I have previously conducted research on financial literacy among teenagers, and continue to explore economic literacy among university students. As my previous research has shown (see here; with ungated earlier version here), financial literacy is low. It isn't just low among the teenagers we studied; financial literacy is low across society more generally (e.g. see here).
An obvious solution would seem to be to build up financial education. For example, making financial education compulsory in schools might increase financial literacy. So might making accessible adult financial literacy courses more available. In my reading of the previous research on financial education, it seemed to me that the evidence of the effectiveness of financial education is weak. However, I have been known to be wrong on occasion, and this might be one such occasion.
The evidence on the impact of financial education on financial literacy and financial behaviour is reviewed in this 2017 meta-analysis article by Tim Kaiser (University of Kiel) and Lukas Menkhoff (German Institute for Economic Research), published in the journal World Bank Economic Review (ungated earlier version here). Kaiser and Menkhoff's meta-analysis is based on 126 impact evaluation studies, and they summarise their findings as (emphasis is theirs):
...(i) increasing financial literacy helps. Financial education has a strong positive impact on financial literacy with an effect size of 0.26 (i.e., above the threshold value of 0.20 that characterizes “small” statistical effect sizes...). Moreover, effects on financial literacy are positively correlated with effects on financial behavior; (ii) financial education has a positive, measurable impact on financial behavior with an effect size of 0.09. An effect size of 0.08 is still found under rigorous randomized experiments (RCTs); (iii) effects of financial education depend on the target group. First, teaching low-income participants (relative to the country mean) and target groups in low- and lower-middle–income economies has less impact, which is an obvious challenge for policymakers targeting the poor. Second, it appears to be challenging to impact financial behavior as country incomes and mean years of schooling increase, probably because high baseline levels of general education and financial literacy cause diminishing marginal returns to additional financial education; (iv) success of financial education depends on the type of financial behavior targeted. We provide evidence that borrowing behavior may be more difficult to impact than saving behavior by conventional financial education; (v) increasing intensity supports the effect of financial education; and (vi) the characteristics of financial education can make a difference. Making financial education mandatory is associated with deflated effect sizes. By contrast, a positive effect is associated with providing financial education at a “teachable moment” (i.e., when teaching is directly linked to decisions of immediate relevance to the target group...).
I think there is a lot of good news that we can take away from that meta-analysis. However, notice that mandatory education doesn't make much difference, and targeting financial education at the right groups and at the right times ('teachable moments') is likely to be most effective.
The effect on financial behaviours might be the most questionable though. Kaiser and Menkhoff merge a huge variety of behavioural effects together in their meta-analysis, everything from reducing informal borrowings (e.g. from a moneylender), to having a bank account or insurance, to having a financial plan, to measures of net wealth. So, it's difficult to interpret what behaviours are actually improved by financial education. Were all financial behaviours improved? That seems unlikely. Which behaviours improved, and which did not? Did the characteristics of the target group and the type of financial education matter for which behaviours were affected? These questions are left unanswered. Also unanswered is the important question of what the mechanism for changes in financial behaviours is. We clearly need more studies linking financial education, financial literacy, and financial behaviours, but where the particular behaviours are pinned down.
That brings me to this recent article by Kenneth De Beckker, Kristof De Witte, and Geert Van Campenhout (all KU Leuven), published in the Journal of Economic Behavior and Organization (ungated earlier version here). They ran a randomised controlled trial among Flemish school students (average age 13) from 20 schools. In the trial, they gave treated students access to an online financial literacy course. De Beckker et al. explain:
The course deals with budgetary choices in everyday life. Afterwards, students are expected to be familiar with concepts like interest and inflation, have insight in different saving and investment products, understand the benefits of saving for long-term goals or unanticipated expenses, and grasp the risks of credit. The learning path consists of five modules with multiple exercises, information sheets and a formative test. The exercises contain videos, interactive learning games, and case studies adapted to the living environment of students from the eighth and ninth grade.
De Beckker et al. then measured students' financial literacy, as well as their financial behaviour, comparing students who were given access to the course with control students who were not. The 'financial behaviour' is measured using a discrete choice experiment, where students were presented with various hypothetical choices about the purchase of a new smartphone at various prices, and where some of the options required direct cash payments, whereas others had a payment plan. This research design allows them to look at how the financial education course affects the students' preferences for the smartphone purchase. That is, they can look at whether the financial education makes them more price sensitive, or more likely to avoid purchasing on credit.
Turning to their results, De Beckker et al. found that the course was effective in raising financial literacy among the students:
The results provide evidence that the financial education course is effective. Controlling for all observed heterogeneity in terms of school and student characteristics, the financial education course increases students’ financial literacy scores by 0.46 standard deviations on average...
However, in terms of financial behaviour:
Overall, we observe that the treatment does not affect how attributes like price, credit availability, information on the quality of the product and promotions are valued. This suggests that the financial education course increased students’ level of financial literacy but this did not trickle down further: students did not change their buying behavior.
That is disappointing. The results of a single study of young Flemish teenagers is not enough to overturn the meta-analysis by Kaiser and Menkhoff. However, I think we need to consider further the mechanisms through which financial education, and financial literacy, lead to financial behaviour. Perhaps these students' hypothetical decisions were not affected, but the result might be different for financial education delivered at 'teachable moments'. Exploring the mechanisms further in future research would help policy makers and financial educators to better design financial education programmes (whether mandatory in schools, or delivered at 'teachable moments' like before a student takes out a student loan, or a first home buyer takes out a mortgage), so that financial behaviour is better aligned at improving people's long-term financial wellbeing.
No comments:
Post a Comment