3Qs on the Financial Capabilities Group

May 2014

Recently, the Boston Fed's Regional and Community Outreach Department launched the new Financial Capabilities Group with a mission to strengthen the financial stability of residents in New England, with a particular focus on low- and moderate- income (LMI) households. We sat down with Sol Carbonell, assistant vice president and director of the Financial Capabilities Group, to learn more.

Photo of Sol Carbonell

Sol Carbonell, Assistant Vice President and Director of the Financial Capabilities Group

1. Give us an introduction to the new group's work. How does the Boston Fed define financial capabilities?

When we say 'financial capabilities,' we are referring to an individual's ability to manage financial resources effectively and make sound financial decisions, thereby improving the overall financial stability of their household. The notion of financial capabilities effectively reaches beyond basic knowledge and focuses on behavioral change; it's about how individuals translate knowledge into action and navigate a complex marketplace to successfully identify and utilize suitable financial products and services. Moreover, financial capabilities emphasizes real outcomes: does an individual who wants to use a credit card for the first time have access to the right information to make a sound financial choice and get the product that met his or her needs? Do consumers understand how a credit score is calculated and are they able to use that knowledge when they are seeking and shopping for a mortgage? Do students recognize the need to plan for emergencies by making regular deposits into a savings account?  

This area is completely new for the Boston Fed. Whereas we previously worked directly with consumers, we're now working at a much larger scale by engaging practitioners – the organizations that provide financial services and support to consumers. This could mean a teachers union, a nonprofit, a community bank, or a community college, for instance.  These organizations are already doing great work in this area, and we hope to enhance their work with ours.

We're working with each organization to test what works for their constituencies, develop self-assessment tools to help them improve their existing programs, and provide access to the experts here at the Bank and across the Federal Reserve System.

2. Let's talk specifics. You mentioned the wide array of practitioners the group plans to engage. Give us a few examples of the kinds of work the group will undertake in the near term. 

For starters, we're building a network of financial education practitioners across New England, something we see as helping the overall cause. We'd like to facilitate a dialogue among similar types of providers, allowing for an exchange of ideas and best practices.  

Another area of particular focus is teachers as a key practitioner group. Many people are surprised to learn the Federal Reserve is a provider of professional development certifications for educators.  The Federal Reserve Bank of St. Louis, for instance, offers an online financial education accreditation tool that we would eventually like to make accessible for New England teachers. Later this year, we'll launch a pilot program to encourage teachers in Massachusetts public schools to take the course and become accredited. By targeting schools with an enrollment of 50% or more LMI students, we can focus our efforts and outreach activities on those that need this training the most. Ultimately, our goal would be to expand across the region.

Importantly, we are launching a Community College Collaborative to help colleges develop their own financial capabilities strategy. Sharing national models and evaluating the effectiveness of various approaches are among the ways in which we will advance this work. To date, we have partnered with three community colleges to implement and evaluate a pilot project on so-called matched savings. Rooted in research the Boston Fed conducted around barriers to community college graduation rates and student's attitudes toward money, this effort ultimately aims to improve the financial stability of students. We will be working with these colleges and our partners to guide the implementation of the matched savings program, help institutions enhance their current financial education offerings, and identify gaps and potential ways to address them.  

3. The Financial Capabilities Group is in its infancy. What do you envision for the group in a year from now?

It's important to note the national conversation about financial capabilities is almost as new as this undertaking. There isn't consensus about what measures and outcomes indicate success, although we are working with a number of national organizations to help put a framework in place.

We have a good sense for the change we would like to see, and as these conversations and our group evolve, we'll have to remain flexible in our strategy and adapt as we go along.  For example, we'd like to see an improvement in the financial stability of community college students. We know one of the top reasons students drop out of school is finances. If we can take finances off the table, the student can focus on academics and we can contribute to eliminating barriers to graduation.  If the program is successful in improving the financial stability of students, we believe there's an opportunity to scale these efforts even further to community colleges across New England – and possibly beyond. 

More broadly, we want to establish the Boston Fed as a thought leader in the financial capabilities arena. It's our goal to expand our practitioner network to be as robust as it can be over the next year, and then begin to identify new ways to collaborate with organizations that work on behalf of the LMI consumer.