Banking and Finance Law Daily Wrap Up, CONSUMER FINANCIAL PROTECTION BUREAU—CFPB reports on evaluation of financial capability strategies, (Jan 27, 2014)

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau is reporting on a study conducted on consumers’ ability to make informed financial decisions. The Dodd-Frank Act mandates that the bureau strive to improve consumers’ financial literacy, and the current report is a step toward fulfilling that mandate.

Purpose of report. The CFPB report, Rigorous evaluation of financial capability strategies: Why, when and how, is part of the bureau’s research program to evaluate the effectiveness of existing approaches to financial literacy. The purpose of the report is to share the CFPB’s insights gained through its studies with other researchers, practitioners, and funders undertaking or contemplating rigorous research into the effectiveness of different financial capability approaches.

Need for empirical evidence. The bureau found that the base of evidence regarding approaches aimed at improving financial decision making and outcomes—financial capability strategies—is growing, but “there remains too little rigorous empirical support.” This means that service providers, financial institutions, policy makers, and funders have not been able to draw solid conclusions about which strategies are most effective. The CFPB quoted a 2011 Government Accountability Office report on financial literacy that noted “[r]elatively few evidence-based evaluations of financial literacy programs have been conducted, limiting what is known about which specific methods and strategies are most effective.”

Improving financial decision making. The CFPB intends to provide stronger evidence of what works to improve financial decision making and financial well-being, but stresses that it also intends to ensure that appropriate research protections for consumers are in place. The bureau said that this effort will help improve consumer decision making and outcomes.

The bureau’s Office of Financial Education, in coordination with its Office of Research, has developed a research program that focuses on:

• determining how to measure financial well-being, and identifying the knowledge, skills, and habits associated with financially capable consumers;

• evaluating the effectiveness of existing approaches to improving financial decision making and outcomes; and

• developing and evaluating new approaches.

Urban Institute. As part of its research program, the CFPB contracted with the Urban Institute to conduct quantitative evaluation of financial education strategies and launch a peer learning network of financial capability researchers and practitioners who are engaged in program evaluation using randomized controlled trials (RCTs) to measure program impact.

The CFPB and Urban Institute conducted a roundtable discussion with a peer learning network on the benefits, challenges, and best practices of conducting RCTs in the financial capability field in April 2013. In addition to Urban Institute and CFPB staff, 26 evaluators, funders, and program staff discussed their experiences and “shared practical and useful insights into successful strategies and pitfalls of conducting rigorous evaluation of financial capability interventions,” the bureau said. The CFPB’s report outlines these insights with the purpose of sharing them with other researchers, funders, and practitioners.

Report topics. Some of the areas discussed in the report are as follows:

• how to conduct a strong study;

• solutions to common problems in evaluations of financial capability programs;

• implementation of research conducted;

• data collection and analysis; and

• implications for practice, policy, and funding.

Companies: Urban Institute.

RegulatoryActivity: CFPB DoddFrankAct