Starting Early with Financial Literacy

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article contributed by

Heather Holden, PhD, CIM

Wealth Advisor at UBS Investment Management Canada Inc.

Extensive experience in Financial Planning, Retirement Planning and Cash Flow Management.

Can financial education in grade school have long-term effects?

Parents often wrestle with how to teach financial literacy to kids who do not particularly want to listen, a particularly vexing problem for parents who expect to pass on significant legacies to their children.

What would happen if we started teaching responsible financial habits early? Are kids easier to influence than adults? Could even a small and early influence on kids have big cumulative benefits over the course of their lives? Annie Duflo & Dean Karlan examined just this question and published their report in The Stanford Social Innovation Review this fall.

Research indicates that educational seminars for adults on saving and investing don’t positively affect people’s long-term financial outcomes. Converting from knowing what we should do to actually doing it can be difficult for us adults.

After a full school year in Ghana of all places, the authors, Duflo & Karlan, asked two groups about their new savings attitudes and behaviors. One group went through a year-long program of full financial literacy. The other group only had a very basic introduction to financial literacy.

The authors also looked for differences in risk tolerance, self-confidence, and interpersonal relations between the two groups.

It turns out that both programs had a modest but measurable impact on savings rates. Duflo & Karlan found that both groups showed higher levels of risk aversion in that they were less attracted to risky bets after completing the program.

One modest difference they found in financial outcomes between the two groups was that kids in the full financial literacy program were more likely to begin to work outside of school.

As one student reported: “I work hard every Saturday and Sunday at the market; I used to spend all my money on video games and other entertainment items, but since I joined the [full financial literacy] club I have changed the way I spend”.

Whether this is positive over the course of the lifetimes of these children is still in question – for example, because working could compete with school. A possible side effect of encouraging savings without broader social development could be an increase in school drop-outs.

So even in difficult conditions such as in the study area of Ghana, an intervention can increase savings, and a relatively straightforward program can have roughly the same outcome as a more rigorous one.

Author: Heather Holden, PhD, CIM

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