Financial Literacy

Financial Literacy
Prepared By:
Phan, Vincent
Thomas, Justin
Wang, Huihua
Xie, Angela
Report Distributed December 8, 2016
Prepared for:
Professor Frank Ohara
BUS 331
Table of Contents:
The Education of Financial Literacy…………………………………………………… 3
1. What is Financial Literacy?........................................................................................ 4
2. The Importance of Financial Literacy……………………………………………… 5
3. The Current State of Financial Literacy…………………………………………… 7
4. Financial Literacy Among the Young………………………………………………. 9
5. Against Financial Literacy Education…………………………………………….... 13
6. Does Financial-Literacy Education Work?................................................................. 14
a. Is Financial-Literacy Education Effective?.............................................. 15
7. The Costs of Financial Education…………………………………………………….. 18
8. Conclusion……………………………………………………………………………… 19
Works Cited………………………………………………………………………………..21
2
The Education of Financial Literacy
Financial Literacy is a relatively new phenomenon that has been widely discussed as a
point of concern for the upcoming generations. Many individuals are unaware of the potential a
properly equipped and financially literate individual can have on their own portfolios. Aside
from typical valuations and investments, financial literacy encompasses personal financial
management and other compulsory items, such as retirement. It’s hard to understand why some
institutions do not advocate for a widespread adoption, of a higher standard of financial literacy.
In their statement regarding Financial Literacy Month, the Federal Reserved proclaimed,
“Whereas quality personal financial education is essential to ensure that
individuals are prepared to manage money, credit, and debt, and to become responsible
workers, heads of households, investors, entrepreneurs, business leaders, and citizens;
Whereas increased financial literacy empowers individuals to make wise financial
decisions and reduces the confusion caused by the increasingly complex economy of the
United States; Whereas a greater understanding of and familiarity with, financial markets
and institutions will lead to increased economic activity and growth; . . . Now, therefore,
be it Resolved, That the Senate . . . designates April 2007 as Financial Literacy Month' to
raise public awareness about- (A) the importance of financial education in the United
States; and (B) the serious consequences that may result from a lack of understanding
about personal finances.”1
Despite the advocacy of financial literacy education by many world leaders, the importance of
financial literacy is still a much debated topic in today’s world. In this paper, we will explain the
research behind why some experts believe that financial literacy is vital and why others are
1 Willis, Lauren E. “Against Financial Literacy Education.” Loyola University Law School, Los Angeles
Legal Studies Research Paper No. 2008-13. (2008). Web. 29 Nov. 2015
3
against it. There are many factors, such as socioeconomic status, ethnicity, geographic location,
and especially financial literacy education, that impact an individual’s “financial preparedness”.
In this research paper, we will expand on the effect of financial literacy education through:
defining financial literacy, the importance for it, and the critique against it.
1. What is Financial Literacy?
Financial literacy can be defined as the ability to use knowledge, skills, and experience
of an individual to make effective decisions regarding the use and management of their own
finances to provide lifelong financial security for themselves and their families. Basically, it
means having the ability to understand basic financial products people deal with in their
everyday lives that considerably affect their economic situation and welfare.2 The concepts used
to assess financial literacy comes down to the ability and understanding of: numeracy and
capacity to do calculations related to interest rates, such as compound interest, inflation and
deflation, and risk diversification. 3 There are many patterns when measuring financial literacy
in the whole population. Research shows correlation between financial literacy with
characteristics such as race, ethnicity, gender, geographical location, socioeconomic status, and
level of education. 4
2. The Importance of Financial Literacy
2 Mihalcova, Bohuslava and Csikosoca, Adriana, and Maria Antosova. “Financial literacy-- the urgent
need today.” Procedia- Social and Behavioral Sciences 109. (2014). Web. 29 Nov. 2015
3 Lusardi, Annamaria and Mitchell, Olivia S. “The Economic Importance of Financial Literacy: Theory
and Evidence.” (2014). Web. 29 Nov. 2015
4
As stated by the Federal Reserve earlier, it is imperative for individuals to be financially
literate in regards to making financials decisions. The financial markets are filled with a plethora
of financial products that have many different intricacies and scenarios that an individual has to
choose from. For example, a visa card with a $300 card limit requires payment of an $79
application fee, and once approved, then charges $281 in fees to the account. In sum, consumers
pay $360 and have a credit line of $19 when they receive the card. One has to realize that these
financial companies that provide these products see the consumer as a dollar sign rather than
someone they have to protect. Investing incorrectly could spell extremely bad news for the life of
that individual and the surrounding individuals connected to that person. For example, Sean
Moyer, a National Merit Scholar, signed up for a credit card his freshman year at the University
of Texas. With a part-time job, he could afford the debt on this card, but without his parents'
knowledge, he accumulated a Visa, two MasterCards, and nine other store and gas cards. His
parents did not learn that he owed $10,000 until he moved home to save money and work off his
debts. A week before his suicide in 1998, he told his mother that he had no idea how to get out of
his financial mess and did not see much of a future for himself.5
Although the cry for financial-literacy education has been audible for decades, the
volume has recently increased because of technological advances that allow the industry to
create and profit from more complex and riskier financial products offered to a broader array of
people, in conjunction with political dominance of an ideology favoring deregulation. The
consumer-finance revolution has given Americans more apparent choices and formal control
over their financial decisions, but with that choice and control comes added responsibility to
make financial decisions well or to face potentially disastrous health and welfare results.
5
Households today must make more of their own decisions in every personal-finance arena, from
credit to insurance to retirement planning. Although defined-benefit pension plans once covered
many workers, most retirement plans today, if offered at all, are defined-contribution plans,
requiring individuals to decide how much to save and how to invest. Similarly, employer-
sponsored health insurance has declined, leaving more Americans to find their own policies.
These are just a few of many examples that show the need for financial literacy to keep up with
an ever changing financial marketplace. New products can outpace not only consumer-protection
regulation but also tax rules, capital-reserves requirements, or insurance product mandates. For
example, in 2007 the mortgage lender Ditech began selling a product that integrates a home
mortgage with a home-equity line and a credit card account, making household equity almost
entirely liquid and allowing consumers to take additional advantage of the deductibility of home-
mortgage interest.6 This being said, it is imperative for individuals to educate themselves before
using a financial tool as the market is not heavily regulated. The pace of the market is set by the
producers of financial tools rather than the regulators of it. Often times, there is informational lag
where regulators are chasing financials tools that were implanted months ago. It isn’t like the
medical market, where products have to be approved and tested before going into the market.
Since new products aren’t regulated heavily, consumers must be careful in which financial
products to use. Some products are poorly constructed and can make the investor lose a lot of
money. In addition, many financial advisors and firms don’t actually care about an individual’s
financial well-being. They care about growing their own bottom-line. Though there are financials
advisors that one can use to invest rather than informing themselves, there are many different
financial advisors with different investment ideologies. That being said, an investor has to know
6
who actually cares about their money and whether or not their ideology in investing is similar to
yours. A lot of advisors do not have a fiduciary duty to their client. As one former mortgage
broker put it, “rather than focusing on the affordability of the monthly payment, he would ask the
borrower in great detail about her plans for the loan proceeds. If her plan was to build a purple-
painted bedroom for her daughter, then throughout the mortgage purchase process he would
invoke the vivid image of her daughter enjoying the new purple room… You don’t lie to your
client, but you make them feel like you’re their best friend and can be trusted”7 The last point, is
that financial literacy is important to financial planning and having an individual’s career end
smoothly into a well-planned retirement. We’ve heard many cases of relatives and friends where
they don’t prepare for retirement and they are left without sufficient funds to retire. Because of
this, they end up having to work through their 70’s, which no one wants, or they have to retire
under means well below their expectations. Chiefly, Financial Literacy is very important to help
consumers: mitigate risks from an ever-changing deregulated financial market, optimize
revenues in their investments, and help them achieve their financial planning goals.
3.) The Current State of Financial Literacy
While current studies include no direct financial literacy measure between ethnicity, education,
and financial preparedness, the authors do find that poorer, less educated, and immigrant
households (characteristics associated with low financial literacy) are more likely to make
financial mistakes.8 Studies show that in the United States, an average of 10%, with half being
over the age of retirement, are completely financially illiterate, meaning they possess absolutely
no knowledge about interest rates, inflation/deflation, and risk diversification.. According to the
U.S. Government, the elderly are more likely to fall into financial scams. For example, a survey
7 Michael Moss, Erase Debt Now. (Lose Your House Later.), N.Y. TIMES, Oct. 10, 2004
7
of older financial decision makers (age 60+ showed that over half reported having made a bad
investment, and one in five of those respondents felt they were misled or defrauded but often fail
to report the situation.9 The relationship between age and financial literacy can be explained by
the fact that technology and education has changed throughout the years. Self-education is now
easier because information is more accessible through the Internet. Furthermore, an increasing
amount of people are getting college degrees, with business being the number one growing major
in the United States. So, people are learning financial literacy in college.10
The management of debt affects those who are 18-35 greatly. Even with financial literacy
improving with better education, there are still many problems that come with lack thereof.
Those who are unable to correctly calculate interest rates out of a stream of payments end up
borrowing more and accumulating less wealth. Furthermore, the least financially savvy incur
high transaction costs, paying higher fees and using high-cost borrowing. Studies also show that
the less knowledgeable also report their debt loads as excessive, or that they are unable to judge
their debt positions. Those who are less financially literate are substantially more likely to use
high-cost methods of borrowing, because they underestimate the cost of borrowing, which
inhibits their ability to accumulate wealth.11 This, however, is not to be confused that incurring
debt is bad. Debt, when managed correctly, can increase one’s wealth.12
Logically, financial literacy education can help people make the best decisions. For
example, what type of credit to accept, which institution to go for, how to behave in relationship
12 Bostic, Raphael and Gabriel, Stuart and Painter, Gary. “Housing wealth, financial wealth, and
consumption: New evidence from micro data.” (2009) Regional Science and Urban Economics 39.
(2009). 79-89.
8
with a credit provider, which model of behaviour to follow, etc. Financial literacy and behavior
towards debtedness does not always focus on lowering the amount of debt, but rather, one’s
ability to manage their debt.13
Because of this, some economists, like Mihalcova, argue that financial literacy should
become official curriculum beginning from primary school. They should include financial
education training courses and seminars, and education provided by the government, and other
agencies. This way, the youth can understand and be prepared to make financial decisions in
their lives.14
4. Financial Literacy Among the Young
With the world rapidly changing every day, consumers are forced to make complicated
financial decisions at a young age. For example, many young people carry student loans or credit
card debt, which hinders their ability to accumulate wealth. With spending power of $172 billion
a year, youth attract the interest of retailers and credit card companies, but have little knowledge
about how to make wise consumption decisions. Many accumulate significant debt that may lead
to poor credit scores and possible bankruptcy.15
People with low financial literacy are more likely to have problems with debt. Financial
literacy is an important component of sound financial decision making, and many young people
wish they had more financial knowledge. In a 2009 survey on credit card usage among
undergraduate students, 84% of students said they needed more education on financial
management topics, 64% would have liked to receive information about financial management
15 Johnson, Elizabeth and Sherraden, Margaret. “From Financial Literacy to Financial Capability Among
Youth.” Journal of Sociology & Social Welfare. (2007).
9
topics in high school and 40% would have liked to receive such information as college freshmen
(Sallie Mae 2009). 16 Those who study financial literacy generally agree that many, if not most
young people, lack the financial literacy necessary to make important financial decisions in their
best interests.17 The financial situation of today’s youth is characterized increasingly by high
levels of debt. Between 1997 and 2007, average undergraduate student loan debt rose from
$9,250 to $19,200—a 58% increase after accounting for inflation; average debt for college
students graduating with loans rose 6% in just one year between 2006 and 2007, from $18,976 to
$20,098. In addition, median credit card debt among college students grew from $946 in 2004 to
$1,645 in 2009 (both figures in 2004 dollars), a 74% increase.18 According to sophisticated
studies, financial literacy is severely lacking in young adults (age 18-24). Only 27% of them
possess basic knowledge about inflation and risk diversification. In high school students, only
7% are considered financially literate.
Concern about the financial well being of young people and their preparation for making
financial decisions in adulthood has led to a groundswell of interest in youth financial
education.19 According to two national studies that were compared, personal finance curriculum
proves to be more effective than taking finance courses in school. In one of the studies, the group
surveyed students who completed the high school personal finance curriculum supplied by the
National Endowment for Financial Education, and found that self-reported financial behavior
improved immediately after exposure to the NEFE program. After one year, over half of the
17 Mandell, Lewis and Klein, Linda S. “The Impact of Financial Literacy Education of Subsequent
Financial Behavior.” (2009). Web. 29 Nov. 2015
10
students reported to have made changes in their spending and saving habits.20 However, it is
important to remember that studies like these rely on participant self-assessments of whether a
course changed their own knowledge, confidence, and behaviors. Some people may overestimate
how much they have learned and how their future behavior will change. So, the response data
may be skewed. Follow up surveys can also be skewed because the participants are likely,
intentionally, or unconsciously, to overstate the extent to which they conduct their financial
affairs as they were taught they should. Furthermore, those who think they have changed their
behavior are more eager to report it, and those who do not are less likely to respond.21 The study
shows that the NEFE program was effective in improving financial behavior. This part of the
study, does support Mihalcova’s other suggestion, that financial education should be provided by
governmental agencies.
In addition, other studies consistently show that higher education, in general, affects
subsequent financial behavior in youth. Below is a chart that shows the statistics comparing the
financial behavior of those who have had college education, to those who have not: 22
11
Source: Mandell, Lewis and Klein, Linda S. “The Impact of Financial Literacy Education of Subsequent
Despite the studies that show that financial education in school curriculum is actually not
effective, the federal government is still making very great efforts on trying to incorporate it into
schools. At the state level, a small but growing number of states are encouraging or requiring
teachers to integrate personal finance concepts into core subjects, such as math, social studies,
and economics.23
5. Against Financial Literacy Education
In spite of the seemingly obvious need for financial literacy education, there are some
who believe that it is useless. As financial products become more complex, consumers’ inability
to understand these products has become increasingly apparent, and the consequences of this
inability more dire. Lauren E.Willis, an Associate Professor at the Loyola Law School in Los
Angeles, states his argument:
“Although this vision[financial literacy] is seductive, promising both a free market and
increased consumer welfare, the predicate belief in the effectiveness of financial-literacy
education lacks empirical support. Moreover, the belief is implausible, given the velocity
12
of change in the financial marketplace, the gulf between current consumer skills and
those needed to understand today’s complex non standardized financial products, the
persistence of biases in financial decision making, and the disparity between educators
and financial-services firms in resources with which to reach consumers.” 24 Basically, he
is saying that the pursuit of financial literacy poses costs that almost certainly swamp any
benefits. Professor Willis then summarizes his argument by saying, “ The search for
effective financial-literacy education should be replaced by a search for policies more
conducive to good consumer financial outcomes”. In this section of our research paper,
we will break down the argument against financial literacy in three parts: the plausibility,
the viability, and the costs of Financial-literacy education.”
6. Does Financial-Literacy Education Work?
A study showed that high school students who took classes in personal finance or money
management were no more financially literate than those who didn’t. The same surveys were
conducted over the span of 6 years, in three different high schools, and the results have been the
same consistently.25 The need for financial-literacy is ultimately caused by, “The Gulf between
the literacy levels of most Americans and that required to assess the plethora of credit, insurance,
and investment products sold today – and new products as they are invented tomorrow –
realistically will not be bridged.”26 The reason being, is that there are no rules of thumb when it
13
comes to decisions for complex products in a volatile market. It is rare that any rule is objective,
rather, there is always a unique solution for each individual as their situations and goals are
different. In addition, a financial educator has to realize that everyone has different heuristics,
biases, emotional-coping mechanisms, and affinities for risk that may interfere with the
enhancement for personal finances. For example, investing long-term and locking someone’s
money up for 20 years is a safe and sure investment that will guarantee a return, for the most
part, but someone’s insecurity of commitment may hinder their ability to see the investment
through. In addition, there are many different financial products and intricacies within those
products for an individual to fully grasp unless they were an expert in the field.. For example,
something as simple as a single defined-contribution retirement plan can contain dozens of
investment funds, each requiring its own novella-length prospectus to explain its holdings and
operations in the products for an individual. Not only are there many options within a financial
product, but there are many new financial products and features that come out every week.
Unless consumers take frequent refresher courses, material they once learned can become
outdated and misleading. For example, many older Americans appear to have learned about
usury laws, but may be unaware that even state constitutional usury limits no longer apply to
most credit cards and home mortgages27. The professor summarizes his argument, “Ultimately,
people are financially literate only if, given their resource constraints, they have the knowledge,
skills, confidence, and motivation to make the decisions and take the actions necessary for
financial well-being today.”28
Is Financial-Literacy Education Effective?
27 Douglas A. Hershey et al., Challenges of Training Pre-Retirees to Make Sound Financial Planning
Decisions, 24 EDUC. GERONTOLOGY 447, 467 (1998).
14
In regards to the effectiveness of Financial-Literacy education, empirical work to date is
weak, the few gains claimed from financial-literacy education have been meager, and some
studies report a small negative effect. The professor criticizes the methods that record the success
of financial literacy education:
“Many studies use data-collection techniques biased toward finding this education to be
effective. Most rely on participant self-assessments of whether a course changed their
own knowledge, confidence, and behaviors. But people overestimate how much they
have learned and how much their future behavior will change. Follow-up surveys suffer
from a similar bias because participants are likely, intentionally or unconsciously, to
overstate the extent to which they conduct their financial affairs as they were taught they
should. High nonrandom nonresponse-rates skew the data in the same direction-those
who think they have changed their behavior are more eager to report it, and those who do
not are less likely to respond.Connecting current financial condition with respondent self-
reports of having learned from past classes or seminars introduces potential recall bias-
people who have experienced good financial outcomes are more likely to think they
"learned" from a class and to remember having taken one at all”.29
He then goes on to say that positives outcomes don’t necessarily come from financial literacy
education, but “direct assistance programs”, such as special loan programs:
“Second, direct assistance, which often comes bundled with education, could be the cause
of positive outcomes rather than education. Assistance can include financial rewards,
lowered payments, or special loan programs. Credit counselors can intervene with
creditors, lenders, or credit bureaus on behalf of the participant, give the consumer rote
29 Douglas A. Hershey et al., Challenges of Training Pre-Retirees to Make Sound Financial Planning
Decisions, 24 EDUC. GERONTOLOGY 447, 467 (1998).
15
assignments (e.g., "do not sign for this loan because I have determined you cannot afford
it"), or impose self-control devices.30 Although "[t]he first requirement for credit
counseling clients is to cut up all their credit cards and close the accounts," one
frequently cited study claims that a reduction in open accounts is evidence that financial
education is effective. Changes in participants' behavior could be due to the programs'
non educative components, all of which are potential policy tools for improving
consumer welfare but are not financial-literacy education.”31
His final argument is that there is a self-selection bias where participation in financial
education is usually voluntary. Like any other school material, one has to apply themselves into
actually knowing the material to adequately use it to their benefit in the real world. In addition,
an increased effort in learning the material doesn’t necessarily translate to making better
financial decisions in reality. For example, scoring well on a multiple choice test doesn’t mean
they will make the right decisions in growing their money.
He goes on to say that:
“A number of reported studies find that personal-financial-management programs
have no effect on literacy or behavior and a few find small paradoxical results. Data from
the Jump$tart nationwide survey of high school seniors has consistently shown that
financial education does not increase financial knowledge among high-school students
and that students who take a personal-finance course "tend to do a little worse ... than
those who do not."32. Education programs for adults also have produced evidence of null
30 CHANGING FINANCIAL MARKETS AND COMMUNITY DEVELOPMENT: A FEDERAL

RESERVE SYSTEM COMMUNITY AFFAIRS RESEARCH CONFERENCE 183 (Jackson L. Blanton
et al. eds., 2001).
31 . Jinhee Kim et al., Relationships Among Credit Counseling Clients' Financial Well-Being, Financial
Behaviors, Financial Stressor Events, and Health, 14 FIN. COUNSELING & PLAN. 75, 77 (2003)
32 JUMP$TART COAL., 2008 SURVEY OF PERSONAL FINANCIAL LITERACY AMONG HIGH
SCHOOL STUDENTS 2 (2008), available at http://wA.jumpstart.org/fileindex.cfm (follow "2008
16
or paradoxical effects. A study comparing bankruptcy debtors who received financial
training with those who did not found that, once controls for other differences between
the groups were added, the training was associated with a small negative effect on
outcomes.33 A program to teach low- and moderate-income consumers about money
management and Internet banking ascertained one year afterward that "members of the
treatment group were less likely to plan and set future financial goals at follow-up than
they were at baselines," and, compared to the control group, the treatment appeared to
have no effects.34 Other researchers, although not keen to admit it, found evidence that
eighteen months of participation in credit counseling had no effect on financial behaviors.
Analyses of homeownership education have come to mixed and contradictory
conclusions, some of which indicate that the programs analyzed did not produce welfare-
enhancing financial behavior.”35
In conclusion, Financial Literacy Education isn’t effective because of the complexities of
financial tools, the pace of a poorly regulated market, where products are being introduced every
week without regulation, a student’s commitment in mastering the concepts within their classes,
and that realistically financial literacy education is an objective matter that tries to apply itself to
a market that is universally subjective.
7. The Costs of Financial Education
Because of the complexity of Financial Education, it takes many classes to actually
master the subject, which is very costly. The most well-established education program, the
Survey" link).
33 Lewis Mandell & Linda S. Klein, The Impact of Financial Literacy Education on Subsequent
Financial Behavior (Feb. 2008
34 Lisa J. Servon & Robert Kaestner, Consumer Financial Literacy and the Impact of Online Banking on
the Financial Behavior of Lower-Income Bank Customers
35 Lisa J. Servon & Robert Kaestner, Consumer Financial Literacy and the Impact of Online Banking on
the Financial Behavior of Lower-Income Bank Customers
17
National Council on Economic Education, spent $3.5 million directly on its domestic programs,
yet it only equated to 50 cents per student.36 This amount of under financing is well below what
is adequate for an individual to actually learn about financial markets. In addition, the hours
spent teaching these classes are taken away from other valuable classes. The professor goes on to
say that there are many other costs that come with education, such as child care costs for their
children, traveling expenses to get to class, etc. To actually have an individual really understand
the material, it requires an extensive one on one education tailored to the student’s situation and
goals. In other words, they need a financial consultant, which defeats the purpose of financial
literacy since the consultant does all the work.
Not only does it cost money to become educated in Financial Literacy, which is a lot of
money given the extensive amount of classes needed to understand the market, but the person
most likely won’t make the decision to invest in things by themselves anyways. A majority of
individuals who invest in financial products go through a financial advisor, who will charge a lot
for their services or take management fees out of your returns. Because of this, there isn’t a real
need to invest in learning the material yourself. An individual can avoid the time and money
needed to learn, and just use that money to invest in a financial advisor.
All in all, the Professor believes that Financial Literacy Education is useless due to the
ineffectiveness of education, the complexities of the financial markets and its products, and the
extensive amount of studying required to actually master the financial markets. He ends his 300
page essay with, “Consumers can make welfare-enhancing choices, but to be truly autonomous,
those choices must be made in a context that consumers can navigate.”37
8. Conclusion
36 Study of the National Endowment for Financial Education's High School Financial Planning Program
18
Paul O’ Niel, former secretary of the treasury, once said,
“ Financial education can be compared to a road map to the American Dream. I believe
that we need to teach all Americans the necessary tools to read that map, so that they can
reach the Dream.”
Financial literacy can be a great tool for anyone who plan to: mitigate risk in investments,
optimizing returns, or simply understand retirement fundamentals. Through analyzing both sides
of this debate, it was rather clear that the cost was heavily outweighed by the potential for gains.
Knowledge can never do any harm, and it is up to the individual to decide how they use the
newly gained information. As Benjamin Franklin once said, “ An Investment in knowledge pays
the best interest.” For the many individuals that participate in the financial industry, it is of the
utmost importance that an investment in financial knowledge is made as early and as much as
possible. There are a plethora of financial products, currently deployed in the market, which
contain many different potential outcomes based on personal preference. A financially illiterate
individual is forced to put their money at risk, when they decide to seek returns without a full
picture understanding of the financial system. It is purely up to the individual to learn for the
sake of knowledge, and we believe will therefore retain information that is deemed useful.
Those motivated to protect their assets, and produce returns at a high level will seek and retain
this information for proper use. We do agree with Professor Willis, in that financial education
shouldn’t be a government program within schools because students would not deem it useful.
The cheap and inexpensive classes that are currently privatized are sufficient enough for any
individuals who seek financial literacy. Those individuals that seek high returns, mitigated risk
and a clear path to financial freedom will gain and retain the valued information available.
19
Works Cited
Bostic, Raphael and Gabriel, Stuart and Painter, Gary. “Housing wealth, financial wealth, and
consumption: New evidence from micro data.” (2009) Regional Science and Urban
Economics 39. (2009). 79-89.
CHANGING FINANCIAL MARKETS AND COMMUNITY DEVELOPMENT: A FEDERAL

RESERVE SYSTEM COMMUNITY AFFAIRS RESEARCH CONFERENCE 183
(Jackson L. Blanton et al. eds., 2001).
Douglas A. Hershey et al., Challenges of Training Pre-Retirees to Make Sound Financial

Planning Decisions, 24 EDUC. GERONTOLOGY 447, 467 (1998).
Jinhee Kim et al., Relationships Among Credit Counseling Clients' Financial Well-Being,
20
Financial Behaviors, Financial Stressor Events, and Health, 14 FIN. COUNSELING &
PLAN. 75, 77 (2003)
Johnson, Elizabeth and Sherraden, Margaret. “From Financial Literacy to Financial Capability
Among Youth.” Journal of Sociology & Social Welfare. (2007).
JUMP$TART COAL., 2008 SURVEY OF PERSONAL FINANCIAL LITERACY AMONG

HIGH SCHOOL STUDENTS 2 (2008), available at
http://wA.jumpstart.org/fileindex.cfm (follow "2008 Survey" link).
Lisa J. Servon & Robert Kaestner, Consumer Financial Literacy and the Impact of Online
Banking on the Financial Behavior of Lower-Income Bank Customers
Lusardi, Annamaria and Mitchell, Olivia S. “The Economic Importance of Financial Literacy:
Theory and Evidence.” (2014). Web. 29 Nov. 2015
Mandell, Lewis and Klein, Linda S. “The Impact of Financial Literacy Education of Subsequent
Mihalcova, Bohuslava and Csikosoca, Adriana, and Maria Antosova. “Financial literacy-- the
urgent need today.” Procedia- Social and Behavioral Sciences 109. (2014). Web. 29
Nov. 2015
Willis, Lauren E. “Against Financial Literacy Education.” Loyola University Law School, Los
Angeles Legal Studies Research Paper No. 2008-13. (2008). Web. 29 Nov. 2015
21

Financial Literacy

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Literacy

Uploaded by

Copyright:

Available Formats

Financial Literacy

Report Distributed December 8, 2016

The Education of Financial Literacy…………………………………………………… 3

1. What is Financial Literacy?........................................................................................ 4

2. The Importance of Financial Literacy……………………………………………… 5

3. The Current State of Financial Literacy…………………………………………… 7

4. Financial Literacy Among the Young………………………………………………. 9

5. Against Financial Literacy Education…………………………………………….... 13

6. Does Financial-Literacy Education Work?................................................................. 14

a. Is Financial-Literacy Education Effective?.............................................. 15

7. The Costs of Financial Education…………………………………………………….. 18

“Whereas quality personal financial education is essential to ensure that

workers, heads of households, investors, entrepreneurs, business leaders, and citizens;

Whereas increased financial literacy empowers individuals to make wise financial

about personal finances.”1

1. What is Financial Literacy?

2. The Importance of Financial Literacy

people, in conjunction with political dominance of an ideology favoring deregulation. The

consumers: mitigate risks from an ever-changing deregulated financial market, optimize

3.) The Current State of Financial Literacy

ability to manage their debt.13

4. Financial Literacy Among the Young

to poor credit scores and possible bankruptcy.15

7% are considered financially literate.

financial decisions in adulthood has led to a groundswell of interest in youth financial

5. Against Financial Literacy Education

Angeles, states his argument:

increased consumer welfare, the predicate belief in the effectiveness of financial-literacy

and financial-services firms in resources with which to reach consumers.” 24 Basically, he

effective financial-literacy education should be replaced by a search for policies more

the viability, and the costs of Financial-literacy education.”

6. Does Financial-Literacy Education Work?

something as simple as a single defined-contribution retirement plan can contain dozens of

financial well-being today.”28

Is Financial-Literacy Education Effective?

of financial literacy education:

effective. Most rely on participant self-assessments of whether a course changed their

from a similar bias because participants are likely, intentionally or unconsciously, to

"learned" from a class and to remember having taken one at all”.29

education, but “direct assistance programs”, such as special loan programs:

education is effective. Changes in participants' behavior could be due to the programs'

consumer welfare but are not financial-literacy education.”31

they will make the right decisions in growing their money.

He goes on to say that:

“A number of reported studies find that personal-financial-management programs

30 CHANGING FINANCIAL MARKETS AND COMMUNITY DEVELOPMENT: A FEDERAL

outcomes.33 A program to teach low- and moderate-income consumers about money

eighteen months of participation in credit counseling had no effect on financial behaviors.

Analyses of homeownership education have come to mixed and contradictory

enhancing financial behavior.”35

In conclusion, Financial Literacy Education isn’t effective because of the complexities of

a market that is universally subjective.

7. The Costs of Financial Education

Because of the complexity of Financial Education, it takes many classes to actually

literacy since the consultant does all the work.

those choices must be made in a context that consumers can navigate.”37

reach the Dream.”

CHANGING FINANCIAL MARKETS AND COMMUNITY DEVELOPMENT: A FEDERAL

Douglas A. Hershey et al., Challenges of Training Pre-Retirees to Make Sound Financial

JUMP$TART COAL., 2008 SURVEY OF PERSONAL FINANCIAL LITERACY AMONG

You might also like