Academic journal article The Journal of Consumer Affairs

Financial Education and Counseling-Still Holding Promise

Academic journal article The Journal of Consumer Affairs

Financial Education and Counseling-Still Holding Promise

Article excerpt

This article reviews the evaluation literature on financial education and counseling for adults in order to synthesize implications for research and practice. Most evaluations report positive impacts, but the findings are often small when compared with valid comparison groups. Many evaluations use self-reported measures, measure outcomes over short time periods and cannot rule out selection bias due to nonrandomized designs, all of which may bias results. Although future research and practice in this field hold promise, more attention to theory-based evaluations and further investment in randomized field experiments may be fruitful.

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The rationale underlying most financial education and counseling programs is that consumers systematically lack financial information and that they will make "better" financial choices given exposure to added information. This rationale assumes that certain information failures and constraints result in inefficient outcomes and that, given fuller information, consumers will make different financial choices. Of course, consumers face more than informational barriers when they make financial decisions. For instance, consumers may lack self-control or exhibit other behavioral biases that education and counseling may not enable them to overcome. However, all else equal, financial education and counseling hold the promise of improving financial knowledge and facilitating behavior change.

This article reviews and synthesizes forty-one evaluations of financial education and counseling programs in order to shape future areas of inquiry among researchers and inform new approaches among practitioners. The goal was to ascertain what, if any, effects on knowledge and behavior can be derived from past evaluations. This review offers insights for individuals and organizations in this field as well as provides cautions for researchers designing and implementing evaluations. The four sections of this article: (1) provide an overview of existing articles that review the evaluation literature in the financial education and counseling fields; (2)describe the research methodology used in this review; (3) categorize the evaluations into six major topical areas; and (4) highlight the implications of the synthesized findings for financial educators as well as for researchers.

It is important to note that the distinctions between financial education and counseling are often unclear. Financial counseling generally refers to one-on-one advice or consulting. Financial education typically refers to programs that provide financial information. However, counseling may incorporate educational topics and materials, and participants in financial education programs may have specific issues or personal questions that the educator or their peers address. Keeping in mind that counseling and education overlap in practice, this review defers to the terms the authors of each evaluation used to refer to specific programs.

PRIOR LITERATURE

Multiple articles include careful literature reviews of financial education and counseling evaluations, but none provides a comprehensive assessment of the evaluation literature. Furthermore, none have categorized and synthesized prior studies to the degree this article attempts. However, several literature reviews served as a foundation for this review. One of the most comprehensive literature reviews is Hogarth's (2006) review of twenty-three published and unpublished studies. Hogarth was cautiously optimistic about financial education's impacts. Similarly, Martin's (2007) Federal Reserve working paper concluded that evidence of financial education's benefits is promising but far from definitive.

Other researchers were less optimistic about the benefits of financial education and counseling and have been critical of the state of the evaluation literature. Hathaway and Khatiwada (2008) suggested that rigorous evaluation is lacking and that there is little evidence that financial education and counseling affect behavior. …

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