Examples of Financial Literacy Education : Planet Money : NPR


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Financial literacy education is not very popular. It’s a huge industry, spawning all kinds of books, web channels, TV shows, and even social media accounts. However, past research has concluded that financial literacy education is almost always a waste of time.

For example, a well-cited paper published in a journal. Business Administration Nearly everyone who took a financial literacy class forgot what they had learned within 20 months, finding that financial literacy had a “negligible” impact on future behavior. Academics from Harvard Business School, Wellesley College, and the Federal Reserve Bank of Chicago have produced a study showing that Finlitt’s mandatory high school classes had no effect on students’ ability to manage their finances. bottom. And the list goes on.

A recurring name in these papers and reports on financial literacy is Annamaria Lusardi. She is Professor of Economics and Accounting at her School of Business, George Washington University. She is also the Founder and Academic Director of her Global Financial Literacy Excellence Center at GWU. She and Olivia Mitchell, a professor at the Wharton School of Business at the University of Pennsylvania, published a paper in 2013 that paralleled her work on financial literacy, but that paper addressed the teaching of financial literacy programs. was very critical. The study has since been widely cited.

A new hope for financiers

A decade later, Russardi and Mitchell published a new paper with a similar title, but with a brighter tone. The Importance of Financial Literacy: Breaking New Ground picks up where her 2013 research study left off and builds on the experiences of two of her women who taught her personal finance.

They first establish that the level of global financial literacy is as bad as it was ten years ago when they published their seminal paper. To establish this, they conducted a survey asking participants his three questions that focused on interest rates, inflation and risk diversification.

“These are simple questions, but they test the foundational and fundamental knowledge that underpins most economic decision-making. Moreover, answering these questions does not require hard math because we does not test your knowledge of mathematics, but rather your understanding of how interest rates and inflation work.The questions also test your knowledge of financial terminology.”

What did respondents do? Let’s just say there is room for improvement. (You can test your knowledge by checking papers).

“Only 43% of[US]respondents can answer all the questions correctly,” Rusardi said, adding that the level of financial ignorance is particularly acute among women. “Only 29% of women answered all three questions correctly compared to 48% of men,” she said, adding that the gender gap remains remarkably stable across the 140 countries tested. she added.

“We also found that women were much more likely than men to not know/refuse to answer at least one financial literacy question,” she says. Such gender differences may be the result of lack of self-confidence in addition to lack of knowledge. ”

Young people, like people of color, are likely to be disadvantaged in this area, according to Russardi and Mitchell. “Young people have very low financial literacy, with only one third able to answer all three questions correctly. 26% and only 22% Hispanic.”

This is a problem, according to Rusardi, and it means many people are ill-equipped to cope with the increasingly complex financial landscape that could affect their income and long-term wealth. It is said that it is not just to do. The fact that white males appear to have a marked advantage over the rest of the population in this region has obvious social implications. If that’s not enough, Rusardi said, it’s also a problem for the economy.

“Americans spend an average of seven hours a week dealing with personal financial matters, three of which are spent at work. Those with lower financial literacy spend twice that,” she says. The impact on productivity for people who spend most of their working day on personal money while at work is substantial, she continues. Add in the consequences of mismanagement of assets, investments, mortgages, and other liabilities, and it can have a significant impact on the economy.

Russardi said this idea that the damage caused by lack of financial literacy can extend beyond individuals to businesses and even the economy has not escaped government attention.

“Influential policymakers and central bankers, including former Fed Chairman Ben Bernanke, are talking about the critical importance of financial literacy,” the paper said. “Furthermore, the European Commission recently recognized the importance of financial literacy as a key step in the Capital Markets Union. Some governments … have implemented financial literacy training in high schools. The Council (CEE 2013) ) established national standards for financial literacy and detailed what should be covered in personal finance courses in schools.”

fix the flaw

A decade ago, Rusardi and Mitchell were somewhat critical of financial literacy courses offered by businesses and schools. These programs were generally ineffective, not because the concept of personal financial education was flawed per se, but because the various programs were generally poorly resourced and often poorly envisioned. they said.

“Most of these[courses]in the US were unfunded,” Rusardi said. “There was no curriculum. Of course, this doesn’t work, it doesn’t work for everyone.” topic. If you’re taking a course in French and the teacher doesn’t speak good French, you probably won’t learn good French. ”

Additionally, classes, whether taught in schools or in corporate offices, tended to be one-off, one-size-fits-all instruction with little or no follow-up. Russardi says it was a recipe for failure. But organizations that have recognized the need for financial literacy programs and have been persistent in developing them have made progress, she says.

“Many programs are moving beyond very short-term interventions, such as sending employees to one retirement seminar or employee benefit fair, to more intense programs,” says Rusardi. “Financial literacy is now a formal area of ​​study for the economics profession. Many initiatives have been initiated at the national level, with more than 80 countries commissioned to design and implement national strategies on financial literacy. We are setting up a national committee.”

Rusardi says it is especially important to teach and instill the principles of good personal finance as early as possible. This means starting at home and school where children are likely to model good economic habits. To this end, the 2012 International Student Assessment Program added financial literacy to the set of topics that 15-year-old students need to know to participate in modern society and succeed in the labor market. .

Russardi says her and Mitchell’s 10-year experience teaching financial literacy since the report was published in 2013 has proven that these programs work when taught correctly.

“Our research shows that there are many things people can do to make smarter financial decisions,” she said, noting that a successful course helps people learn the fundamental financial concepts that matter. , especially useful for understanding financial risk and risk management. Student Loans, Mortgages, Credit She helps you understand how certain financial products and contracts work, such as cards, investments, and annuities. It also makes them aware of their rights and obligations in financial markets.

Of course, the most important thing is to attract and retain student interest, which is not always easy in the dry world of finance.

“Thanks to research, I now teach in a completely different way,” says Rusardi. “I say, what do you think this course is about? And as you can imagine, most students think it’s about investing in the stock market. That’s what personal finance is all about. And I say to them, ‘No, this is it.'”

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