Partners (Number 2, 2008)

Planning for Long-Term Financial Security

Atlanta Fed Community Affairs Officer, Juan Sanchez
Juan C. Sanchez
Vice President and
Community Affairs Officer

According to the Bureau of Economic Analysis, personal savings rates for Americans have fallen from approximately 9 percent of income in the 1980s to less than 1 percent over the past several years. Part of the reason may be that people have assumed real estate values would continue to appreciate and counted on equity in their homes as a primary form of retirement savings.

However, decreasing property values, especially in some markets, coupled with the decline in savings have led to significant deterioration in personal net worth for many Americans. Some are even facing negative net worth conditions. Financial independence could become a distinct challenge for many consumers as the "baby-boomer" generation approaches retirement age.

Studies indicate that only a small percentage of Americans feel confident that their current level of savings will support financial independence after retirement, and many adults close to retirement age have never started a retirement savings plan.

Research also reveals significant shortfalls in the average American's financial literacy and grasp of economic concepts. How closely does this knowledge gap correlate with the dismal savings rates?

Some experts believe that simply completing a financial education course will not significantly change a consumer's behavior about personal finances. Others believe that financial education programs, which inevitably bump against other priorities in school curriculums, don't begin early enough to have an impact.

To learn more about the most effective way to educate people about finances, the Atlanta Fed will undertake two significant projects over the next several years. The first is development of an adult financial education program that focuses on long-term financial stability. In partnership with the FDIC, the Federal Reserve Bank of Atlanta is creating a series of modules in the Money Smart curriculum designed to provide life-long financial planning education.

Tailored for lower-income consumers who already have access to mainstream financial products and services, the new program will address issues well beyond maintaining checking and savings accounts. The six-course curriculum is scheduled for completion this fall.

The Atlanta Fed will also be observing the impact of financial education courses to see which features work best to promote wealth creation and personal financial fitness and which aspects aren't as effective. Over the next few years, we will collaborate with the St. Louis Fed to evaluate the impact of several frequently used financial and economic education programs. This initiative will help us identify best practices and allow us to modify financial and economic education programs to achieve the best results for participants, especially lower-income families.

I'm personally very proud of these two initiatives and their potential to help secure a stronger financial future for the next generation of Americans.