Context:
In 2016, the Financial Consumer Agency of Canada (FCAC) held a National Research Symposium, to shine a light on some of the new research that public sector, private sector and academic researchers are carrying out in the field of financial literacy. The symposium aimed to demonstrate how researchers are exploring and innovating in order to gain a better understanding of consumer financial behaviours and the complexities around their financial decision-making, both within Canada and internationally.
The study:
This report summarises researchers’ presentations on four key areas of research:
- international research on financial literacy (with a particular focus on the United States)
- budgeting and planning for the unexpected
- choosing financial products and services
- developing evaluation tools for financial literacy providers
Key findings:
International perspective: a forward-thinking approach to financial literacy
- The US National Financial Capability Study found that large segments of society are continuing to face financial difficulty, despite many Americans benefitting from the positive economic environment. Over half of Americans (56%) budget, with little variation in the characteristics of those who do. Those with higher financial knowledge were less likely to take a loan, more likely to compare credit cards and less likely to avoid filling in a medical prescription due to the associated costs.
- A study of household financial fragility in the US, conducted six years after the financial crisis, highlighted how financial fragility has reduced in recent years, from 50% of families experiencing it in 2009, to 34% in 2015. It found that African Americans and millennials are most likely to be financially fragile, and ethnic minorities (particularly Hispanics), women and those without a college degree are more likely to have difficulties if they experienced a financial shock. Nearly half (44%) of respondents who did not know at least one of three basic financial concepts were classed as being financially vulnerable.
- One study found that there were statistically significant differences in objective financial knowledge between those who had received financial education and those who had not.
Budgeting and planning for the unexpected
- One study on financial constraint found that efficiency and prioritisation are key planning strategies. It found that as constraint increases, the planning mix tends to focus on priority planning over efficiency. Budgeting before consumption of resources helps ensure more timely prioritisation.
- Another study evaluated a one-month pilot project of a mobile application (‘Carrot Awards’) to help non-budgeters adopt positive budgeting behaviours. Of the 29,000 users, 67% correctly answered a knowledge-based question after the intervention, compared with 57% before. More users reported having increased financial confidence (32% to 37%) after the intervention, and 14% of participants who were not budgeting before the intervention had begun to afterwards.
Choosing financial products and services
- The report discusses an ongoing project to develop and test tools to help consumers engage with on compound interest, education savings and retirement savings. The initiative called Financial Literacy in a Box (FLIB) will ultimately develop tools on a wider range of financial products.
- The report also describes a multi-year research initiative (called ‘Refund to Savings’), which aimed to increase the rate at which Americans choose to save, rather than spend, their annual tax refund. The initiative allowed people to put their refund into a current account, receive it as a cheque, or put it into a savings account. The treatment group (where the savings account option was emphasised), chose to save their refund at a rate of 12-14%, compared to the control group (where it was not emphasised), where the rate was 8%. The treatment group were also more likely to deposit higher amounts into their savings.
Better evaluation
- The report discusses the development of a Financial Literacy Outcome Evaluation Tool, developed by the charity Prosper Canada. The tool was developed to help practitioners to choose questions that they can use in pre- and post- surveys to help measure the impact of their programme.
Points to consider:
Methodological limitations:
- As a post-symposium summary, this report does not bring together common or key findings; but simply provides summaries of the projects that researchers presented on.
Relevance:
- The findings are relevant for those interested in research on innovative developments in financial literacy.
