Just to be provocative here are two recent papers that answer that question with a resounding "no."
- Against Financial Literacy Education (Lauren Wills, University of Pennsylvania Law School)
- The crux of her argument as provided in her conclusion is that the focus should be on fixing or simplifying the financial markets rather than using financial literacy education to help consumers navigate the market:
- "The financial literacy education model is premised on the promise of consumer
sovereignty, that consumers can be taught to make welfare-enhancing choices in the insurance, credit, and investment marketplace, trained to read and travel “the road map to the American Dream.” Ironically, the model ensures instead the sovereignty of the market. Overtly, the model is an attempt at social engineering, trying to change not only consumers’ skills, but their thought processes, feelings, motivations, and ultimately their values. In the world that financial literacy education advocates, consumers are but wealth maximizers, looking out for their own financial interests rather than shared societal and civic goals. Covertly, the model dupes consumers into thinking they can master the financial services market, while placing blame upon them for their failure to do so, deflecting political pressure for change. But changing the personal finance market or the manner in which consumers must maneuver in it—making the map easier to read and follow, giving them a guide, or building more direct routes to the American Dream—is likely to be more efficacious, and at a lower cost. Consumers can make welfare-enhancing choices, but to be truly autonomous, those choices must be made in a context that consumers can navigate."
- "The financial literacy education model is premised on the promise of consumer
- The crux of her argument as provided in her conclusion is that the focus should be on fixing or simplifying the financial markets rather than using financial literacy education to help consumers navigate the market:
- In, If you are so smart, why aren't you rich? several Harvard Business School professors make the following points about financial literacy training:
- They find that higher levels of education and cognitive ability cause increased participation[in financial markets]—however, financial literacy education does not.
- A set of financial literacy education programs, mandated by state governments, did not have an effect on individual savings decisions.
- It is imperative to conduct rigorous evaluations of financial literacy education programs to measure their efficacy.
Look for posts in the future taking the other side of this argument regarding the effectiveness of financial literacy programs. If you have a favorite research report, please pass it along.
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