Financial Education: Does it Work and How Do We Know?

This article summarizes a Federal Reserve Board research study focusing on the effectiveness of a financial education program for military personnel. Soldiers attending the Army’s air defender advanced individualized training (AIT) at Ft. Bliss were offered a two-day financial education course taught by staff from San Diego City College. The study explored changes in behaviors between a baseline from 2006-2008 and a followup in 2008 and 2009, comparing those who took the course and those who did not with respect to six topics covered in the course: budgeting, credit, consumer awareness, car buying, insurance, and retirement savings using the Thrift Savings Plan (TSP), a 401(k)-type retirement savings and investment plan for federal employees and the military. The financial education program was found to have some positive effects on soldiers’ financial management behaviors over the longer term. Soldiers who had the financial education course were more likely than the comparison group to report using an informal spending plan, suggesting they kept some sort of ‘mental account’ of how much they could afford to spend (as opposed to doing nothing). However, these soldiers were less likely to report using a formal, written budget, relative to the comparison group. Also, those who took the course were more likely to know the difference between discretionary and non-discretionary spending—in other words, they understood the difference between spend- ing money on needs versus wants. When buying a car, those who took the financial education course had higher down payment-to-loan ratios than those in the comparison group. The article also discusses implications for program design to improve the relevance and retention of information.