Does financial education actually help improve consumers’ financial habits? A report released Oct. 8 found it might not.
Efforts to improve financial literacy are responsible for just 0.1% of changes in financial behavior, the paper found. Lower income populations, arguably the people who would benefit most from financial literacy efforts, showed the least improvement.
The authors analyzed 168 papers that cover 201 studies on the relationship of financial literacy and education to financial behavior.
The paper was written by Daniel Fernandes of the Catholic University of Portugal, Erasmus University; John Lynch Jr., of the Center for Research on Consumer Financial Decision Making at the University of Colorado-Boulder, Leeds School of Business; and Richard Netemeyer of the University of Virginia, McIntire School of Commerce.
The authors noted that any education will decay over time, and the benefits of extensive financial education were negligible less than two years after instruction.
“Creating financial literacy interventions is an obvious and common-sense response to the increased complexity of the financial world,” the authors wrote. However, they referred to a 2011 book by Duncan Watts to point out one glaring problem: “Everything is obvious (once you know the answer).”
One distinction the authors considered in their analysis is financial literacy as the result of an educational event compared with literacy measured by a test. Educational events explained 0.12% of later changes in financial behaviors among the general population. Among the low-income population, educational events were responsible for just 0.06% of changes made.
Studies that tested respondents’ literacy higher rates of change in behavior later on: 1.27% for the low-income sample and 1.8% for the general population.