Financial Education: Lessons Not Learned & Lessons Learned

Abstract

This paper, prepared for a conference jointly sponsored by the Federal Reserve Bank of Boston and the CFA Institute's Research Foundation, first explains why financial literacy education has failed in its central aim to improve consumers' financial decisions through improving their financial knowledge and skills. It then sets forth five alternative pathways to consumer financial well-being suggested by analyses of programs that combine financial education with other interventions: improvement in math skills, financial advice, commitment devices and automaticity to overcome bounded willpower and bounded rationality, up-front penalties that deter consumers from purchasing particularly harmful financial products, and increased household assets/decreased household expenses. The paper concludes by suggesting how public policy might nurture each of these alternative pathways.