Academic journal article The Journal of Consumer Affairs

Financial Education Interventions Targeting Immigrants and Children of Immigrants: Results from a Randomized Control Trial

Academic journal article The Journal of Consumer Affairs

Financial Education Interventions Targeting Immigrants and Children of Immigrants: Results from a Randomized Control Trial

Article excerpt

We document that immigrants in the United States differ from natives in several aspects relevant for their financial decision making. Based on these differences, we designed novel financial education materials targeted at US immigrants and their children and evaluated their effectiveness using a randomized control trial. To the best of our know ledge, this is the first rigorous evaluation of financial education programs targeted at this population. Compared to a control group, the groups that received the one-time educational intervention were more likely to correctly answer financial knowledge questions immediately after the intervention. The estimated effects of this one-time intervention on know ledge were large, but most of them faded away after six months. Moreover, we find little effect of the treatments on intended financial behavior measures, both immediately and six months later. Our results point to the efficacy of this type of educational material in informing immigrants and their children about important financial information that they are unfamiliar with, including information related to their immigrant status. However, they also suggest that a priority for future research should be to test whether repeated opportunities for learning can increase financial know ledge retention and lead to behavior change.

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Today, one out of every eight individuals living in the United States was born abroad. Moreover. 82% of American population growth between 2005 and 2050 will be due to immigrants arriving during this period and their US-born descendants (Passel and Cohn 2008; Smith and Edmonson 1997). (1) As the number of foreign-born residents continues to grow, the extent to which this population can fully participate in the economic life of the nation is an increasingly important issue. However, when compared to natives, immigrants usually lag behind in financial participation. Overall, foreign-born individuals are much more likely to be unbanked compared to individuals who were born in the United States (Aizcorbe, Kennickell. and Moore 2003; Rhine and Greene 2006). This pattern holds for savings accounts, homeownership, and stock ownership as well, with the native-immigrant gap in financial participation increasing with the sophistication of the financial product (Osili and Paulson 2008a, 2008b). Moreover, immigrant financial participation rates decrease the higher the levels of ethnic concentration in the metropolitan area where they reside (Osili and Paulson 2008a, 2008b). In addition to having consequences for immigrants themselves, these gaps in financial behavior might affect second-generation Americans (the children of immigrants). It has been shown that parents are an important channel through which young adults in the United States acquire financial knowledge, with family financial sophistication being strongly related to financial literacy among this population (Lusardi. Mitchell, and Curto 2010).

Access to banking services is critical to wealth-building: they provide households with the means to conduct basic financial transactions, save for an emergency and long-term security needs, and access credit on affordable terms. Unbanked workers must find other ways to accommodate their financial needs such as patronizing (usually expensive) check-cashing businesses and/or paying in cash (Casey 1994; Dunham 2001; Rhine, Greene, and Toussaint-Comeau 2006). Immigrant households often save informally outside the banking sector, but such savings are likely to be at risk of appropriation and offer no return or inflation protection. Besides, they do not count for credit histories, possibly contributing to immigrant households' struggle to achieve financial independence. These native-immigrant gaps in financial participation can potentially explain why natives accumulate more wealth (Caroll, Rhee, and Rhee 1994; Cobb-Clark and Hildebrand 2006; Shamsuddin and DeVoretz 1998) and have higher precautionary savings than immigrants with similar characteristics (Amuedo-Dorantes and Pozo 2002). …

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