Can Financial Education Provide a Net Value?

Last edited 12/22/2016

Ideally, we would help people develop an economic understanding sometime before they get their first credit card, and before they take on education debt, or a mortgage, or car loan or lease.

Some studies have shown that numeracy skills developed early in life positively impact later financial behaviors, and I suspect that research in early childhood education, developmental psychology, and other fields would help to explain the reasons.


In a 2012 Organisation for Economic Cooperation and Development study of nearly 30,000 15-year-olds from 18 countries, American students fall in the middle of the pack, performing just behind Latvia and just ahead of Russia.

The Council for Economic Education 2016 Survey of the States shows that there has been no improvement in K-12 economic education in recent years, and slow growth in personal finance education.

Harvard Business School and Wellesley College researchers noted that, compared to high school courses alone, alternative methods such as on-line educational videos, information at POS or financial decision, and financial counseling may be more cost-effective and also more effective overall.


From 2007-2008, a mandatory, eight hour U.S. Army basic personal finance course was introduced about two months into service.  In 2015 a U.S. Military Academy researcher followed up and concluded that financial education, coupled with assistance and advice, can improve financial outcomes in some areas.  He noted that, as a captive audience and recent military enlistees, the students may be “better compliers”.  Also, many are living alone for the first time and, new to the labor force, may not have developed bad habits yet.

He demonstrates that the program was cost-effective and believes that the findings might be usefully applied to other new working populations such as in apprenticeship programs, public sector new-hires, nontraditional college students, and to other service members.

Fifty-one  postsecondary institutions from 23 states plan to participate in a U.S. Department of Education experiment to test the effectiveness of loan counseling more often than the current one-time entrance and one-time exit counseling.  This initiative should show whether additional counseling will improve student outcomes, including program completion and loan repayment.

A May study by Experian found that 36% of soon-to-be college grads wish they’d been able to take a college course in credit and debt management, and 37% said the same about credit scores and reports.  When asked to rate the kind of access to credit and personal finance information on campus on a scale ranging from “poor” to “excellent,” 48% gave their schools only a poor or fair rating.

Many colleges do have personal finance courses and, though these courses might be fun for business majors, many appear more suited to them than to the general consumer population.

High student loan debt (and default) has been in the news for quite a while, and the 2016 graduate reportedly has $37,172 in student loan debt, up 6% from last year.  Some have greater than $100,000, but those who are struggling the most are those with perhaps just a few thousand, who did not complete a program of study.

Note that even commuting students borrow for “living expenses”, and there are students even in community colleges – known for low costs and two-year degrees and certifications in high-paying fields – who have tens of thousands in student debt, and still no degree.

Indiana University and the Ohio State have emerged as Midwestern leaders in student financial education.  A two-year institution would likely have a tougher time organizing and maintaining a peer mentoring program, but might successfully expand financial education in its dual credit courses, workforce outreach, and career services.


In a recent George Washington University (GWU) study, only 25% of Millennials demonstrate even a basic level of financial knowledge.  Nearly half could not come up with $2,000 in the next month if needed, and for short-term liquidity rely on high-priced alternative financial services – even those who have bank accounts and credit cards.  More than half feel they have too much debt but only 12% seek professional advice about managing it.

A GWU review of S&P’s 2014 Global Financial Literacy Survey of 150,000 adults across 148 countries determined that 57% of Americans are financially literate.  This is lower than in Australia, New Zealand, Canada, Israel, and several European countries.  But worldwide, only one in three adults is considered literate and we did trounce Afghanistan, Albania, Bangladesh, Haiti, Somalia, and quite a few others among the 148 countries surveyed.

In August of this year, the Financial Industry Regulatory Authority Investor Education Foundation released the results of its third National Financial Capability Study.  Despite the fact that we each continue to rate our own financial knowledge highly, the percentage of respondents who are able to correctly answer at least four of the five basic  literacy quiz questions shows a slight downward trend since 2009.

Frankly, given the vast array of complex payment, savings, credit, insurance, and investment options – along with the endless cascade of regulations – it’s hard for even the experts to keep up.

Last year, GWU researcher Annamaria Lusardi noted that financial literacy has implications that apply to individuals, communities, countries, and society as a whole.  She adds that financial education has to go beyond schools and that the workplace is an important venue.


In a 2014 issue of the Journal of Financial Counseling and Planning, researchers noted that money worries are the primary cause of stress.  Moreover, that the problem isn’t always inadequate income, but a lack of the financial management knowledge and the skills needed for effective allocation of available resources.  They concluded, ” . . . the workplace is a logical place to offer financial education . . . ”  In any sizable workplace there is a wide range of incomes, ages, financial experiences, and life circumstances, so this one does make sense.

There are terrific career training programs, and the recent U.S. Department of Labor’s “America’s Promise” program has the potential to increase our production for domestic consumption and even more importantly for export, desperately needed if we are to remain viable in the global market.  But at the household level – and eventually at the more macro-levels – that “dream job” won’t solve the problem of ineffective money management.

52% of respondents to the 2016 PricewaterhouseCoopers (PwC) Employee Financial Wellness Survey reported being stressed about their finances.  40% said that they have difficulty meeting their household expenses on time each month, up from 33% in 2015.  51% consistently carry balances on their credit cards (47% last year).  The percentage of employees who find it difficult to make their minimum credit card payments on time each month increased among all generations and across all income levels; even among those earning $100,000 or more, 27% find it difficult.

Millennials are more likely than older employees to say that their productivity at work has been impacted by their financial worries and they’re also more likely to have missed worked occasionally due to their financial worries.

Many employers provide information about retirement planning and investing, but far fewer offer education about basic concepts such as spending plans, saving, risk management, and consumer protections.  Just-in-time counseling is appropriate when preparing for such as childbirth, marriage, separation, reconciliation, divorce, home purchase, change of income, and emergency withdrawals from retirement accounts.  Of course, an occasional checkup doesn’t hurt either; crisis prevention is preferable to intervention.


Governments want to increase financial inclusion, but nationwide housing prices are now reportedly back to pre-2008 levels and home ownership is at a five-decade low.

In 2005, FRB Chairman Alan Greenspan warned us to keep an eye on those “exotic mortgages”.   In 2010, U.S. Rep. Barney Frank disclosed, “. . . it was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.”  In 2011 Ben Bernanke told us that financial education must be a life-long pursuit.

A few years from now will they once again be telling us, “Nobody saw it coming?”

Over the years, financial experts have attempted to distinguish between “good debt” and “bad debt”.  I would suggest borrowing only for well-considered investment purposes, only when needed, and only as much as needed.

Nevertheless, high loan-to-value mortgages, sub-prime credit cards and auto loans are making a resurgence, and Federal Reserve Bank of New York economists report that from 2003 to 2015, debt held by borrowers between the ages of 50 and 80 increased by roughly 60%.

Most agree that credit card debt is “bad” debt.  Yet the American Bankers Association reports that credit card “revolvers”, those who carry balances from month to month, make up 42.5% of all cardholders in the second quarter of 2016; subprime credit card accounts now comprise roughly 20% of all accounts.

In 2005, bankruptcy judge John Ninfo listed his Top 20 Mistakes Made by People Who Have Filed for Bankruptcy; 11 years later we are repeating them.


A high income does not assure wealth accumulation, and a moderate one does not preclude it.

47% of respondents to a 2015 Federal Reserve study said they would find it difficult to cover a $400 emergency expense.  A 2016 poll conducted Associated Press-NORC Center for Public Affairs Research found that 2/3 of Americans would have difficulty coming up with $1,000; this includes 3/4 of people in households making less than $50,000 a year and 2/3 two-thirds of those making between $50,000 and $100,000.  38% of households making more than $100,000 say they would have at least some difficulty.

But even when we do finally decide to take charge, it’s hard to know where to turn.  Google “debt relief” for a feel for what I mean.  Robocalls, TV ads, phone book ads, direct mailings . . . how many are legitimate?

Financial problems afflict the married, single, widowed, and divorced, of any of age, income level, education level, or political affiliation.  They lead to feelings of helplessness and hopelessness, and have been linked to embezzlement, family discord, lowered worker productivity, and suicide.

Located between Chicago and Indianapolis, our county is the economic and social hub of seven surrounding counties.  We are home to a Big Ten university, and have a campus of the nation’s largest singly-accredited statewide community college system.  We also have one of the state’s six federal bankruptcy courts, yet the nearest in-person bankruptcy counseling and debtor education requires a 70-mile drive.

In 2010, our only nonprofit, full-service debt management organization closed, and its client accounts were transferred to a larger organization more than 100 miles away.  Soon after, this company was absorbed by an even larger one based several states away.  Today, only three agencies affiliated with the National Foundation for Credit Counseling offer in-person counseling in the state.

In our community there are people with six-figure incomes who have six-figure credit card debt.  There are low income people who (also) send hundreds per month to a far-away credit card company, and then see no alternative but to accept public and private assistance for such as food, housing, and utilities.

It’s not going out on a limb to predict that this month Americans will spend more than is good for them.  Then, in the spring of 2017, debt counselors – both legitimate ones and fraudsters – will experience a spike in contacts from people at the end of their ropes.

Is financial education, coaching, and counseling throughout the lifespan expensive?  Yes, it can be.  But it’s exceeding clear that we’re already paying dearly for the lack of it.

I look forward to hearing your comments and suggestions.


Burnett is a personal finance instructor, business-friendly consumer advocate, and consumer behavior enthusiast.  He has worked in the nonprofit and for-profit sectors, with specific training and experience in bankruptcy counseling, credit counseling, credit education, crisis intervention, housing counseling, human resources, and real estate.

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