By: Laura Walton AFC®
That was my reaction when I saw the article titled “Financial Illiteracy and the Ineffectiveness of Financial Education Programs.” The TCI Foundation runs a financial education program, the 3rd Decade. Are we irrelevant? No, thank goodness, but…
the eye-opening take-away from this was that financial education only affected 0.1% of later financial decisions. In other words, the education was quickly forgotten because the information wasn’t immediately used.
To quote from the article, “researchers found that within a year, the benefits of a 6-hour financial education program were no longer statistically significant (in other words, no longer distinguishable as having any positive impact at all); after about 18 months, the benefits of even 24 hours of focused financial literacy programs have typically vanished.”
(1) Our financial world has become incredibly complex: 14,000 mutual funds, ETFs, 401ks, 529s, HSA plans, lots of lending options including ARMs, reverse mortgages, pay day loans, peer-to-peer lending, hedge funds, REITs. You need a dictionary of acronyms just for starters.
(2) It’s not easy to connect what’s learned in a classroom to a decision you’re faced with years down the road.
(3) Financial decisions usually include an emotional component which can blur the facts of the issue.
(4) Some research shows that those who practice good financial behaviors might do so more because of their underlying personal traits – they tend to be better planners and more adept at gathering and evaluating the information.
If traditional financial education isn’t the answer, what is? Apparently it’s “just-in-time” advice.
It makes sense. If you’re starting a new job with a new set of employee benefits including a 401k or you’re thinking of buying a home or you’re trying to understand the relative benefits of pre-tax or post-tax retirement accounts, you’re super receptive to information about those specific issues at that time. It’s hard to think back to the material you covered in a class a couple of years ago – plus, it’s likely out-of-date.
Our response? We’ve shortened our 3rd Decade program from two years to one year, from eight classes to four classes focusing on investing fundamentals and on identifying “red flags” that should trigger a “stop, think and get advice” reaction. But we’ve kept and strengthened what we’ve always seen as the most valuable component – one-on-one advisory services. While meeting individually with each participant in the program over the course of a year, we hope to build a relationship that will encourage them to either continue as clients of the non-profit or to at least get back in touch with us when they are faced with important financial decisions in the future. And, of course, we’re continuing our match to the Roth contributions for those who successfully complete the program.
Our larger goal is to develop a proven, successful program that other advisors can adopt in their communities knowing that the strength of a community depends on the strength of each individual. We believe that the concept of “just-in-time” delivery of financial information by an unbiased (fiduciary) advisor is key to the success of the program.