Does financial education impact financial behaviour and if so, when?

• Context
• The study
• Findings
• Recommendations
• Points to consider
• Full report

Context

There is a need to examine work on financial education, to assess whether it can be an effective policy for changing financial behaviour and financial literacy. Previous evidence has been inconclusive and even conflicting, with just two earlier meta-studies on the topic: Miller et al (2015) and Fernandes et al (2014).

The study

Researchers from the German Institute for Economic Research conducted this review. It focuses on improvements in financial literacy and financial behaviour, and identifies ways in which financial education can be made more effective.

The study follows established procedures of the meta-analysis approach. It analyses a sample of 126 (subsequently whittled down to 115) impact evaluation studies dating from 1999 to 2015, comprising 45 randomised control trials (RCTs) and 70 quasi/natural-experiments and which report 429 effect sizes on financial literacy and behaviour. The review looks in detail at the small average positive effect of financial education that multiple studies have identified.

The study has an overlap of 48% with the sample of studies in Fernandes et al but has a broader overall sample of studies including a higher proportion of and more recent RCTs. The majority of studies are from the USA and other OECD countries, with 19% of studies from low- or middle-income countries.

Findings

The main finding of the meta-analysis is that financial education has a positive impact on financial behaviour, and an even stronger effect on financial literacy. However, the effectiveness of financial education varies greatly depending on how it is delivered.

The study provides six main findings about improving effectiveness in the future:

• Financial literacy helps. It serves as an important link in the causal chain and might lead to behavioural changes;
• Financial education has a measurable positive impact on financial behaviour;
• The effects of financial education depend on the target group and the approach to implementation. First, interventions in low-income countries appear to be less successful than in high-income countries, indicating that a basic quality level of educational institutions in the country may matter. Secondly, it also appears to be harder to impact financial behaviour in developed countries, probably because high baseline levels of financial literacy cause diminishing returns to additional financial education. Thirdly, teaching low-income participants has less impact, especially in low and lower-middle income countries;
• The success of financial education depends on the type of financial behaviour targeted. It seems more difficult to influence borrowing than saving behaviour by conventional financial education;
• Increasing intensity (i.e. the number of hours effectively taught) supports the effect of financial education;
• The characteristics of financial education can make a difference. Making financial education mandatory does lead to smaller effects. By contrast, a robust positive effect comes from providing financial education at a “teachable moment”, i.e. when teaching is directly linked to decisions being of immediate relevance to the target group.
• Several characteristics of financial education do not have a systematic impact on financial behaviour. This includes the age and gender of the participants, the setting, or the choice of intervention-channel through which financial education is being delivered.

Recommendations

The study concludes that more research and experience is necessary to identify the factors of successful financial education. The authors suggest that a next step in research could include going beyond the analysis of effectiveness to examining the determinants of effectiveness more thoroughly, and analysing the costs involved in the specific measures of financial education.

Points to consider

Applicability:

• The majority of interventions analysed took place in the USA and other OECD countries and approximately 19% of studies were conducted in low- or middle-income countries;
• The research excludes studies being targeted exclusively to entrepreneurs and measuring business outcomes and only considers studies reporting about interventions in financial education, such as training and counselling efforts.
• Methodological strengths or limitations:
  • The methodological strength is very strong – the meta-analysis sample only includes RCTs and quasi-experimental studies.

Full report

Does financial education influence financial behaviour? - full report