The impact of financial literacy education on subsequent financial behaviour

• Description of the programme
• The study
• Key findings
• Points to consider

Description of the programme

Questions exist about the effectiveness of financial education in improving financial literacy. This study builds on previous research and examines the differential impact on 79 US high school students of a personal financial management course completed between one and four years earlier. The course lasted a full semester and covered all aspects of personal financial management that were thought to be relevant and important to students.

The study

A survey was administered to a matched sample of 400 graduates from the relevant time period (2001 to 2004) from three US high schools within a single school system. The sample was segmented by high school and year of graduation. Half of the sample took a well-regarded course in personal financial management, while the other half did not. Altogether, 79 completed questionnaires were received, a response rate of 19.75%. Of the total respondents, 39 students had taken the course in personal financial management and 40 had not.

Key findings

This study provides further evidence of mixed results concerning the impact of financial education.

• Financial capability (ability): The entire 2004 Jump$tart questionnaire (Mandell, 2004) was used to test financial literacy. There was virtually no difference between those who had taken the course and those who had not. Students who had taken the course averaged 68.7%; those who had not averaged 69.9%.
• Financial capability (mindset): The study measured self-perception of thrift. The results are inconclusive, therefore the data do not support a conclusion that students who took a course in personal financial management are subsequently more savings-oriented than those who have not.
• Financial behaviour: Results show that the course in personal financial management did not systematically impact respondents’ financial behaviour. Analysis indicated that financial behaviour is not related to taking the course or to having more life experience. However, being a graduate or full-time college student positively and significantly impacted financial behaviour.

To further analyse this result, the study investigated the behaviours that were most strongly impacted by committing to a full-time college education and found neither the time since graduating from high school nor taking the personal finance course related to any of them. However, attending full time or graduating from a 4-year college course had a positive and significant impact on two behaviours.

In spite of the reportedly excellent personal finance course offered by the high schools, a comparison of those who did and did not take the course did not demonstrate a meaningful positive impact for those taking the course. This finding is evident in several different measures:

• After several years, those who took the course were no more financially literate than those who did not.
• Those who took the course did not consider themselves to be more savings-oriented.
• Those who took the course did not report better financial behaviour.
• However, positive financial behaviour is associated with respondents who were full-time college students or graduates.

The first two results appear to be consistent with those from other studies. The third finding, relating to financial behaviour, differs from the results of Bernheim, Garrett, and Maki (2001).

Points to consider

• Generalisability / transferability:
  • The findings from this study cast doubt on the ability of a high school course in personal financial management, as currently administered, to improve financial decision-making later in life.
  • The authors suggest that additional research is needed to determine more appropriate approaches to teaching financial literacy, and that research should focus on determining teaching methods that enable students to understand the impact of financial decisions and/or the information that would improve subsequent financial behaviour.
• Methodological limitations:
  • The authors highlight several factors to consider when interpreting the results:
    • The results are based on a small sample size of 79 respondents.
    • Although respondents attended three different high schools, the sample was drawn from only one school system. As such, it may be argued that a much larger sample might produce different results. However, the fact that all the respondents came from the same location and were educated in the same system excludes many variables, which could account for differences in behaviour.
    • The study follows high school graduates only for the first five years after graduation, hence respondents’ ages ranged from 18 to 23. This corresponds to a low earning period and occurs before the respondents have formed true adult behaviour patterns.
    • The findings of positive financial literacy scores and financial behaviour for those with a full-time college education may result from receiving additional personal finance education.
    • There is a lack of detail on what the financial management course covered and how it was delivered.