Financial education is all the rage but does it work?

Reaching consumers with advice and information just before making a financial decision is the new target. But is that really more effective than teaching personal finance in K-12?

Critics of financial education raise a number of valid concerns. But their main argument typically reduces to this: you can teach people about financial concepts, but acquiring this knowledge rarely changes their financial behavior. In other words those who, say, master the concept of compound growth are no more likely to take advantage of their understanding and save early for retirement, as you might expect. If you can’t change money behavior, what’s the point?

This argument, supported in academic research, has given rise to the idea of just-in-time financial education—a fairly new term that strikes me as a close cousin, or perhaps even successor, to an older idea called point-of-sale advice. The theory is that people learn best—and make better decisions—when they get information just as they are about to make a money decision.

The National Endowment for Financial Education, in a report, concluded “just-in-time financial information must be available throughout each stage of life so individuals can acquire knowledge and change behavior during points in their lives when they are motivated to change.”

A new and widely read study from three business school professors—Daniel Fernandes of Erasmus University in the Netherlands and the Catholic University of Portugal, John G. Lynch of the University of Colorado and Richard Netemeyer of the University of Virginia—showed the “decay of effects of financial education” over time and implied that “content knowledge may be better conveyed via just-in-time financial education tied to a particular decision.”

In a recent blog for the The New York Times, behavioral economist Richard Thaler wrote, “We shouldn’t fool ourselves into thinking that adding a household finance class to a high school curriculum will in itself create knowledgeable consumers who can understand today’s wide array of financial products.”

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