article

Financial Literacy, Financial Education, and Downstream Financial Behaviors

Authors:

Daniel Fernandes,

Richard G. NetemeyerAuthors Info & Claims

Management Science, Volume 60, Issue 8

Pages 1861 - 1883

https://doi.org/10.1287/mnsc.2013.1849

Published: 01 August 2014 Publication History

Abstract

Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers' financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies, and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just-in-time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker's mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.

This paper was accepted by Uri Gneezy, behavioral economics.

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cover image Management Science

Management Science Volume 60, Issue 8

August 2014

253 pages

ISSN:0025-1909

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INFORMS

Linthicum, MD, United States

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Published: 01 August 2014

Accepted: 26 September 2013

Received: 04 June 2013

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