The Real Cost of Financial Education
While for many parents financial education can be quite appealing, the impact of that kind of courses has been debated for quite long already. Now, however a recent research suggests that education on personal-finances taken during high school actually does little to improve financial choices undertaken later on in life.
Because of this, many financial experts are starting to lose interest in what financial education has to offer and in fact are now pushing for public policies that actively regulate and guide people to choose better when it comes to their finances and when considering personal loans for example. However, right at the same time, school districts keep implementing new programs for financial education still believing that they will help students better manage their finances and personal loans in the future.
To settle this wrong belief once and for all, the National Bureau of Economic Research released a paper not too long ago called “Financial Literacy, Financial Education, and Economic Outcomes”. The paper thoroughly analyses several studies on the impact of financial literacy and states in very conclusive manner that there are definitely more efficient ways to help people take better decisions about their finances.
To back up the paper mentioned above, research conducted throughout the years has continuously confirmed that U.S. people in tis majority are simple unable to answer even basic financial questions about compound interest, personal loans, rates of return and so on. If anything, this at least makes it clear that it is not possible to determine without a doubt that financial education actually improves financial decision-making. In fact, countless studies keep finding that there is actually no relationship between financial education courses and actual financial literacy.
With such inconclusive findings, many authors and financial experts started to suggest that the government would benefit better by focusing on other methods to help people choose better when it comes to their finances or when considering personal loans. Furthermore the government could also implement other options, like public policies that offer incentives for people who make smarter choices.
One fine example of helpful public policies are easier-to-understand disclosures on all popular financial services and products like personal loans, making them easy to get the grasp of by simplifying fee structures and providing incentives that inspire consumers to act.
Despite all this however, interest in financial education remains very high, especially nowadays, after the country face one of its hardest financial periods in history. In fact, thousands of consumers acquired mortgages and applied for personal loans even if they couldn’t afford them just because they didn’t fully understand their terms and conditions. On top of that, and to make matters worse, U.S. citizens are still affected by low retirement-savings rates, which in turn makes their debt level even higher.
For the non-believers ones, other clear signs of poor financial decision-making are: Only but a small group of employees who are actually eligible for employer matches on retirement savings do take advantage of them. And even worse, most consumers end up choosing high-fee funds despite in many cases having option to select ones with lower-cost.
It is in consideration of all this that financial experts advise caution if undertaking financial education courses, since certain methods taught tend to focus more on “rules of thumb” rather than trying to apply more practical teachings to really affect learning in a positive way.