can we use Bank ATM cards: ATM Machines Stores Local Bank All of the Above 4 0 0 12 16 3 0 0 13 16 4 0 2 9 15 8 0 0 7 15 unexpected -13% from right answer After Test Group Before After Control group did better After unexpected +27% to wrong answer Comment Significance Chg%

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Responses to Questions 2, and 4 – 8 show a statistically significant improved rate of learning of fundamental financial literary concepts of interest, credit and savings.
Question 2. What is it called when you get extra money for saving money? Interest Credit A Freebie A Loan 4. Money that Mom and Dad earn from work first goes into Local Bank Wallet or Purse Into the store to buy things 5. Where should I save money so I can earn interest on it: Under my pillow In purse or wallet Local Bank 6. When is it best to begin saving money? When you are an adult When you go to college Now When you don’t have enough for something you want 7. What is it called when the Local Bank gives you more money than you put in? Gift Loan Payment Interest 8. When someone borrows money from a bank, the bank expects that person to: Spend the money Pay back the money Pay back the money with interest 6 5 5 16 6 7 3 16 4 6 5 15 3 6 6 15 expected +7% to right answer expected -7% from wrong answer 1 4 4 7 16 2 3 6 5 16 1 7 3 4 15 0 2 2 11 15 expected +47% to right answer expected -33% from wrong answer 0 2 11 3 16 0 1 12 3 16 0 0 10 5 15 0 0 12 3 15 expected expected +13% to right answer -13% from wrong answer 0 1 15 16 0 1 15 16 0 1 14 15 0 0 15 15 expected expected -7% from wrong answer +7% to right answer 7 9 0 16 4 12 0 16 8 7 0 15 11 4 0 15 expected expected +23% to correct answer -20% from wrong answer 7 5 2 2 16 9 4 0 3 16 4 7 0 4 15 12 1 0 2 15 expected expected +54% to right answer -40% from wrong answer Control Group Before After Test Group Before After Comment Significance Chg%

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The book has introduced a new concept, that of borrowing money from the bank - while it was not fully developed in their minds, as can be seen from responses to Question 9 – If you want something and don't have enough money to buy it what is the best thing you can do?, they are starting to discern a differentiated use for a bank.
Control Group Before 9.If you want something and don't have enough money to buy it what is the best thing you can do Borrow money Earn money and save it Leave school and go to work 4 12 0 16 3 13 0 16 0 15 0 15 2 13 0 15 After Test Group Before After Control group did better After unexpected unexpected +13% change to wrong answer -13% change to right answer

Question

Comment

Significance Chg%

Responses to Questions 10-12 show a degree of awareness of certain financial concepts inherent in the children’s own experiences, that of the economic concept of saving and that banks are the place to save, presumably taught to them by their parents.

Question

Control Group Before After

Test Group Before After

Comment

Significance Chg%

10. I need to start saving: Now Never When I'm older 11. The place to put your money is: A bank Under my pillow Bring it to school 12. When I'm older and need money to go to college I will get it from: My Mom and Dad My savings account at the bank From my school 2 14 0 16 Second answer "My Mom and Dad" 2 14 0 16 5 10 0 15 5 5 9 1 15 5 Classroom teacher permitted multiple answers unexpected Well developed concept Perhaps this one student is getting school aid in the form of subsidized lunches 16 0 0 16 16 0 0 16 15 0 0 15 15 0 0 15 Well developed concept 14 2 0 16 13 3 0 16 15 0 0 15 15 0 0 15 unexpected Well developed concept Trust fund children??

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Based on a statistical analysis, the impact on the students was significant. After a reading of the first book in the series, students in the test group demonstrated a marked improvement compared to the control group in understanding core concepts. Both the Ztest and the Chi-Square test where used for tests of significance. The Z statistic measures the difference between the observed data and the data that was expected under the null hypothesis. The null hypothesis conjectured that there would be no significant difference in understanding core concepts between the test and the control groups due to the reading of the book. The Z score was calculated to be 2.12. The amount of the observed difference resulted in a rejection of the null hypothesis.
Test of Significance for the Treatment Group Comparing the observed difference to the Null Hypothesis 1. Standard Error Before Treatment SE=√15 * 1.9 = 7.3 SE of Avg=7.3/15=.48

After Treatment SE=√15 * 1.8 = 6.9 SE of Avg=6.9/15=.46

2. Standard Error for the difference SE=√(.46)(.46)+(.48)(.48) = .66 3. z=observed difference - expected difference/SE for the difference z=(1.4-0)/.66 = 2.12 P=2 Test is significant Null hypothesis rejected

Raw data for significance test
Test Group Student # Before 1 7/12 2 5/11 3 10/12 4 9/12 5 6/12 6 6/12 7 8/12 8 8/12 9 10/11 10 8/12 11 7/12 12 9/12 13 7/12 14 8/12 15 8/12 Avg SD 7.73 +/- 1.9 Control Group Student # Before 1 11/12 2 7/12 3 8/12 4 11/12 5 6/12 6 11/12 7 6/12 8 11/12 9 6/12 10 7/12 11 8/12 12 9/12 13 8/12 14 7/12 15 7/12 16 7/12 8.13 +/-2.5

After 9/12 10/11 12/12 9/12 10/12 7/12 9/12 8/12 11/11 8/12 9/12 10/12 8/12 10/12 7/12 9.13 +/- 1.8

After 10/12 8/12 8/12 10/12 5/12 12/12 5/12 9/12 8/12 7/12 9/12 8/12 9/12 7/12 8/12 4/12 7.94 +/-2.8

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Similarly the Test Group experienced a significantly greater Chi- Square (Σx2) value 14.117) than the Control Group (4.095) indicating that there is significant improvement in the response of Test Group after having the book read to them.
Control Group Q 1 Observed Value 0 10 1 5 2 9 4 0 3 3 3 0 0 13 4 4 12 0 5 6 7 0 1 0 1 2 3 6 5 8 6 7 3 9 3 13 0 10 13 3 0 11 16 0 0 12 2 14 0 Expected value 0 11 1 4 7 5 2 2 4 0 0 12 7 9 0 0 1 0 2 1 4 4 7 6 5 5 4 12 0 14 2 0 16 0 0 2 14 0 Test Group Observed Value 0 11 0 4 12 1 0 2 8 0 0 7 11 4 0 0 0 0 0 0 2 2 11 3 6 6 2 13 0 15 0 0 15 0 0 5 9 1 Expected value 0 6 0 8 4 7 0 4 4 0 2 9 8 7 0 0 1 0 0 1 7 3 4 4 6 5 0 15 0 15 0 0 15 0 0 5 10 0 (o-e)/e 0.000 -0.091 0.000 0.250 0.286 -0.200 -1.000 0.500 -0.250 0.000 0.000 0.083 -0.429 0.333 0.000 0.000 0.000 0.000 -0.500 1.000 -0.250 0.500 -0.286 0.000 0.400 -0.400 -0.250 0.083 0.000 -0.071 0.500 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Control Group x2 0.000 0.008 0.000 0.063 0.082 0.040 1.000 0.250 0.063 0.000 0.000 0.007 0.184 0.111 0.000 0.000 0.000 0.000 0.250 1.000 0.063 0.250 0.082 0.000 0.160 0.160 0.063 0.007 0.000 0.005 0.250 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 4.095 0.000 0.255 0.069 0.320 1.394 0.250 0.000 0.295 0.069 1.372 0.071 Σx2 (o-e)/e 0.000 0.833 0.000 -0.500 2.000 -0.857 0.000 -0.500 1.000 0.000 -1.000 -0.222 0.375 -0.429 0.000 0.000 -1.000 0.000 0.000 -1.000 -0.714 -0.333 1.750 -0.250 0.000 0.200 0.000 -0.133 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 -0.100 0.000 Test Group x2 0.000 0.694 0.000 0.250 4.000 0.735 0.000 0.250 1.000 0.000 1.000 0.049 0.141 0.184 0.000 0.000 1.000 0.000 0.000 1.000 0.510 0.111 3.063 0.063 0.000 0.040 0.000 0.018 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.010 0.000 0.010 14.117 0.000 0.000 0.018 0.103 4.684 0.000 1.000 0.324 2.049 4.985 0.944 Σx2

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Too few parent questionnaires (see Parents Questionnaire - Exhibit IV) where returned for the sample to be statistically relevant. However, the ones that where returned indicated both effectiveness and interest in further material on other financial subjects. Conclusions We note the pilot group had significant improvement in learning from a single reading by the school librarian of the story book, Where the Money Grows!!©. The control group results confirmed that no learning took place as no book was read to them. We extend the results to postulate on other material in the form of a spiraling curriculum of financial education using simple, concrete visual and experiential modalities (see Child Financial Literacy Program – Exhibit V). Here, for example, the stock ticker, Mom and Dad working, and Grandpa and Grandma being retired are used to visualize such concepts as investing, obtaining a mortgage, accumulating assets through work place retirement programs, receiving social security benefits, paying taxes, and the like. We expect to minimize the time impact on other education programs by designing the financial literacy program around a school librarian’s reading program for the elementary school grades rather than through formal class room instruction. We anticipate classroom reinforcement of the concepts taught in the books through design of workbook programs. The workbooks would focus on the natural extensions of learning about finance to mathematics, economics and social studies curriculum. For example, money removed from an ATM can be added up, subtractions made for spending, multiplication for interest calculations done on savings, and more complex fractions and division made part of the workbook tasks. The economic principals of saving, borrowing, and work-for-pay reinforce economic principals. The role of banks and other financial institutions in mortgage financing, retirement and social security, and taxes define our social institutions as part of a social studies curriculum. Implications for Future Programs We hypothesize that combining child financial literature with appropriate opportunities for financial institutions will reinforce children’s learning experiences. Here, we postulate an approach to reaching out to children in schools and other child focused venues, including children’s story hours in book stores, gatherings in children themed clothing stores, toy and game stores, sporting goods stores, etc. Over time we expect a relationship formed with financial institutions and parents/grandparents of children to lead to direct relationships with the children as they become self sustaining teenagers, college students, young adults, and beyond (see Engaging Financial Institutions – Exhibit VI). Our program anticipates cultivating this relationship through age appropriate financial literacy programs, relevant product offerings, Internet based portals, and unique child and adolescent focused online banking services.

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Implications for the Future Providing financial support to the education of children is one of the noblest of causes. When we think of the financial education of children we must think beyond our capitalistic, free market teachings to the inspiration of a new generation that understands ethical values, personal responsibility and social good. We must turn our children away from the “greed is good” society to the “saving for retirement” society. Our social and economic support systems - social security, corporate pensions, Medicare are moving away from shared entitlement to personal responsibility. Are we to spawn a generation that cannot look out for their own wealth creation? Educating our youth has always been a joint undertaking of parent, teacher and child. Today, in the main, at the earliest stage of a child’s education we leave the job of learning about money to parents’ own experiences and to the too few children’s books on this subject. Books that strive to entertain not to teach (the Berenstain Bears Trouble with Money or Dr. Suess’ Money, Money, Honey Bunny come to mind). When child education about money matters is effective children learn what money is - coins and dollar bills, and how, through allowance and odd jobs, to save. They are left to learn about ATM’s, Credit, Investing, Taxes, Retirement, Producing, Consuming and the like at some later stage in their education, usually at the high school level, if then. It is no wonder that we as a nation are so undereducated in the basics of our financial lives. It is here we believe we can intervene at the early stage of childhood education with a series of children’s story and work books for both parent’s and educators that do both, entertain and educate, and do so in the real world of our children’s experience with our financial system. While similar in intent to many of the teaching tools/stories used for the higher elementary grades, this program of a Child Finance Series of children’s story books have a remarkable connection with the pre-K - 4th graders where such education has been unavailable till now. In this pilot program’s implementation, a story was read during a classes’ single visit to the librarian, reinforced by a field trip to the local participating financial institution, and further reinforced at home in readings by parents. This solves a problem of fitting such material into the curriculum and taking up valuable classroom teaching time when the subject matter, financial literacy, is not mandated in many states. Many economics and finance programs are guided by the National Council on Economic Education’s standards, the Jumpstart Coalition’s personal finance standards, and the reading, social studies and math standards. The latter three are the ones many states adhere to so most in-classroom programs are mapped to those three standards, in addition to the former economic and finance standards. Our program has adhered to these in-class curriculum standards as well, although the program in its early implementation, as described above, will not intrude upon the required curriculum space nor compete for teachers’ valuable time. The program will, however, base its teaching standards on the math, social studies and economics standards using personal financial literacy exercises to reinforce these approved standards.

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Exhibit I Where the Money Grows!! © (sample pages)
ART: Fletch is seen with his Mom and Dad at the dinner table in conversation COPY: Fletch is asking his Dad “Dad can I get a new bike”. His Dad says to Fletch “Now Fletch you know we need money to buy a bike and money doesn’t grow on trees, we have to save up before we can buy you a bike”. ART: Some time later Fletch is seen scooting into his parent’s bedroom, poking his face into his Dad’s awakening face. COPY: Fletch, excitedly, says “Dad today you promised to take me to buy a new bike.” Mr. Ferguson responds “OK, OK, but first we need to go to the bank”. ART: Fletch is seen day dreaming with a vision of many bikes, with sale tags on them, in the bank lobby. His father is in his pajamas, getting out of bed. COPY: Fletch says “Dad why are we going to the bank?” “Do they sell bikes there?” Mr. Ferguson replies, “No, but that is where the money grows! We need money to buy you a bike”. ………… ART: Fletch looks back down on the counter – he blinks. In the screen is an image of a wide-eyed, Betty Boop look-a-like. COPY: “Hello, my name is Ms. Money, what’s your name” says the image in the screen. Fletch speaks “Ah, Ah…Fletch. What are you doing here?”. “I’m here to tell you the story of where the money grows”, Ms. Money says. ………… ART: Money is being transferred from the vault to the ATM machine. Ms. Money is seen laughing as the teller places stacks of money into her “belly”. COPY: Ms. Money says “Fletch, your dad can take the money from me whenever he needs it to buy things for you. Even when the bank is closed”. ………… ART: Fletch is seen thinking of the five (5) $20 bills that dad took out of Ms. Money, and the six (6) $20 bills that is the price of the bike. Ms. Money is shown whispering into Fletch’s ear. COPY: “The numbers on the tag is the amount of money that mom and dad will pay to buy the bike. Since dad did not take out enough money from me at the bank he will pay by using his bank card”.

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Children’s Questionnaire – Exhibit II
1. Where does money first come from? School? Bank? Store? Trees?

2. What is it called when you get extra money for saving money? Interest? Credit? A Freebie? A Loan? 3. Where can we use Bank ATM cards: ATM machines? Stores?

Local Bank?

All of the above?

4. Money that Mom and Dad earn from work first goes into: the Local Bank? Into a wallet or purse? Into the store to buy things? 5. Where should I save money so I can earn interest on it: Under my pillow? In my purse or wallet? 6. When is it best to begin saving money? When you are an adult? When you go to college? When you want something and don’t have enough money?

In our Local Bank?

Now?

7. What is it called when the Local Bank gives you more money than you put in? Gift? Loan? Payment? Interest? 8. When someone borrows money from a bank, the bank expects that person to: Spend the money? Pay back the money? Pay back the money with interest? 9. If you want something and don't have enough money to buy it what is the best thing you can you do: Borrow money? Earn money and save it? Leave school and go to work? 10. I need to start saving: Now? Never? When I'm older?

11. The place to put your money is: A bank? Under your pillow?

Bring it to school?

12. When I'm older and need money to go to college I will get it from: My Mom and Dad? My savings account at the bank? From my school?

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Children’s Questionnaire – Exhibit III

13. Where can we use Bank ATM cards: ATM machines? Stores?

Local Bank?

All of the above?

14. Where should I save money so I can earn interest on it: Under my pillow? In my purse or wallet?

In our Local Bank?

15. What is it called when the Local Bank gives you more money than you put in? Gift? Loan? Payment? Interest? 16. What is it called when you get extra money for saving money? Interest? Credit? A Freebie? A Loan? 17. When someone borrows money from a bank, the bank expects that person to: Spend the money? Pay back the money? Pay back the money with interest? 18. If you want something and don't have enough money to buy it what is the best thing you can you do: Borrow money? Earn money and save it? Leave school and go to work? 19. Where does money first come from? School? Bank? Store? Trees? 20. I need to start saving: Now? Never? When I'm older?

21. When is it best to begin saving money? When you are an adult? When you go to college? When you want something and don’t have enough money? 22. The place to put your money is: A bank? Under your pillow?

Now?

Bring it to school?

23. When I'm older and need money to go to college I will get it from: My Mom and Dad? My savings account at the bank? From my school? 24. Money that Mom and Dad earn from work first goes into: the Local Bank? Into a wallet or purse? Into the store to buy things?

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Parent’s Questionnaire - Exhibit IV
Please return the questionnaire in the enclosed envelope by July 1st to above address
1. 2. 3. How many times have you read the book to your child _______. How many times has your child accompanied you to the bank since reading the book _______. In visiting the bank what do you consider appealing to your child: coin counting machines _______, the ATM, _______, friendly tellers _______, the locker bank used to save coins_____. Have you noticed any new awareness/interest that your child has in the: bank____, in saving _____, in your in-home banking activities ______, in your on-line banking activities______. Do you think the book has benefited your child’s awareness of financial matters Yes ______, No _____, Not sure ______. 6. Do you find the concepts in the book Where the Money Grows!!©: easy ____, moderate ____, difficult ______ for your child to grasp. Would you like more done to teach children financial topics through: books on other financial subjects ______, DVD’s______, Computer games ______, cable/TV programming ________. Would you like to see more formal financial education in elementary school grades ______ , in-online child information services ______, in online child friendly banking services _______ . Do you think the book has benefited your own awareness of financial matters Yes _____, No _____, Not sure ______. 10. Have you considered any future transaction associated with your child’s finances: college savings plan ________, debit card _______, credit card________, savings or custodian account ________. Any further comments:

4.

5.

7.

8.

9.

________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________
The information being collected is exclusively for research and analysis to improve our programs and educational offerings. Your information will not be disclosed to any third parties. We may share aggregated, non-personal information with outside third parties to discuss our research and its results. At your option, if you care to be contacted to discuss this research, please include your name and contact information.

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Child Financial Literacy Program – Exhibit V Pilot Book (see Exhibit I) • “Where the Money Grows!!”© is a play on words of the time worn and outdated cliché, “Money Doesn’t Grow on Trees”, often evoked by parents to avoid explaining the concept of money to their children. “Where the Money Grows” explains how money appears to a child as coming from the magical wall of an ATM machine. It explains how a plastic card turns into a bicycle. It teaches about Interest, that which a bank pays (Good Interest) and that which it charges (Not So Good Interest).

Other books in the elementary school Child Finance Series include: • “Grandpa and Grandma Don’t Work Any More” uses the reality of the child knowing that Mom and Dad work and Grandpa and Grandma are retired to visualize saving and investing through work place retirement programs and the receipt of social security benefits. “What’s a Rainbow Doing in My Television” explains how the parade of colorful lines running across the bottom of the TV is tied to both money and investments, and to Mom and Dad’s work. “Fletch’s Fabulous Wall Street Adventure” teaches the concept of stock ownership, its relation to real money and its ability to deploy “savings” into productive activities. It uses the building and growth of a toy factory to create relevance to the learning child. “Water Falls and Money Flows” uses the analogy of maintaining water temperature using the hot & cold faucet to explain the concept of varying amounts of saving and spending and its result on the accumulation of wealth, deficits and cash flow. “Fletch’s ‘Build-Buy’ Dilemma” deals with the concepts of consuming more than you produce (balance of trade) and allocating financial resources through. It uses the story of building vs. buying a scooter as the teaching mechanism. “Huh! There’s No Free Lunch?” deals with the notion of paying taxes and receiving its benefits (entitlement programs). The story focuses on a program for paying for a child’s lunch at school to teach about taxes and the funding source of this and other such programs. “Finders-Keepers, Losers-Weepers” deals with the concept of insurance through the story of a child loosing a toy and someone buying a replacement.

•

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•

•

•

•

The above basic curriculum for math and logic skills will prepare students for advanced learning materials in finance and computer science. A further finance series is geared towards students in the middle school and high school grade levels. The finance topics will build on math skills to understand concepts including the time value of money, budget planning, basic investments as well as debt management. The six-part finance series is designed to demonstrate the practical applications of finance concepts in their everyday lives.

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Topics in the Teen Finance Series include: • • • • • • Lesson Series 1 – Money Matters: Checking and Savings Accounts, Debt/ Credit Cards, Student Loans, Auto Loans, Mortgages and Home Finance Lesson Series 2 – Values: Time Value of Money, Valuation Techniques, Mergers and Acquisitions Lesson Series 3 – Investments: Stocks, Bonds, Interest Rates, Foreign Currency, Options and Derivatives Lesson Series 4 – Saving for Retirement: Pensions, Social Security, Health Savings Plans, Private Retirement Accounts, Annuities Lesson Series 5 – Insurance: Credit fraud, Identity theft, Title, Health, Auto, Workman’s Compensation, Travel, Disability, Life, Elder care Lesson Series 6 – Foreign Travel – Foreign Exchange – Passports, identity documents, converting currencies, travel costs, car rentals

The remaining set of teaching/learning materials is intended to be incorporated into the high school curriculum, designed to teach advanced financial concepts in the simplified way characteristic of the overall program. Topics in the Advanced Finance Supplements series include: • The Capital Market System – How banks, securities firms, institutional and retail customers, and others interact and the roles each play in the process of capital formation and secondary market trading Asset Accumulation through Investing, Saving and Retirement Programs – A practical guide through the various products and services that allow for the accumulation of wealth Debt financing – The roles financial institutions and the government play in the private and public sector: loans, bonds, US government debt, local and municipal debt financings, securitizations, credit derivatives, collateralized debt obligations, syndicated loans Risk Management – The concepts of risk as described through the use of tradable hedging instruments; through measures of risk such as correlation, volatility and standard deviation; and the practical use of risk management in insurance, annuities, savings, investing and retirement programs Financial Engineering – Illustration of techniques in assembling basic financial products into other products with different risk and return characteristics Behavioral Finance – The crossroads of behavioral psychology and finance and their more predictive abilities to determine institutional and individual financial behavior 25

•

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Engaging Financial Institutions – Exhibit VI The results of this pilot program points to an opportunity for banks, securities firms, insurance companies, investment firms, and other financial enterprises to assist in teaching children the concepts of thrift and the benefit of accumulating savings within modern concepts of finance. The broader program also teaches children the financial implications of modern day social issues such as taxes, deficits, budgets, production and consumption. While these children are future financial institution clients, engaging their parents in the pursuit of their child’s financial education should lead to a more informed client base for immediate opportunities. Financial institutions today already offer a number of child oriented services including such standard offerings as student privileged checking and savings accounts, child custody accounts, tax advantaged (529) college savings programs, and coin counting machines to assist children in depositing their saved coins. While our current study focused on one of a set of children’s story books, the text and art can be made available as a storyboard for various multi-media applications. Listed below are some marketing programs offered by banks and securities firms, geared to the childteen market. The programs are more oriented to community outreach as part of CRA or similar requirements, then developed as a unified outreach to this same demographic for building lasting financial relationships. In all examples, the programs appear to be offered without any thought given to age appropriate financial products and services offered into this market: • • • • Wells Fargo online story at http://www.handsonbanking.org/ Commerce Bank’s child site www.commercewowzone.com Citibank’s investment site http://www.smithbarney.com/yin/home.htm A.G. Edwards savings game http://www.mysavingsquest.com/

New technologies have created a multitude of opportunities for the education industry to transform the classroom into a conduit for the “edutainment” of children. To compete for a child’s attention, education materials must not only teach but also entertain. In thinking of broadening the program it can be extended to the use of a web portal that will leverage internet technology to deliver a child-safe educational experience. The enriched learning environment will be able to tailor product offerings for each school or student. Students can follow a customized curriculum that is implemented, tracked and analyzed through web services. Such a web site could be the entry point for students, parents and teachers to interact. A “homestead” area could provide a platform for home schooled children to communicate regarding student progress and assignments. Students could have access to on-line educational materials, including a “recess” area with various games and puzzles designed to reinforce the primary materials.

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Blogs and visualization tools can be incorporated into the site which would help with “stickiness” and potentially allow children to choose this site as their homepage. It could also allow parents to monitor the site. Blogs and other “social” sites are increasingly popular with school age kids. Establishing such capabilities should also help to bridge the gap in the use of the site from the younger students, to high school and college students. Some early design scenarios for the child portion of the website may include: • The “online banking” portion could be customized and set up at the bank when the child comes in with his father/mother to open the account, selecting things like debit card design, password, color (blue for boy, pink for girl, etc), screen wallpaper (animal background, circus scenes, ballerinas, famous celebrities of the moment, etc.) –whatever appeals to the kid and approved by the parents. This is also a bonding/relationship building activity between financial representative and family. The deposit/saving screen could show money – coins, dollars, checks floating into the accumulated balance, perhaps an animated character trying to catch it as it floats by. If it was a withdrawal it would show it being removed from the balance coming out through the ATM machine The college savings component could have its own balance and show accumulation vs. expected amounts needed. Grandma and Grandpa could have special access to the account to make deposits (pictures of them showing up on the screen when they do so) for a gift account as well as a college savings account Special gift cards could be bought for the child and show up as such on the screen The child can have different savings “buckets” for things he/she wants to buy (bike, new software game, doll, etc.) A debit card can be issued for use as a payment mechanism at merchants (VISA BUXX card is one such card – see web site below) as well as an ATM card http://usa.visa.com/personal/cards/prepaid/visa_buxx.html?it=searchQuicklink

•

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•

• •

•

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In subsequent stages financial institutions could create product extensions and new product innovations into the child-teen market: • Special bonus interest payments on savings at Birthdays, grade/school graduation, etc. Accounts to be designated as tax advantaged under the 401Kids Family Savings Act of 2007 Budget limiting services for spending on Ebay, iTunes store, other child-friendly online purchasing venues “Quality of Student Life” loan programs for students at under-graduate colleges, MBA programs, and JD programs where interest rates could vary by grade-point average/standing of college.

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References American Savings Education Council, Youth and Money Survey, 1999 Burmaster, E., Mahaffey, D., George, M. et al., Wisconsin’s Model Academic Standards for Personal Financial Literacy, Wisconsin Department of Public Instruction, 2006 at http://dpi.wi.gov/standards/pdf/pfl.pdf The Community Reinvestment Act (CRA) 12 U.S.C. 2901 (2006). Cunha, Flavio, Heckman, James J., Lochner, Lance and Masterov, Dimitriy V., "Interpreting the Evidence on Life Cycle Skill Formation" (July 2005). IZA Discussion Paper No. 1675 Available at SSRN: http://ssrn.com/abstract=766744 Norvilitis, J. M., Szablicki, P. B., & Wilson, S. D. (2003). Factors influencing levels of credit-card debt in college students. Journal of Applied Social Psychology, 33 (5), 935947. Danziger, K. (1958). Children’s earliest conceptions of economic relationships, The Journal of Social Psychology 47, 231-240. Hussar, W. and National Center for Education Statistics, U.S. Dept. of Education, Projections of Education Statistics to 2014, Table1, at http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2005074.

Johnson, E., & Sherraden, M.S. From financial literacy to financial capability among youth. Journal of Sociology and Social Welfare 34(3), 2007, 119 - 145. Kotlikoff, L.J. and Bernheim, B.D. (2001). Household financial planning and financial literacy. In Kotlikoff, L.J. (ed.) Essays on saving, bequests, altruism, and life-cycle planning (pp. 427-478). Cambridge, MA: MIT Press. Lyons-Ruth, K. (2003). The two-person unconscious: Intersubjective dialogue, enactive relational representation, and the emergence of new forms of relational organization. In Aron, L. & Harris, A. (editors), Relational Psychoanalysis, Volume II. Hillsdale, NJ: Analytic Press, 2, 105-114. National Association of State Boards’ of Education, Who Will Own Our Children, Commission on Financial and Investor Literacy, 2006 http://www.nasbe.org/financial_literacy_hp.pdf

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National Center for Education Statistics. Short-term enrollment in postsecondary education: Student background and institutional differences in reasons for early departure, 1996–98 (NCES 2003–153). Washington, DC: U.S. Department of Education, Office of Educational Research and Improvement, November, 2002 http://www.nces.ed.gov/pubs2003/2003153.pdf.

National Council on Economic Education, Survey of the States - Economics and Personal Finance Education in Our Nation’s Schools in 2007, A Report Card, 2007 http://www.ncee.net/about/survey2007/NCEESurvey2007.pdf Palmer, T.S., Pinto, M.B., Parente, D.H., College Students’ Credit Card Debt and the Role of Parental Involvement: Implications for Public Policy, Journal of Public Policy & Marketing, 2001 Pliner, P. Freedman, J. Abramovitch, R., & Darke, P., Children as consumers: In the laboratory and beyond. In P. Lunt & A. Furnham (eds.) Economic Socialization: The Economic Beliefs and Behaviors of Young People (3546). Cheltenham, UK & Brookfield, US: Edward Elgar, 1996 Ray, B., and National Home Education Research Institute, Facts on Home schooling, February 2003, at http://www.nheri.org/content/view/174/62/. Save for America Save for America educator packet. http://about.saveforamerica.org/files/SFA%20Educator%20Packet.pdf (2005)

Schug, M.C, Hagedorn, E.A. , The Money Savvy Pig™ Goes to the Big City: Testing the Effectiveness of an Economics Curriculum for Young Children, The Social Studies, March-April 2005, 68-71

The National Strategy for Financial Literacy, Taking Ownership of the Future, 2006 Vitt, Anderson, Lyter, et al., Personal Finance and the Rush to Competence: Financial Literacy Education in the U.S., Institute for Socio-Financial Studies, 2002 Walstad, W.B., and Rebeck, K. (2006), National Council on Economic Education, Basic Economic Test, Sept., 2006

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Endnotes
President Bush Announces President's Advisory Council on Financial Literacy, Office of the White House Press Secretary, January 22, 2008, http://www.whitehouse.gov/news/releases/2008/01/200801227.html
2 1

Gullapalli, D., Your Kids Teacher: the Bank, April 8-9, 2006, WSJ

3

Greenspan, Alan, The Federal Reserve System’s fourth annual community affairs research conference, Washington, DC: The Federal Reserve Board, (2005, April 8).

4

Daspin, E. & Gammerman, E, The Million Dollar Kid, Wall Street Journal, March 3, 2007, http://online.wsj.com/public/article_print/SB117288281789725533ujtio79CYCR3d0TP2IdiKJX_7u4_20070401.html.
5

Dillon, S, 12th Graders Show Better Grasp of Market Forces Than Expected on US Economics Test, Aug. 9, 2007, NY Times Mincer, J., Teach The Children, July 9, 2007, WSJ

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Teaching Kids about Money: Why its Not Just Fun and Games, University of Pennsylvania, Wharton School, Finance and Investment Article 1039 New York Financial Literacy Coalition http://www.learntosave.com/ http://www.msgen.com

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The Thrifty Scot, Parents to raid kids' piggy banks, reporting on Yorkshire Bank research, 2007 http://www.thriftyscot.co.uk/Finance-News/012007/parents-to-raid-kids-piggy-banks.html
12

Quinn, Jane Bryant, Kids Will Be Daytraders?, M arch 1, 2004, Newsweek Gullapalli, D., Your Kids Teacher: the Bank, April 8-9, 2006, WSJ Kim, J.J, The Banks Want Your Kids, July 29-30, 2006, WSJ

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HM Treasury, £11.5 Million boost for financial literacy in schools, Press release, Sept. 07, 2007 http://www.hmtreasury.gov.uk/newsroom_and_speeches/press/2007/press_92_07.cfm
16

Yorkshire Bank, Children & Teenage Accounts, Cybersave Account, http://www.ybonline.co.uk/0,,38834,00.html
17

New Education council, Children’s Savings Account, Press release, October 5, 2007 at http://www.newamerica.net/programs/asset_building/aspire_act_kids_accounts#
18

Kim, J.J., Big Banks on Campus, Sept. 6. 2006, WSJ http://www.babymint.com/ Guernsey, L., When Todlers Turn on the TV and Actually Learn, Sept. 5, 2006, NY Times Vascellaro, J.E., Virtual Worlds Now Cater to Kids, but Are They Safe?, April 30, 2007, WSJ Barnes, B. Web Playgrounds of the Very Young, NY Times, Dec. 31, 2007

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