“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.