Money, Behavior and Safety

Carol Spoehr and Brian Herald

Client Carol Spoehr reviews her goals with Brian Herald, a student in the consumer science personal finance major who serves as her financial coach.

No matter how high or low your income, there will be times in your life when you are in a financially vulnerable situation. Have you signed a mortgage contract, applied for health insurance or made retirement plan elections without truly understanding the ramifications?

“You have one shot,” said Professor J. Michael Collins, “with long-term consequences.” Collins joined the University of Wisconsin-Madison faculty in 2008 as assistant professor of consumer science and UW Extension specialist. He studies consumer decision-making in the financial marketplace, teaches personal finance and is faculty director of the newly developing Center for Financial Security.

The Center is focused on understanding when people need specific information and what makes them most likely to act upon it.

“If consumers know the information, but don’t act on it, you need to examine why that’s the case.”

Robin Douthitt, dean, School of Human Ecology

The Center was created within the School of Human Ecology precisely because the School is home to faculty and researchers in the department of consumer science with expertise in consumer behavior, personal finance and family economics. Much of the basic research gathered by the Center will become public domain and available to scholars, private industry and consumers. Currently, individual financial service providers do their own, propriety market research.

“The Center allows us to do interdisciplinary research that will examine the strong behavioral element involved in financial education,” said Dean Robin Douthitt. The dean uses nutrition education as an illustration. While information on good nutrition has never been more available, obesity rates have never been higher. “If consumers know the information, but don’t act on it, you need to examine why that’s the case.”

In 2009, the Center was selected by the Social Security Administration as one of three research groups to make up a Financial Literacy Research Consortium to develop programs and materials to help Americans plan for a secure retirement. Seven projects are under way for 2010, including a review of educational psychology for financial literacy and more than 20 focus groups with vulnerable populations.

Academics, financial experts and practitioners were invited in April 2010 to the first major event hosted by the Center, a symposium “Family Financial Security: Implications for Policy and Practice,” sponsored by American Family Insurance with additional support from Summit Credit Union and CBM Credit Education Foundation, Inc.

“Advancements in counseling the public to safeguard their own financial security have tremendous implications for consumers.”

Lisa Bacus, American Family’s vice president of marketing

“Advancements in counseling the public to safeguard their own financial security have tremendous implications for consumers,” said Lisa Bacus, American Family’s vice president of marketing. “American Family supports the Center’s efforts to share key research points in a format that is readily understood and applicable to the work of practitioners in the financial services realm.”

One of the four panels convened at the symposium focused on credit selection and use and how consumers form expectations and perceptions of risk, cost and consequence of credit use. Presenters included representatives from the Federal Reserve Banks of Chicago and San Francisco and Columbia University. The panel was chaired by John Hoffmire, director of the Center for Business and Poverty at UW-Madison. The symposium was an opportunity to introduce the Center and its platform for applied research to the financial and academic community outside Madison.

The activities of the Center also include training students to work as financial coaches with clients recruited through south Madison’s tax preparation clinic, exploring how children form concepts of saving, ownership and money, and tracking a sample of employees at 40 credit unions in Wisconsin who participated in online financial education sessions. In addition, Professor Collins meets with UW Extension educators via monthly teleconferences to distribute applied knowledge and best practices for family financial security across Wisconsin’s 72 counties.