Financial Education
  Part 1: Financial Education, Financial Training and Students

As employers have shifted from offering employer-driven defined-benefit retirement plans to employee-directed defined-contribution plans, many individuals have of necessity assumed greater responsibility for planning for their financial needs in retirement.  Many employers have instituted training seminars to help employees assess their needs and evaluate their options for the future.

A study by Fannie Mae found that employers most often initiated financial education for reasons associated with their 401k programs—to increase participation and contribution levels, to comply with related regulations, and to avoid potential liability for losses.¹ The study profiled programs on long-term financial and retirement planning at Weyerhaeuser Company and United Parcel Service (UPS). The Weyerhaeuser program was begun in 1984, and the UPS program in 2000; both are strongly supported by management and are offered at regular intervals.  The programs consist of one- or two-day workshops tailored to particular age groups. Employees receive extensive resource materials, including workbooks that incorporate explanations of the companies’ benefits in the context of broader financial planning strategies.  The Weyerhaeuser program takes a holistic approach, covering non-financial topics such as health and quality of life in the workshops. The UPS program augments written resource materials with a web-based service to help employees develop a personal financial action plan and computer software to provide information on such topics as budgeting, managing debt, saving, insurance, and wills.

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Employee response to workplace financial education programs and the results of studies of the influence of such training on employee financial behavior have generally been favorable.  One study found that employees who attended training workshops subsequently increased their participation in 401k plans.²  Another study drew a similar conclusion, with more than half of those participating in counseling sessions and workshops changing at least one financial behavior.³ In a study evaluating the effectiveness of financial education offered by a chemical production company, 75% of employees reported deriving a sense of benefit from workplace-sponsored training; they believed that they had made better financial decisions after attending the workshop and were overall more confident in making investment decisions.⁴  Other researchers conducted a telephone survey of a national sample of individuals aged thirty to forty-eight to examine the effects of employer-based financial education on savings, both in general and for retirement.  Retirement accumulation, by nearly all measures, was found to be significantly higher for respondents whose employers offered financial education.  In addition, rates of participation in 401k plans for both respondents and spouses were higher in the presence of employer-sponsored financial education.  The study found a significant relationship between financial education and the rate of total saving; however, there was essentially no relationship between financial education and total wealth accumulation.⁵

Studies of workplace-sponsored financial training have also focused on benefits to employers.  The study at the chemical production company, for example, found that financial wellness was positively correlated with worker productivity (as measured by supervisors’ performance ratings) and worker health (as a function of absentee records).⁶

Results of Surveys of General Financial Training Programs

While studies generally find a positive correlation between financial training and the achievement of specific goals, the results of surveys measuring the acquisition of more general, more comprehensive financial literacy are less clear cut. A 1995 telephone survey of a nationally representative sample of individuals aged thirty to forty-nine to measure the long term effects of financial curricula in high schools across the country found that state-mandated financial education resulted in both increased exposure to such information and improved asset accumulation when participating students reached adulthood.⁷

A more recent study, based on data from the 1999 Freddie Mac Consumer Credit Survey, concluded that specific and detailed knowledge of financial affairs had little effect on behaviors and outcomes, and that confidence and a broad understanding were more important predictors of successful financial outcomes.⁸  The study also found that consumers appear to benefit from practical and applied learning: The major source of learning for all groups was a difficult financial experience. The researchers concluded that teaching financial literacy in the abstract appears to be ineffective and that providing consumers with ready access to information on an ongoing basis may better help households having minor financial difficulties avoid exacerbating their situation through unproductive behaviors.

Other surveys have sought to measure the short term effects of financial training targeted at secondary school students. One such survey was a 1997–98 evaluation by the National Endowment for Financial Education (NEFE) of its High School Financial Planning Program.⁹  The survey compared students’ responses to questions about their financial behaviors, financial knowledge, and confidence levels in managing financial matters before and after participating in the program. Nearly 30 percent of the students reported that they started saving after participating in the training, and 15 percent indicated that they began saving more. In addition, 37 percent of the students stated that they had better skills for tracking spending, 47 percent believed that they were more knowledgeable about the cost of credit, and 38 percent indicated that they were both better informed about investments and more confident about managing money after participating in the program.

While the NEFE survey results indicate that general financial literacy training can be useful for students, at least for a short period after the training, scores on a test administered to high school seniors by the Jump$tart Coalition, a nonprofit financial education advocacy group, present a less clear view of the relationship between training, knowledge, and confidence. Over a period when attention to public school training in personal finance was increasing, average scores on a multiple-choice test of seniors’ knowledge of the basics of personal finance were declining—from 57 percent in 1999 to 52 percent in 2000 to 50 percent in 2002.¹⁰ In fact, students in the 2002 study who had received an entire semester of training scored a bit worse on the test than those who had not, and students in states having a statewide training requirement scored worse than those in states having no requirement. Notably, in the 2002 survey, students who had participated in an interactive stock market game as part of their training scored better on the survey (52 percent) than did students overall and better than those who had received other types of training. Despite the low average score, 65 percent of the students tested in 2002 indicated that they felt ‘‘somewhat sure’’ or ‘‘very sure’’ of their ability to handle their finances.

Source: Federal Reserve Bulletin November 2002, Pages 451 - 453

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