This is the second in a series of four posts summarizing the findings of a 2012 review of recent literature on the value of financial education to financial literacy and economic outcomes. The complete series will be published on the Bank’s Education Resources page.
If you had to guess how most U.S. college students prefer to learn about personal finance, what would you say? It stands to reason that the term “digital” might be somewhere in your answer, no? Well, a 2009 study found that even within this technologically savvy demographic, face-to-face financial education was favored by 57% of respondents (Cull, 2011). This implies that the ability to ask questions and interact with teachers should not be undervalued. While classroom interaction is preferred, the labor and costs associated with this method of delivering financial education are often prohibitive.
The question of delivery method then becomes—as things often do—a question of efficiency. To answer that question, it’s helpful to look at two things: the mode of instruction, or the literal mechanism by which the information is relayed (e.g. classroom, webinars, etc.); and the content of instruction (e.g. the packaging and targeting of information for consumption by the desired demographic). Considering that the goal of financial education is to increase positive financial outcomes, practitioners must determine what blend of these aspects of delivery yields the biggest bang for their buck.
On the content side, recent literature suggests that, for most people, the return on investment of traditional, principles-based education is diminishing (Drexler, 2010). Perhaps this indicates that a more practical education strategy today might focus on building capability, rather than on requiring numeracy. Keeping the curriculum simple and using “rule-of-thumb” approaches could also help lower organizational costs by eliminating some time that practitioners currently spend covering levels of detail that the average individual will tend not to apply in real life.
Another content point—pinning down the appropriate target audience for a certain set of resources—is critical to their efficacy. For instance, some programs within the Treasury Department’s BankOn Initiative are making their products comply with Islamic banking standards for high Muslim populations, as well as other key constituencies like people with disabilities, rural residents and youth groups. The declining returns on education are magnified when materials are not ideally focused. To maximize financial outcomes, practitioners should first determine whom they serve and then develop materials that are well suited for those audiences.
In addition to the “who” of financial education, the question of “when” is another important aspect in shaping the content of resources. Framing and distributing information based on age or life stages increases the utility of each individual resource. Bundling related content aimed at life events, like home buying or retirement, is an inexpensive way for organizations to ensure their offerings have the most impact.
Partnerships also greatly enhance the effectiveness of financial education. Treasury’s BankOn initiative and United Way’s Integrated Service Delivery (ISD) strategy (which involves the seamless delivery of services such as income support enrollment, case management, workshops, etc.) both stress the importance of rallying communities and organizations to tackle the problem of financial instability. In particular, United Way’s partnership with Bank of America to explore the ISD approach to improving financial outcomes produced a report that outlines the strengths and pitfalls of many common operating platforms used by organizations—a valuable resource for practitioners researching delivery strategies.
Finally, besides the cost savings of bringing many organizations together to work toward a mutual goal, partnerships can offer other valuable benefits to financial education. For instance, one of the biggest problems plaguing financial education practitioners is an inability to measure the success of their clients, and thus, their own programs. With one organization managing multiple services, tracking specific aspects of clients’ behavior—presently a costly and difficult task—would become standardized. The unprecedented access to cohesive data resulting from this centralization could lead to meaningful improvements in many financial education programs.
Data tracking aside, bundling and single-agency management of multiple financial services and resources could substantially improve the convenience and accessibility of financial education and subsequently increase program participation levels.
This research was conducted by Michael Corbett of the Boston Fed, who cowrote the series with Suzanne Cummings.