Does Financial Education Work? The Evidence on Literacy Programs

Abstract

Financial literacy programs — mandatory high school personal finance courses, workplace financial wellness training, and government-sponsored financial education — are widely promoted as solutions to poor financial decision-making. The evidence that these programs change actual financial behavior is sobering: most evaluations find small or no effects on savings, debt management, or retirement preparedness. The gap between financial knowledge and financial behavior is larger and more persistent than policymakers have assumed.

Background

Financial literacy has become a policy priority in most wealthy countries. In the United States, 26 states require high school students to take a personal finance course. The Consumer Financial Protection Bureau runs financial education programs. Employers offer financial wellness benefits. The premise is straightforward: if people understand compound interest, the benefits of retirement saving, and the costs of high-interest debt, they will make better financial decisions. Whether this premise is correct is an empirical question.

The Evidence

A comprehensive meta-analysis found small effects overall. Kaiser and Menkhoff (2017, Journal of Economic Literature) reviewed 126 experimental and quasi-experimental evaluations of financial education programs and found a positive but modest average effect on financial literacy (knowledge). Critically, the effect on actual financial behavior — not just knowledge — was smaller still, and many programs designed primarily to change knowledge showed negligible behavioral effects. Programs with longer duration and more engagement showed larger effects.

Mandated high school personal finance courses show mixed results. Bernheim, Garrett, and Maki (2001, Journal of Public Economics) found that students from states with mandatory personal finance education saved more as adults — an influential positive finding. However, subsequent evaluations using better-identified natural experiments have been less optimistic. Cole, Paulson, and Shastry (2016) used variation in state mandates and found no effect on savings, investment, or wealth accumulation. Ambuehl, Bernheim, and Lusardi (2022, Review of Economics and Statistics) found that financial education improved knowledge but did not translate to better financial decisions in incentivized experimental tasks.

Just-in-time education shows more promise than school-based programs. Research in behavioral economics suggests that financial education is most effective when delivered close to the moment of relevant decision-making. A financial counseling session before signing a mortgage improves mortgage terms chosen; a retirement planning workshop delivered a week before open enrollment increases 401(k) participation more than a generic financial literacy course delivered years earlier. This "just-in-time" finding suggests that the problem with financial education is not that it cannot work, but that it is often poorly timed.

Behavioral interventions often outperform education. Nudges — automatic enrollment in retirement plans with opt-out rather than opt-in, automatic escalation of contribution rates, simplified forms — consistently show larger effects on financial behavior than comparable education programs. Thaler and Benartzi (2004, Journal of Political Economy) found that automatic enrollment and automatic escalation (Save More Tomorrow) dramatically increased retirement savings with no financial education required. This suggests that the bottleneck is behavioral inertia, not knowledge.

Low-income populations may benefit more from structural constraints. Programs that add friction to borrowing or automatically direct tax refunds to savings accounts show stronger effects among low-income populations than voluntary financial education programs. This pattern suggests that for financially stressed households, the relevant constraint is income and structural access, not financial literacy.

Financial literacy itself is low across populations. Lusardi and Mitchell (2014, Journal of Economic Literature) documented that financial literacy is low in the United States and most other countries, even among educated populations. But low financial literacy appears to coexist with reasonable financial decision-making in many domains, suggesting that experiential learning, social norms, and simplicity of products matter as much as explicit financial knowledge.

Counterarguments

Long-term effects may not be captured in evaluations. Most studies track participants for one to three years. Financial education's effects on retirement savings or wealth accumulation may take decades to emerge, and short-run evaluation may systematically understate long-run impact.

Program quality varies enormously. A mandatory nine-hour high school personal finance course is not equivalent to a well-designed, interactive, just-in-time financial counseling program. Averaging across these produces misleading conclusions about financial education as a category.

Financial literacy may protect against fraud and exploitation. Even if financial education does not substantially increase savings rates, it may protect vulnerable populations from predatory lending and financial fraud — benefits that are harder to measure.

What We Can Conclude

The evidence does not support confident claims that generic financial literacy programs change financial behavior. Most rigorously evaluated programs improve financial knowledge modestly but show small or no effects on actual financial decisions. Structural interventions — automatic enrollment, opt-out rather than opt-in defaults, automatic savings escalation — consistently outperform education in changing behavior. Financial education works best when it is specifically targeted, timely, and accompanied by structural supports. The policy implication is not that financial education is worthless but that behavior change requires more than information.

References

• Kaiser, T., & Menkhoff, L. (2017). Does financial education impact financial literacy and financial behavior, and if so, when? World Bank Economic Review, 31(3), 611–630.
• Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5–44.
• Cole, S., Paulson, A., & Shastry, G. K. (2016). High school curriculum and financial outcomes: The impact of mandated personal finance and mathematics courses. Journal of Human Resources, 51(3), 656–698.
• Thaler, R. H., & Benartzi, S. (2004). Save More Tomorrow: Using behavioral economics to increase employee saving. Journal of Political Economy, 112(S1), S164–S187.
• Bernheim, B. D., Garrett, D. M., & Maki, D. M. (2001). Education and saving: The long-term effects of high school financial curriculum mandates. Journal of Public Economics, 80(3), 435–465.