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