School-based financial education: will it make a difference?

Julia Kukiewicz

In September 2014, personal finance education will become a mandatory part of the secondary school curriculum as part of Citizenship lessons. Julia Kukiewicz asks if school-based education will actually increase financial literacy and how much real help will it offer those struggling on low incomes?

Making financial education a mandatory part of the curriculum felt, to many, like an idea whose time had come: the measure received wide cross-party support; huge public and media support and, in Government consultation, the blessing of financial services firms including Barclays and Capital One.

That many were ill prepared for the recent economic downturn appears well founded. In 2006, according to FSA statistics, 70% of people had made no personal provision to cover an unexpected drop in income. The same research found that a quarter of adults with pensions didn’t realise they were invested in the stock market.

Improving financial literacy seems like a common sense solution to problems caused or exacerbated by poor planning (late payment and overdraft fees, for example), and expectations are high. With personal finance in the National Curriculum, Ian Duncan Smith told parliament:

people will be less in thrall to doorstep lenders and those who can bamboozle them with what interest rates and payments are, and when it comes to pensions they will better understand their needs and what they will actually get.

That’s a big claim for a subject that, at least in its statutory form, will constitute just 25% -ish of Citizenship classes, which are themselves just one hour a week.

Evidence of effectiveness

In fact, evidence that school-based education is effective remains patchy. Here are just a few examples.

A recent study of a German personal finance program (Lührmann 2012) found an increase in both self-assessed and actual financial knowledge after completion, and a self-reported increased intention to save and lower likelihood to make impulse purchases among its teenage participants. However, the researchers were unable to study the long term effects of the class.

Another (Cole 2013) found statistically significant increases in asset accumulation and a lower probability of becoming delinquent on credit card debt, declaring bankruptcy or experiencing foreclosure among students who took an additional maths course.

Many have found positive correlations between financial literacy and behavior such as saving into pensions (Behrman 2010), increased assets and retirement planning (van Rooij 2012).

According to another study, consumers who are more financially literate are less likely to engage in high-cost borrowing (Lusardi 2013).

From education to literacy

Crucially, however, it’s difficult for these studies to prove causation: those that have more money are likely to be more knowledgeable about finances, regardless of whether they took a class, and less likely to have to make very hard financial decisions. Indeed, some researchers argue that financial literacy is a result of wealth accumulation, not the other way around (Gustman, Steinmeier and Tabatabai 2010).

If we accept that and counter that financial education’s aim is to bridge a knowledge gap which makes it easier for the rich to continue to accumulate wealth, however, there are problems on that score too.

America’s largest personal finance education group, the Jumpstart Coalition, found no significant difference in financial literacy between those who had taken a class for at least a term, and those who hadn’t, in five large scale surveys between 2001 and 2009.

Researcher Lew Mandell suggests that, despite a lack of evidence for significant increases in literacy, school-based education has:

a long-lasting emotional impact on students, which manifests itself in self-beneficial financial behavior only years or decades later.

However, as he freely admits, Mandell has scant evidence for that hypothesis so far.

There is some evidence that education helps in equipping people to manage periods of low income both literally, by increasing savings and therefore increasing the likelihood that households will be able to weather financial shocks, and in the sense that it will equip them with the skills to deal with those difficult financial situations.

However, advocates may need to lower their expectations and be aware of where their endorsement leads: education is by no means a panacea and the protection it can offer people before and during periods of hardship is minor compared to, for example, changes in the welfare system or broader trends in earning potential.

Julia Kukiewicz is the Editor of a consumer information site that's been covering personal finance topics since 2003.


Behrman, J. R., Mitchell O.S, Soo C., and Bravo D. 2010. “Financial Literacy, Schooling, and Wealth Accumulation.” PARC Working Paper Series, WPS 10-06.

Bernheim, B. D., Garrett D. M. and Maki D. M., 2001. Education and saving: The long- term effects of high school curriculum mandates. Journal of Public Economics, 80(3), 435-465.

Cole, Paulson and Shastry. 2013. “High School and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses” Harvard Business School Working Paper 13-064.

FSA 2006 “Financial Capability in the UK: Establishing a Baseline”.

Gustman A.L., Steinmeier T.L and Tabatabai N., 2010. "Financial Knowledge and Financial Literacy at the Household Level," Working Papers wp223, University of Michigan, Michigan Retirement Research Center.

Lührmann, M., Serra-Garcia, M., Winter, J. 2013:  “The effects of financial literacy training: Evidence from a field experiment with German high-school children.” LMU Department of Economics Working Paper No. 2012-24.

Lusardi A., Scheresberg 2013. "Financial Literacy and High-Cost Borrowing in the Uniterd States" NBER Working Paper No. 18969.

van Rooij, M. C.J., Lusardi, A. and Alessie, R. J.M. (2012), Financial Literacy, Retirement Planning and Household Wealth. The Economic Journal, 122: 449–478.

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