Education, Personal Finance

The impact of mandatory financial education: A field study

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Last updated: September 10, 2010

financial-literacy

Having accurate knowledge about financial products and services is widely perceived to be advantageous, especially for low-income communities.  However, empirical evidence of this assertion has been relatively scarce.

To quantify the benefits associated with a financial literacy program, a researcher from the Center for Financial Security in the University of Wisconsin, Madison, conducted a randomized controlled trial among very low-income families in a subsidized housing program. Families were randomly assigned to a mandatory, five-session financial education program and, afterward, tracked for 12 months.

The results are documented in a 2010 study by the University of Wisconsin, “The Impacts of Mandatory Financial Education: Evidence from a Randomized Field Study.” The study’s findings include:

  • Families that underwent the financial education program reported an improvement in financial knowledge by 30% compared to the baseline level. Improvements were detected in clients’ understanding of credit terms, credit reports and managing money.
  • Self-reported financial behavior improved, including controlling spending, timely bill payment, providing for one’s family and budgeting.
  • Savings increased by an average of $377, with no significant increase in observed indebtedness.
  • The proportion of clients with credit scores less than 680 declined.

These findings suggest that public policies to promote financial education, especially among low-income communities, would be beneficial.

Tags: math, poverty


Writer: | September 10, 2010

Citation: Collins, J. Michael. "The impacts of mandatory financial education: Evidence from a randomized field study", Journal of Economic Behavior & Organization, September, 2012, PDF. DOI: http://dx.doi.org/10.1016/j.jebo.2012.08.011, How to Cite or Link Using DOI

Analysis assignments

Read the issue-related New York Times article titled "Helping Queens Project Residents Focus on Saving."

  1. If you were to rewrite the article based on knowledge of the study, what key changes would you make?

Read the full University of Wisconsin study titled "The Impacts of Mandatory Financial Education: Evidence from a Randomized Field Study."

  1. Summarize the study in fewer than 40 words.
  2. Express the study's key term(s) in language a lay audience can understand.
  3. Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)

Newswriting assignments

  1. Write a lead (or headline or nut graph) based on the study.
  2. Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
  3. Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
  4. Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.

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Elisabeth Donati Dec 26, 2010 16:19

Even though this is a small study, it really does point to financial education being the solution to the mess adults find themselves in financially. You’d think it would be common sense to teach kids and teens about money early on but for some reason, financial education is usually left as an elective, if at all.

Low Cost Ideas to Improve Education… and the Country Aug 21, 2011 17:36

[...] themselves so heavily overleveraged in the housing bust.  A little mandatory financial education may go a long way toward solving these problems, and may also put the country on a more stable long-term economic path in the [...]

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