What's New In Financial Education Research?
Hat tip to Brian Page for reminding me about the recent Cherry Blossom Financial Education Institute held in early April. Here’s a summary of a few of the papers that were presented that you might be interested in:
- Adriaan Kalwij, Utrecht University: “The Effects of Financial Education on Financial Literacy and Savings Behavior: Evidence from a Controlled Field Experiment in Dutch Primary Schools”
- Question it sought to answer: What is the short-term effect of a 45 minute financial education intervention on knowledge and savings on middle school students?
- Results: higher post-test score (one out of 8 questions) and higher likelihood of savings by 4% [I wonder if this probability led to actual behavioral change]
- Summary: In this paper, we report the results of a controlled field experiment designed to estimate the short-term effects of a 45-minute financial education program on financial literacy and savings behavior of children in Dutch primary schools. Among fifth and sixth graders, the program led to a pre- to posttest improvement in financial literacy on almost one out of eight questions, with about one-third of the increase in correctness attributable to the program. It also raised the probability of saving by four percentage point. Overall, the program appears to have been mainly effective for the questions explicitly addressed in its content. We also note that the significant program effects on financial literacy appear to be driven by the result for girls; however, we cannot reject homogeneous treatment effects with respect to gender.
- Elizabeth Odders-White, University of Wisconsin-Madison: “Evaluating Experiential Financial Capability Education: A Field Study of My Classroom Economy”
- Question it sought to answer: What is the impact of a 10-week experiential program “My Classroom Economy?”
- Impact: changes in financial knowledge and improvement in student financial behaviors and discussions at home.
- Conclusion: “This paper presents results of a formal evaluation of an experiential approach to increasing financial capability in elementary school students called My Classroom Economy (MCE). Based on 1,972 students primarily in grades four and five (ages 8 to 11), we find that MCE produces statistically significant changes in students’ financial knowledge after only ten weeks. These knowledge gains—which are about one-tenth of a standard deviation in size—are notable given that MCE does not employ direct lessons on financial topics, but instead simply exposes students to financial situations. Differences in pre-post assessments also reveal improvements in students’ financial behaviors, including the frequency with which students are engaging in budgeting and money management as well as student reports of discussing financial management at home and outside of school. Students in schools with MCE also report taking part in more economic experiences, such as using a bank account. Parents of students in MCE schools report that their children’s school is more likely to teach personal finance topics. The size of these effects varies, but all are statistically significant and positive. …”
- My take: Highlights the need for more experiential learning opportunities for students. Interesting to see that there were knowledge gains even though there we no “direct lessons” on financial topics. Students learn better when experiences force them to gain knowledge “on the fly” and apply it immediately.
- Sandro Ambuehl, University of Toronto: “Social Transmission of Financial Decision Making Skills. A Case of the Blind Leading the Blind?”: Preliminary and Incomplete
- Question it sought to answer: What is the effect of communication about financial matters between non-experts?
- Here are a few of the interesting findings of this research:
- “First, in our experiment, communication improves decision quality. After communicating with a randomly selected peer, the choices subjects make correspond more closely to those they would make under a complete understanding of their opportunity set.
- Second, the improvements reflect conceptual learning rather than mimicry of others who know better. Indeed, people who communicate are able to make better decisions even for novel problems, demonstrating an ability to generalize, at least to the limited extent in our setting.3
- Third, an unsophisticated individual learns more when interacting with another unsophisticated individual than when interacting with a sophisticated individual…Rather, financial competence is transmitted more effectively between people with similar skill levels, who can address each others’ concerns at the appropriate level and pace.”
- My take: Importance of small group discussions in personal finance classroom as students can improve their decision quality by talking it out with their peers.
- Enhancing Financial Planning Among Economically Diverse Populations Using Age-progression Technology (Tamara Sims, Ph.D.1 Jeremy Bailenson, Ph.D.2 Laura Carstensen, Ph.D.1,3; 1. Stanford Center on Longevity; 2. Department of Communications, Stanford University; 3. Department of Psychology, Stanford University)
- Question it sought to answer: How does interacting with an age-progressed avatar impact how young people think about retirement?
- Result: Positive impact on savings rates in hypothetical scenarios, higher quiz scores, greater interest in workshops
- Summary: “Lower income, young adults are especially unprepared to enjoy financial security in old age (i.e., demonstrating low levels of financial literacy and long-term savings). Previous research found that younger adults interacting with an age-progressed avatar of themselves reported feeling more connected to their future selves than those interacting with an age-matched avatar. As a result, these participants reported wanting to allocate a greater proportion of their current income to a retirement fund (Hershfield, et al., 2011). This research, however, was limited to hypothetical behavior in a relatively affluent area. We sought to replicate and extend this work among economically diverse community college students learning about financial literacy. Ninety-seven participants were recruited from a “transitioning to college” course that taught financial literacy. Participants were randomly assigned to view either an age-progressed avatar or a current-aged avatar multiple times throughout the course. Compared to those viewing the current-aged avatar, at the end of the course, participants viewing the age-progressed avatar allocated significantly more money to long-term savings in hypothetical scenarios, scored higher on a financial literacy quiz, and indicated greater interest in taking future workshops about longterm financial planning.
- My take: Seems like a good strategy to get young people to think about retirement. We created a mini-activity based on this Marketplace interview that highlighted methods to get young people to be more future focused.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.