Financial literacy undoubtedly plays an important role in decision making, but the associated mechanisms are complex and mediated by a variety of factors.
Summary
Financial education aims to improve decisions by helping consumers acquire the basic knowledge and skills needed to understand financial choices. But a large and growing literature finds mixed evidence that these interventions affect behavior. This paper introduces a new method for measuring the quality of financial decisions built around a notion of financial competence. The authors also describe the potential pitfalls of typical workplace education interventions and the difficulty of detecting their deficiencies using conventional evaluation methods.
Key Insights
- The lion’s share of adult financial education in the U.S. is provided in the workplace.
- To motivate positive behavior change, educational interventions need to help participants internalize and operationalize conceptual financial knowledge.
- Simple motivational rhetoric can lead to indiscriminate responses that benefit some participants but harm others.
- Practical exercises that let people apply pertinent principles help increase financial competency more than prescriptive advice.
