Fixing Financial Education

By John Jekel

A recent paper provides an overview of research on the shortcomings of financial education, why it can fail and what is successful in helping employees to improve their financial behavior and outcomes.

Student loans, credit debt, mortgages, inflation, and somehow also trying to sock money away for retirement in the process – is it any wonder workforces are rife with financial stress? Providing financial education at the workplace – where so many spend most of their waking hours – seems ideal for better equipping them to handle financial stress and lessen its effects on employers and the bottom line. But a recent paper argues that the way financial education is provided leaves something to be desired, and makes suggestions as to how it could be improved.

In “So many. Courses, so Little Progress: Why. Financial Education Doesn’t Work- and What Does,” a paper Martha Brown Menard wrote for Questis, she provides an overview of research on the shortcomings of financial education, why it can fail, and what is successful in helping employees to improve their financial behavior and outcomes.

”Executives are waking up to the fact that financially stressed employees bring these concerns and issues to the workplace, resulting in lost productivity,” says Menard, and are acting to address the situation.” Increasing financial literacy through employee education seems like an obvious solution,” she says, but ”upon closer inspection it’s clear that financial education alone hasn’t worked – and perhaps it never can. The way our brains are wired to process information typically works against us when it comes to making sound financial decisions, and changing behavior takes more than a single class.”

It “certainly doesn’t” look like financial education is effective, says Menard, when one considers the findings of academic studies. She cites a 2014 analysis of 90 studies that found that financial confidence, willingness to take risks and familiarity with numerical concepts had more to do with improved financial behaviors than financial education programs.

Menard says that the researchers who conducted that study argue that most research on the effectiveness of financial education assumes too great a degree of preexisting financial literacy and exaggerates the degree to which those programs succeed in making employees more knowledgeable.

Rather, she says, financial education explained 0.001 % of the financial behaviors the 90 studies examined. In addition, the Consumer Financial Protection Board (CFPB) found that ‘There’s no clear link between taking personal finance classes and saving more, paying off debts or raising your credit score.”

But why? Menard cites several reasons:

  1. Just because one knows one should do something doesn’t necessarily translate to action.
  2. The material presented in financial education programs can become obsolete in a relatively short amount of time.
  3. Maxims such as the wisdom of saving I 0% of one’s salary for retirement “are no longer sufficient in a changing economic environment where pensions are rare and defined contnbution plans are the new norm.”
  4. Financial education “appears to suffer from a ‘use it or lose it’ problem”: the researchers in the 90-study aggregation found that within 20 months almost everyone who took a financial literacy class did not retain most of what they learned.




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