This is the third 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.
It’s no surprise that the concept of measuring financial literacy and the interplay between the many factors that affect financial outcomes is something that continues to plague financial education practitioners and researchers. Here are some thoughts from recent literature on measuring success and some ideas from organizations whose efforts focus on encouraging constructive financial behaviors.
This paper by Sandra Huston details the difficulties of measuring success within the financial education landscape. Huston conducted a meta-analysis of over 70 financial education studies in which she found that a majority (72%) did not even offer a definition of financial literacy. Of the few studies that did, only two focused on both ability and knowledge and pointed to outcomes—namely, lifelong financial stability. This lack of consensus is one of many things inhibiting the collaboration needed between organizations for efficient measurement of financial literacy efforts.
Huston does identify four main content areas emphasized by organizations in her review. The studies vastly differed on the content programs offered and on the specific mix of topics, but these four areas were essentially covered in all of them:
- Money Basics – the time value of money, purchasing power, personal accounting;
- Borrowing – bringing future resources to the present (credit cards, mortgages);
- Investing – delaying the use of present resources for future consumption (savings accounts, stocks, etc.);
- Protecting Resources – risk management and insurance products.
The general disconnect among organizations that is reflected in Huston’s study emphasizes the importance of building partnerships. A report on United Way’s Integrated Service Delivery (ISD) offers financial education practitioners useful lessons on partnering for success. The report highlights common operating models that bring together different types of institutions to efficiently serve populations in need of assistance with personal finances.
The importance of holistically serving individuals is another theme of the report, which suggests that practitioners combine services from two or three core areas. These areas could include employment and education services, income and work supports, financial education, and asset-building services. When thoughtfully coordinated and administered sequentially, such service “suites” could yield concrete progress for program end users. For example, clients could complete job training, enroll in public benefits, and subsequently attain stable employment—after which they could begin to address debt or credit issues. Once basic financial stability was achieved, clients could identify and begin to work toward more long-term financial goals.
By centralizing a diverse array of services, organizational partnerships could play a key role in the ultimate success of financial education efforts. Data tracking standards would naturally evolve from consolidation of programs, and providers would be able to more easily and accurately measure successes and failures. Such consolidation should lead to more effective education and meaningful improvements in financial outcomes for program clients.
Although neither program was included in Huston’s study, United Way’s ISD and the Treasury Department’s BankOn Initiative demonstrate good models for providers trying to assess their clients’ outcomes. Both define specific outcome indicators, so they can measure when goals are reached. The point is not which indicators they use—these will vary among organizations according to their unique clienteles—the takeaway is that to be successful, organizations must first define what success looks like.
In the long run, more research is needed on a whole range of issues, but without widespread discussion and consensus on how to effectively measure financial outcomes, many important questions will go unanswered, such as:
- How important is numeracy to outcomes? (See Post I, “Less Is More,” if you think the answer is straightforward.)
- How could a “community” of financial education organizations and providers implement standardized metrics?
- How can today’s evolving technology be used to help guide and facilitate better financial outcomes?
Through continued study, accurate measurement and benchmarking of data collected on these and other issues, financial literacy efforts could be strengthened to a level that consistently improves the financial outcomes of target populations.
This research was conducted by Michael Corbett of the Boston Fed, who cowrote the series with Suzanne Cummings.