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Research in Financial Education: A Pressing Need

April 30, 2020

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The most recent U.S. Department of Education budget was $73 billion, of which $623 million went to basic educational research. Sounds like a lot, right?

Not when you compare it to the most recent research and development (R&D) investments of major companies: Amazon spent $22.6 billion, or almost 13% of its revenue, on R&D. Apple spent $12 billion (5% of its revenue). Toyota spent $10 billion (4% of its revenue).

By comparison, what percentage of our national education budget goes to R&D? 0.9%.

Companies spend money on R&D because it helps them understand their customers’ needs and frustrations, improve their products, and develop new products to stay competitive in the future. Even companies like the ones above--already among the most trusted in America --invest in R&D to maintain their place on the perch.

Even if K-12 education in this country were universally admired and internationally dominant, it would make sense to invest more than we do in R&D. But in our current K-12 landscape, where many students are underserved and many crucial topics--such as financial literacy--go untaught, an investment in R&D seems even more compelling.

It is thus surprising to us to hear some of our well-intentioned colleagues in the financial literacy space make arguments against R&D investment. On the one hand, some say that previous research has proven that financial education programs are ineffective, and that there’s no need for further investment in them or their development. On the other hand, some say that there’s no research needed to support common sense: kids need to know about money and we should advocate to teach them about it.

From our perspective, both of these views are short-sighted, for three reasons:

Research on the effectiveness of financial education programs is often positive.

Many people and media point to a 2014 meta-analysis of financial education studies (Fernandes, Lynch, & Netemeyer, 2014) to argue that financial education simply doesn’t work.

But this ignores the contradictory findings of more recent meta-analyses (Kaiser, Lusardi, Menkhoff, & Urban, 2020; Kaiser & Menkhoff, 2017) , which found that financial education has positive effects on both financial literacy and financial behaviors. It also overlooks findings from large-scale studies of consumers, like this one (Wagner & Walstad, 2018) showing effects of financial education on long-term (rather than short-term) financial behaviors and this one (Xiao & O’Neill, 2016) showing individual and cumulative effects of financial education in high school, college, and the workplace.

Oh yes, and there are also a plethora of individual studies showing that students required to take financial education courses in high school have less engagement in payday lending (Harvey, 2019), more positive college borrowing behaviors (Urban & Stoddard, 2019), and more positive credit outcomes (Urban et al., 2018) in young adulthood. With all this positive evidence for financial education, even the most ardent skeptic of financial education must rightfully call the evidence mixed.

Mixed evidence for current programs doesn’t mean the entire endeavor of financial education programming is worthless.

Even supposing the evidence for current financial education programs were uniformly negative, that wouldn’t necessarily mean financial education doesn’t work. Financial education is in its infancy in terms of R&D. Many of the programs that exist, while well-meaning, are brief, uncoordinated with other efforts, and lacking a firm basis in educational, behavioral, and financial research.

Currently, there is great variability in both the quality of financial education programs and their intensity. Research has shown that learners may need exposure to more than one financial education program to have positive effects (see Wagner & Walstad, 2019 and Xiao & O’Neill, 2016). It has also shown that providing crucial supports, such as teacher training, around mandated financial education can lead to better results (see Urban et al., 2018).

Even the aforementioned Fernandes, et al. (2014), in their largely negative analysis of financial education, noted, “Our conclusions are about forms of financial education that have been subjected to empirical evaluation...many innovative forms of financial education have never been studied empirically. That said, our findings...make clear that different approaches to financial education are required if one expects to produce effects on behavior larger than the very small effects we found” (p. 1873).

You simply cannot judge the promise of financial education by examining early effects of a hodgepodge of programs. We need to develop and study more serious efforts at financial education before we call for the field’s funeral arrangements.

Regardless of these previous points, we need to improve both the evidence basis and the research basis for financial education.

Now to those fervent supporters of financial education who think no new research is necessary. Despite our belief that it’s too early to judge financial education as a whole, a mature field of financial education must of course prove itself effective. It will be essential to understand both the extent to which financial education itself is effective and the content and features of programs and approaches that are most impactful.

This being said, the field needs another kind of research that goes beyond evidence of effectiveness. We, as a field, need more understanding about how young people develop financial knowledge, attitudes, and decision-making skills. We need to research how best to support financial educators and how to couple school-based financial education with other financial supports. Finally, we need to better grasp how to change human behavior and how financial education relates to other behavioral change programs. It is from this kind of research that we can build robust programs that are likely to be effective.

Until recently, the debate over financial education has put the cart before the horse, looking for effective financial education programs without developing the research basis that would underpin the design of such programs. There seems to be a shift in this discourse, and a few programs and providers (including our own) are seeking to build on a solid research foundation. But there is more research needed, and more discernment needed over whether a product simply claims to be “research based” or actually takes the time, effort, and investment to analyze and apply relevant research. These research-rooted programs then need to be evaluated for, you guessed it, evidence of effectiveness.

In this time of uncertainty, it may seem that research should take a backseat to direct support for teachers, students, and parents. But where time and money are short, using intentional, effective, research-based solutions is all the more important. Going forward, we hope the field of financial education will devote the same serious attention to fundamental R&D that the best and most trusted companies do.

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