A Modest Victory in Financial Education

With so many Americans in the dark about how to prepare for retirement, educating them about why it’s critical to save seems an obvious way to tackle this problem. But very few solid studies prove that financial education actually works.

This field research should be counted as a positive result for a modest, low-cost financial education program.

Carly Urban at Montana State found that tellers and other low-level employees working at 45 randomly selected credit unions around the country clearly made progress after spending just 10 hours in an online financial education program. The information-based program required the workers to do some reading and walked them through specific examples and scenarios they might face.

Their improvements weren’t limited to increasing their knowledge of finances and retirement saving either. They also saved more, Urban said while presenting her findings at a webinar sponsored by the Center for Financial Security at the University of Wisconsin.

In the fall of 2009, the credit union employees completed the online education on the basics of everything from financial planning and investment risk to saving for college and working with a financial adviser. They were allowed to choose how much time to spend on each of 10 modules, and their employers let them take the courses at work – rather than use up valuable free time.

The employees – and a control group of workers who didn’t take the online course – were surveyed and their financial accounts were checked prior to the online modules. After completing them, the survey and account checks were repeated.

Compared with the control group that didn’t take the course, the researchers found that those who did were 10 percent more likely to contribute what was required to get the credit unions’ 3 percent matching contribution, bringing their total contributions up to $125 per month. Also included in the workers’ “modest, but non-trivial” gains, Urban said, was that there were no increases in bad behaviors, such as triggering late fees on bank accounts or credit cards.

The credit union employees also personally felt they were doing more, based on self-assessments. Those who said they were saving in an IRA increased from 52 percent to 58 percent of the participants, and the share using a budget rose from 42 percent to 48 percent.

“A lot of evidence says financial education doesn’t work,” Urban said, arguing that researchers need to think harder “about what education works and for whom.” Those in her study earned between $45,000 and $50,000, and just one in three had a college education. The people in the study were mostly white women who owned homes and had children.

She considers this modest experiment a success for three reasons. First, the results are reliable because the experiment had a control group. Second, a 10-hour, on-the-job course is superior to the one-shot tutorials offered by most human resource departments, which focus on things like how to sign up for a 401(k) or where to log in for the investment options, she said.

Finally, a program like this could be implemented at relatively low cost to employers. Programs that send workers off in a better direction should be counted as progress.

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