Financial Education: Take the Common Cents behavioral audit to diagnosis your program

By: Wendy De La Rosa & Common Cents Lab


The current investment in financial education

In the United States, investments in financial education programs have been steadily increasing over the last decade.  According to a recent study by the Consumer Financial Protection Bureau,  governments, nonprofit organizations, and financial institutions, spend approximately $670 million each year is spent annually to provide financial education to consumers.  Since 2002, states have increasingly required personal finance courses, with the number of states mandating high school education courses increasing by 45%.   In addition, in 2002, the Financial Literacy and Education Commission was created, with a mandate to develop a national strategy on financial education.

As we continue to increase our investment in financial education, researchers have started to ask “What’s the impact of this current financial education programs, and is there room for improvement?”

But does it work?

In 2014, Daniel Fernandes, John Lynch, and Richard Netemeyer analyzed over 200 studies, to understand the impact of financial education on financial behaviors.   They broke these studies into two groups: Measured (or studies that attempt to show a relationship) and Causational (Studies that attempt to show a cause).

These measured studies, which only attempted to find a relationship, revealed that current financial education programs only accounted for 1.8% of the variance in financial behaviors.  The researchers noted that this impact might actually be lower, because this 1.8% change does not account for other important factors that may affect financial behaviors- like confidence, ability to plan, and numeracy.

When it came to causational studies, the results were even more bleak.  

In these studies, the researchers found that current financial education programs explained only 0.1% of difference in financial behaviors.

And considering how much more robust causational studies are than measured studies, it’s clear that our current way to teaching financial education needs work.

Other researchers, such as Shawn Cole and Gauri Kartini Shasti of Harvard Business School have also found that being exposed to financial education programs in high school was unlikely to have any effect on an individual’s likelihood of investing their finances.

It’s clear that current financial education programs is not working for our current financial education programs. But thankfully, there are ways to improve financial education, and use our resources more effectively.

3 key strategies to improve financial education

Here are three proven ways to improve financial education, as concluded by NEFE and the Center for Research on Consumer Financial Decision Making.

  1. Financial education must be specific (covering just one topic at a time): the tendency for many practitioners  is to cram as much material as they can, but it’s just not as effective.  Think depth over breadth.
  1. Relevant (related to an issue participants can actively change right now): It’s important to make the content extremely relevant to the population and their needs.  As an example, teaching about 401k and mortgages to high schools seems irrelevant.
  1. “Just in time” (delivered right before participants have to take an action): Just in time education dictates that practitioners deliver information when it will be the most useful.  For example, teaching students how to open a savings account right before they get their first paycheck.

To help practitioners and those running financial education programs, Common Cents, a financial decision making research lab, created a short behavioral audit that gives personalized recommendations for each program. Each recommendation is rooted in academically tested principles.