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Financial Education and Confidence in Financial Knowledge



Contemporary consumer education interventions typically expect to improve welfare by expanding consumer access to knowledge. We examine how a comprehensive financial education intervention impacts knowledge and confidence in knowledge, over 6-months. We find evidence that financial confidence persists longer than financial knowledge. We discuss implications for improving consumer education interventions.
Financial Education and Confidence in Financial Knowledge
Stephen Atlas*, Nilton Porto and Jing Jian Xiao, University of Rhode Island
Contemporary consumer education interventions typically expect to improve welfare by
expanding consumer access to knowledge. We examine how a comprehensive financial education
intervention impacts knowledge and confidence in knowledge, over 6-months. We find evidence that
financial confidence persists longer than financial knowledge. We discuss implications for improving
consumer education interventions.
Extended Abstract
Financial literacy is seen as an essential skill as young adults become financially independent
and make major financial decisions, yet researchers have found that financial literacy is often low
among young adults aged 19-29 (Lusardi et al. 2010; Shim et al 2010). A recent meta-analysis has
found that one challenge limiting efforts to improve consumer financial wellbeing is a short “shelf life”
of financial education designed to improve financial literacy and foster beneficial financial behaviors
(Fernandes et al. 2014). Consequently, the National Endowment for Financial Education and others
have called for greater insight into how financial knowledge decays after financial education and what
factors mitigate the decay.
Recent studies found that financial education has positive effects on consumer financial
behavior and welfare, from improving financial capability (Xiao & O’Neill 2016; Xiao & Porto 2017)
to better credit choices (Walstad et al. 2017), reducing outstanding debt (Brown et al 2016) and
positive impacts on family members (Bruhn et al. 2016). A model of financial literacy predicts that
consumers seek financial knowledge until marginal cost equals to marginal benefit (Lusardi &
Mitchell, 2014). While more knowledge carries benefits by reducing uncertainty around financial
choices (Stigler 1961) and promoting beneficial finance practices (Hilgert et al. 2003), recipients of
financial education may also benefit from higher financial confidence as part of an overall ability to
implement healthy financial behaviors.
This paper reports results from a randomized field experiment assigning young adults to an
externally-validated financial education curriculum, and tracking a cohort for 6 months. We find
evidence that following financial education, financial confidence (i.e. subjective knowledge, or how
much you think you know) persists longer than objective financial knowledge (how much you are
assessed to know) and beneficial financial behavioral intentions.
A panel of 256 young adults enrolled in a northeastern research university completed five
surveys over a 6-month period in 2017. 161 (63%) were randomly selected to complete a commonly
used 2.5-hour online course providing financial education training. After the intake survey, we collect
information from the participants at five other times: at baseline, immediately after financial education,
one week post-intervention, three months post-intervention, and six months post-intervention. At each
checkpoint, we measured (1) objective financial knowledge using a variety of questions used in
previous research such as by Lusardi & Mitchell (2008); (2) financial confidence using five items
measuring participants’ perception of their financial knowledge; and (3) intentions to adopt desirable
financial behaviors (Dew & Xiao, 2011).
We found little evidence that the financial education intervention increased financial
knowledge despite slightly higher score results to the treatment group. Our measurement of knowledge
was somewhat noisy and not specifically built to test the curriculum, which might help explain the lack
of significant results. However, we found a strong and lasting effect of the curriculum to financial
confidence. Financial confidence increased after 1 week (p = 0.01) and persisted through three months
(p < 0.01). Even six months after the financial education intervention, those in the treatment group
reported a level of financial confidence roughly a third of a standard deviation higher than the control
group (p = 0.01).
Behavioral intentions are higher in the treatment group by half of a standard deviation after the
curriculum (p < 0.01), which extended through the 1-week survey (p < 0.01), but showed no difference
at 3-months (p > 0.20) or at the six-month mark. The results indicate that following financial
education, subjective financial knowledge persisted longer than behavioral intentions. The initial effect
of the intervention on financial behavioral intentions was robust in the very short run one week after
intervention - potentially hinting for the need of regular injections of financial knowledge to help
consumer sustain healthy financial habits.
Financial knowledge, financial confidence, and behavioral intentions were all equivalent at
baseline (p > 0.3). The financial education intervention was successful in increasing behavioral
intentions and financial confidence, at the short and long run, respectively. Taken together, while
financial knowledge and behavioral intentions returned to baseline levels one week after financial
education, financial education has a positive effect on financial confidence, which extends six-months
post-intervention. These results are robust when we review different student subgroups by gender,
previous exposure to financial education, and being part of a disadvantaged population.
In a second study, we recruited 491 young adult (18-26) participants online in a study involving
experimental manipulations of financial confidence and knowledge. We pretested 4 possible
knowledge manipulations and 9 confidence manipulations adapted from Wan and Rucker (2012). The
main study asked participants to recall 2 financial experiences that made them feel highly confident
and certain (high confidence), happy and excited (neutral), or doubtful and uncertain (low confidence).
Participants also either completed a financial education curriculum about emergency savings (a 6-
minute video and some comprehension questions) or watched an unrelated video, prior to answering
questions about intentions to save for emergencies (a 4-item scale). We expected that both the
confidence and knowledge manipulations would together influence behavioral intentions. We found
that only confidence influenced behavioral intentions, in particular, that low confidence reduced
intentions to save for emergencies, compared to neutral and high confidence conditions (p = 0.05). We
further found that the education curriculum we expected would manipulate knowledge appeared to
more strongly influence confidence, highlighting the practical relevance of considering confidence in
the consumer knowledge acquisition process.
The present research provides insight into how financial confidence, knowledge and behavioral
intentions evolve following education interventions. While the training had a negligible effect on our
measurements of financial knowledge, financial confidence was the clear beneficiary of even a small
dosage of financial education. Likewise, the manipulation of financial knowledge from our second
study also revealed a positive effect to financial confidence. The impact of financial education to
behavioral intentions appears to be more complex: the improvements on financial decision-making are
short-lived and dependent upon financial confidence. Altogether, among contemporary young adults,
there appears to be a lasting impact of financial education on financial confidence, which contributes to
financial behavioral intentions.
Brown, M., Grigsby, J., van der Klaauw, W., Wen, J., & Zafar, B. (2016). Financial education and the
debt behavior of the young. The Review of Financial Studies, 29(9), 2490-2522.
Bruhn, M., Leão, L. D. S., Legovini, A., Marchetti, R., & Zia, B. (2016). The impact of high school
financial education: Evidence from a large-scale evaluation in Brazil. American Economic Journal:
Applied Economics, 8(4), 256-95.
Dew, J., & Xiao, J. J. (2011). The Financial Management Behavior Scale: Development and
Validation. Journal of Financial Counseling and Planning Volume, 22(1), 44.
Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2014). Financial literacy, financial education, and
downstream financial behaviors. Management Science, 60(8), 1861-1883.
Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The
connection between knowledge and behavior. Fed. Res. Bull., 89, 309.
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and
evidence. Journal of economic literature, 52(1), 5-44.
Lusardi, A., Mitchell, O. S., & Curto, V. (2010). Financial literacy among the young. Journal of
consumer affairs, 44(2), 358-380.
Lusardi, A., & Mitchell, O. S. (2008). Planning and financial literacy: How do women fare?. American
Economic Review, 98(2), 413-17.
Shim, S., Barber, B. L., Card, N. A., Xiao, J. J., & Serido, J. (2010). Financial socialization of first-
year college students: The roles of parents, work, and education. Journal of youth and
adolescence, 39(12), 1457-1470.
Stigler, G. J. (1961). The economics of information. Journal of political economy, 69(3), 213-225.
Walstad, William, et al. (2017). Perspectives on evaluation in financial education: Landscape, issues,
and studies. Journal of Economic Education, 48(2), 93-112.
Wan, E. W., & Rucker, D. D. (2012). Confidence and construal framing: When confidence increases
versus decreases information processing. Journal of Consumer Research, 39(5), 977-992.
Xiao, J. J., & O'Neill, B. (2016). Consumer financial education and financial capability. International
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