The classroom is where many Americans learn to read, write, perform arithmetic and speak a foreign language. So can it also be the place where they master important financial concepts such as how to manage debt, improve credit, take out student loans and plan for retirement?
For many politicians, educators and financial literacy advocates, this question has created a push for financial education in elementary, high school and college classrooms, community centers and through counseling, seminars and workshops.
But, some researchers say, those aims may be misguided. Financial literacy can’t be taught in a sit-down course like, say, geometry or German, they argue. “Thus far, the empirical work doesn’t show much of an effect [from financial literacy courses],” says Lauren Willis, professor at Loyola Law School in Los Angeles. “Some findings are that there are negative effects sometimes, presumably because of overconfidence.”
For example, a 2014 paper from three professors looked at the results from nearly 170 papers covering more than 200 scientific studies on financial literacy and found that financial education did little to improve subsequent financial behaviors. “Our meta-analysis revealed that financial education interventions studied explained only about 0.1 percent of the variance in the financial behaviors studied,” the authors concluded.
“It’s a hugely wasteful enterprise, these high school courses and things like that,” says John G. Lynch, co-author of the study and senior associate dean for faculty and research at Leeds School of Business at the University of Colorado—Boulder. “By the time [students] would actually act on what they learn, it’s gone.”
But not all researchers agree that integrating financial literacy in the classroom is a misplaced effort. Financial literacy belongs in the schools, says Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at George Washington University’s School of Business in the District of Columbia. “I’m not understanding why there is such an opposition to financial education. I think it’s becoming more ideological than research,” she says.
Lusardi cites, among other papers, a recent meta-analysis of 126 studies that found that financial education has a significant impact on financial behaviors and financial literacy.
So what can consumers make of this debate in the financial education community? Is there are better way to beef up your financial literacy, or your children’s, or are all methods equal?
While experts may disagree on the best methods or coursework to teach financial literacy, they generally agree that certain financial skills are crucial in today’s increasingly do-it-yourself economy and that communities, educators and politicians should be working toward, and investing money in, the most effective methods for helping consumers steer clear of predatory or ill-fitting financial products.
But if you want a silver bullet, you’ll likely be disappointed. “When people put 100 percent of the burden on a one-time workshop or financial education intervention, of course that’s not going to be effective,” says Billy Hensley, president and CEO of the National Endowment for Financial Education.
When consumers seek financial education, it’s important to select instructional courses taught by competent teachers, Hensley says. “Make sure the instructor is well-trained themselves,” he says. “We’re not all experts in personal finance because we have checking accounts.”
Just like with any class, choosing a financial literacy course with a high level of instruction and a solid curriculum is important, Lusardi says. “If you look at the quality of a program, courses that are done well actually work,” she says.
Another strategy, called “just-in-time education,” suggests that timing educational experiences right before you make a financial decision may help students retain and apply the information more effectively. For example, teaching a 17-year-old about how to apply for a mortgage may be less useful than teaching him how to responsibly borrow to pay for college. The logic is that he’ll be taking out student loans soon. He won’t need to buy a house for, say, another decade.
But by the time someone is ready for just-in-time education, Lusardi says, it may be too late. They may have already chosen the house they want to buy or college they want to attend. “By the time you show up at the mortgage office, you have already decided on the color of the walls,” Lusardi says.
Another study delves into how spouses who do not act as the household CFO tend to lose financial literacy over time. The partner who has taken on the “CFO” role increases his or her level of financial literacy, while the partner not managing money may stagnate or even decline in financial competence. The longer the relationship lasts, the greater the gap in financial literacy between the partners, the study shows.
The takeaway there is that simply managing money is a way to increase your financial literacy. “I’ve come to believe much more in learning by doing than learning by instruction,” says Lynch, who also co-authored this study.
But, Lusardi notes, learning by doing can be an expensive lesson in personal finance. “With financial decisions, we don’t have the power of repetition,” she says. “We don’t buy houses many times.”
If consumers are doubting the effectiveness of financial literacy courses, they can advocate for industrywide changes that can help steer them toward better financial decisions. “In the end, our financial system is something that we’ve created. It’s not something that’s god-given, and we need to change it if we want it to be different,” Willis says.
On a larger scale, consumers can politically organize to advocate for things like a living wage or a universal retirement account, Willis says.
If inclusion of financial literacy curriculum in schools appeals to you, then you can advocate for them to be added to the classroom, or on a smaller level, start a personal finance club.
So is financial education a waste of time? “If this is an either-or debate for you, then you’re missing the point,” Hensley says. “High-quality education with smart protections as well as good products – these things all together should be helping produce and promote financing capability.”
