Financial ed doesn’t work

“Financial literacy” training doesn’t help people make better decisions, reports The Economist.

Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102? And would an investor who received 1% interest when inflation was 2% see his spending power rise, fall or stay the same?

Only half of Americans aged over 50 gave the correct answers. In another study, 21 percent of those surveyed said their best retirement strategy was winning the lottery.

Financial education doesn’t help, the Federal Reserve Bank of Cleveland concludes.  “Unfortunately, we do not find conclusive evidence that, in general, financial education programs do lead to greater financial knowledge and ultimately to better financial behaviour.”

U.S. students who’d taken personal finance or money management courses weren’t more financially savvy than those who hadn’t, according to a study by the Jump$tart Coalition for Personal Financial Literacy.

In another study, students “who had not taken a financial course were more likely to pay their credit card in full every month (avoiding fees and charges)” than those who’d studied the subject, reports The Economist.

Cleveland Fed researchers recommended teaching financial literacy to adults trying to buy a house or pay of credit card debts.

But . . . consumer enthusiasm for learning about finance is limited. When a free online financial-literacy course was offered to struggling credit-card borrowers, only 0.4% logged on to the website and just 0.03% completed the course. Those who choose to be educated about finance may be those who are already interested and relatively well-informed about it.

Nearly every proposal for rethinking student aid calls for doing a better job of informing students and parents about what they’re getting into when they take out college loans. But it’s not easy. Is college tuition an investment in productivity? A lifestyle expense? It depends on the student.

About Joanne


  1. Elizabeth says:

    Well, this is not surprising given the fact that widespread sex ed has not exactly reduced unplanned births. Self control is the key to both.

    • Roger Sweeny says:

      Teenage pregnancy has been going down pretty steadily for almost 40 years. Though I don’t know how much credit, if any, to give sex ed for that. From

      “In 2011, a total of 329,797 babies were born to women aged 15–19 years, for a live birth rate of 31.3 per 1,000 women in this age group.1 This is a record low for U.S. teens in this age group, and a drop of 8% from 2010. … While reasons for the declines are not clear, teens seem to be less sexually active, and more of those who are sexually active seem to be using birth control than in previous years.”

      • Mark Roulo says:

        I am more concerned about *unmarried* pregnancies than I am in teen pregnancies. I believe that the percentage of kids born to unmarried moms (in the US) has been rising for a long time.


        I suspect that many of these pregnancies are not exactly accidental, though, so education won’t really do much.

      • Mark Roulo says:

        Having said that I’m more concerned about unmarried moms than I am with teen moms, I’m also bothered by the way the statistics are gathered.


        From the New York Times:
        Gov. Pete Wilson has made reference to California’s “epidemic” of unwed mothers, but that group includes some women who would be startled to find themselves counted: married mothers who elected to keep their maiden names.


        One analysis concluded that 35 percent of all babies born in California in 1993 had unmarried parents. But because of the way the statistics are gathered, that figure included hundreds, perhaps thousands, of babies born to married women.


        California is one of five states in which birth certificates do not include the marital status of the parents. So state and Federal demographers trying to determine how many California babies are born out of wedlock use what they call an inferential method.


        If a new mother signs the birth certificate with her maiden name, and if the baby has the father’s last name, the parents are presumed to be unwed, said Debbie Rhea, supervisor in the state’s Office of Vital Records. “There’s not a box where we can add that ‘the names are different but they’re married,’ ” she said.



        I don’t know if this is still the procedure, but if it is then my child is scored as born out of wedlock. He wasn’t 🙂

      • Elizabeth says:

        OK – what is the out of wedlock birth rate, again?

        • Mark Roulo says:

          “what is the out of wedlock birth rate, again?”
          For the US as a whole in 2010: 40%.


          As reported by the CDC here:


          But it is also possible that my child, born to two married (to each other!) adults, is/was scored as out of wedlock.

          • Elizabeth says:

            But there is no doubt that out of wedlock births have uncreased astronomically. Ditto with STDs. The point is that with financial literacy as well as sex ed, these have not lead to better decisions.

          • Mark Roulo says:

            Well … the US has essentially been subsidizing out of wedlock births for quite a while(*). You tend to get more of what you subsidize. I don’t *quite* see the same support for financial illiteracy. The government does subsidize poverty, but that isn’t quite the same thing.


            There has also been a reduction over the past few decades in the social stigma to having a child out of wedlock. I don’t see a similar reduction in social stigma to being financially foolish. Additionally, we have many new ways to be financially foolish compared to 40 years ago (credit cards, zero-down home loans, lottery in every? state, …).


            I don’t think the two are very similar. In one case we have the government actively encouraging (as a side-effect of other policy) the bad behavior. In the second case we don’t … it is more that the opportunity for bad decisions has increased so much.


            (*) “support” as in “provides a subsidy for.” One can be in favor of writing checks to single moms so that their kids are raised in slightly less poverty, but we shouldn’t kid ourselves that this will create more kids to single moms. This may be a good tradeoff, but we shouldn’t ignore it.

  2. GEORGE LARSON says:

    I always thought financial literacy was not possible without numeracy

    • George wins the thread. It hardly matters if you know what “2% interest” means (versus “5% interest” or “adjustable rate interest”), if you don’t know how to turn that into dollars and cents.

  3. Richard Aubrey says:

    Tutoring a Nepali refugee on an assignment wrt Odyssey.
    Theme? One could be the rational man–Odysseus–versus the overmuscled adolescents of the Greek army before Troy.
    The conflict: O wants to get home, but curiosity takes him into Polyphemus’ cave. Abandoned the mission. Then, having convinced the other Cyclops that “nobody” blinded Polyphemus, Odysseus can’t help brag who it really was. Not the rational thing to do, as Poseidon is really, really pissed.
    Rational man vs. primitive child man. Theme of the Odyssey. Great.
    Wishful thinking has not disappeared despite Homer’s best efforts.
    Who would want to be educated in financial issues if it killed the fun of wishful thinking? “I’m going to win the lottery.”
    We’ve had 2800 years’ lesson and it still doesn’t take. Financial ed isn’t the point.