More broadly, financial education is a life-long endeavor. Sound financial decisions are made when consumers have access to information that is clear and culturally relevant and that is provided at critical "teachable" moments, such as when a consumer is financing education, buying a car, starting a family, purchasing a house, or planning for retirement. These are just a few examples. As academicians, practitioners, and policymakers, we need to identify as many of these moments as possible and determine how best to support positive financial outcomes for consumers at those moments.
Reaching Consumers
There's a saying among communications professionals that "the medium is the message." In that vein, I believe that how we deliver financial education has a significant impact on how effective the lessons will be. New technologies present exciting new opportunities to deliver timely financial lessons. Mobile payments and financial services are growing at a rapid pace. Financial management "apps" for smart phones abound, making it possible for consumers to get just-in-time information. The developments in mobile financial services have only begun to exploit the potential of this technology to provide tools for consumer financial decisionmaking. I will be particularly interested to see how technology can be used to better serve lower-income populations who may be more focused on stretching their paychecks to meet monthly expenses than on investing. If you can have an app to track what you eat, certainly you could use one to track what you spend.
Evaluating the Effectiveness of Financial Education
Until now, we have had a limited understanding of which methods work best with respect to financial education. For years, one of the correlates of higher scores on the JumpStart Financial Literacy test was participation in the Stock Market Game, an enrichment program offered in many schools. The FINRA Education Foundation sponsored a study to determine just what it was about the game that made a difference. Not surprisingly, the answer is that the game seems to develop math skills.
Entertainment-based financial education also seems to be effective in capturing attention and instilling knowledge among youths. Young people who played one of the Doorway to Dreams (D2D) financial education games reported increases in financial knowledge, aspirations, and self-confidence.
Among young adults, financial education was found to be most relevant when it was tied to financial outcomes. For example, in a Federal Reserve study conducted with Army Emergency Relief, young enlisted service members who participated in a financial education program seemed to make better car-buying decisions. These soldiers had higher down payment-to-loan ratios and shorter-term loans than a comparison group who did not take the financial education program.8
These are notable examples, but the fact is that we have very limited data on how effective financial education is in improving financial well-being. The Financial Literacy and Education Commission, of which the Federal Reserve is a member, has only recently developed a core set of financial competencies, and has yet to establish the knowledge, skills, and behaviors that will meet these competencies.
In order to develop an effective financial course of study, we need to find the answers to some important research questions. I believe the answers to these questions will be quite important:
What do people need to know in order to improve their long-term economic well-being? How does this content vary across demographic groups, such as by income, employment status, age, or culture?
How do people obtain and process financial information? What sources do they use? Do outcomes vary by the source or timing of the information?
Is instilling financial knowledge enough to improve consumer outcomes, or do we need to fundamentally change consumer behavior as well? How can we as policymakers influence financial behaviors?
How should financial literacy be measured to evaluate the impact of financial education on financial outcomes and predict future behavior and well-being? Should these measures vary across demographic groups and the context in which consumers make financial decisions?
Conclusion
Decisions about saving and investing have a profound effect on the financial well-being of individual consumers. Collectively, those same decisions shape our national economic outcomes. Changes in the financial products offered to consumers and in the economic circumstances of those consumers have added even more complexity to the financial decisions faced by consumers. Comprehensive, effective regulation of consumer products is the first step in ensuring positive outcomes for consumers. But consumers must also be equipped with the necessary quantitative and decisionmaking tools, and supported with the right information at the right time in order to make the best possible choices. While much attention and many resources have been devoted to financial education, we still have surprisingly little information about the effectiveness of financial literacy efforts.
