Financial Literacy, Financial Education and Downstream Financial Behaviors (full paper and web appendix)
Catholic University of Portugal; Erasmus University
John G. Lynch Jr.
Center for Research on Consumer Financial Decision Making, University of Colorado-Boulder, Leeds School of Business
Richard G. Netemeyer
University of Virginia - McIntire School of Commerce
January 6, 2014
Forthcoming in Management Science
Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers’ financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just in time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker’s mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.
Number of Pages in PDF File: 103
Keywords: Keywords: behavioral economics, household finance, consumer behavior, education systems, public policy, government programs, statistics, causal effects, design of experiments, meta-analysis, financial education, financial literacyAccepted Paper Series
Date posted: October 2, 2013 ; Last revised: January 9, 2014
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