Joanne Yoong - 2014 Symposium on Financial Education in Korea

Financial Education
For Long-Term Savings and Investment :
What does the Literature Tell Us?
JoanneYoong
USC/NUS
Wednesday, 26 February, 14

Overview
• Context
• Framework
• Highlights from the Literature
• Preliminary Observations

FE for LT Savings and Investments
• Content focus : knowledge, skills and capability to
manage and accumulate savings to address long-term
needs and risks (including pensions, education,
marriage and divorce, funerals and loss of income)
• Product focus : savings products, term-deposits, unit
trusts, mutual funds, bonds, shares and/or retirement
funds/schemes
OECD Subgroup Deﬁnition

Project Scope
• Develop a framework for considering behavior on LT
savings and investment and related interventions
• Investigate literature on LT savings and investment
interventions
• Propose strategies to improve interventions

Different Target Audiences
•  Young people
•  Workers
•  New retirees
Stages of the life-
cycle
•  Women
•  Migrants
Disadvantaged
population
groups
•  Windfall recipients
•  Suboptimal savers
•  Injured investors
“Vulnerable”
savers and
investors

Introduction
• Context
• Framework
• Highlights From The Literature

The Ideal Consumer
Understanding of
ﬁnancial products,
risks and concepts

The Ideal Consumer
Understanding of
risks and concepts
Awareness of ﬁnancial
risks and
opportunities

The Ideal Consumer
Understanding of
risks and concepts
risks and
opportunities
Making an
informed
choice

The Ideal Consumer
Understanding of
risks and concepts
risks and
opportunities
Making an
informed
choice
Seeking
appropriate
help

The Ideal Consumer
Understanding of
risks and concepts
risks and
opportunities
Making an
informed
choice
Taking other
actions for
well-being
Seeking
appropriate
help

The Ideal Consumer
Understanding of
risks and concepts
risks and
opportunities
Making an
informed
choice
Taking other
actions for
well-being
Seeking
appropriate
help
KnowledgeSkills Conﬁdence

The Ideal Bridge
Mandated
Action
Advice Instruction Information
Laissez
Faire
Financial Education

The Ideal Policy World
Scientific Evidence
Financial
Education
Policy
Behavior
Change

Back to the Consumer
Understanding of
risks and concepts
risks and
opportunities
Making an
informed
choice
Taking other
actions for
well-being
Seeking
appropriate
help

Theoretical Drivers of Choice

Shadow Drivers of Choice

System 1 (Fast) System 2 (Slow)
Fast Slow
Constant, automatic Effortful, deliberate
Subconscious Self Aware
Reflexive,Associative Rational, logical

Heuristics

Heuristics
Beliefs and
Preferences

Beliefs and
PreferencesHeuristics
Biases and
Affect

What could go wrong?
Frankly I
don’t see
the problem
with that…

What could go wrong?
Frankly I
don’t see
the problem
with that…
Me
neither

Some critical principles
• Understand your own circumstances and plan ahead for your future
• Take (calculated) risks
• Diversify your approaches
• Stay the course through short-term uncertainty
• Track and evaluate the ﬁnancial consequences of your actions

Some critical problems
The past is a foreign
country.
• Social, demographic and
political change make it
difﬁcult to form
actionable expectations
about the future based
on past norms and/or
experiential learning

Some critical problems
In the long run we are
all dead
• Present-biased
individuals have difﬁculty
incurring short term
costs for long-term gains
• Many of us are
disaffected = have
difﬁculty physically
visualising the future

Other problems
• Understand your own circumstances
and plan ahead for your future
• Stay the course through short-term
uncertainty
• Track and evaluate the ﬁnancial
consequences of your actions

Other problems
uncertainty
• Inappropriate/inaccurate beliefs
• Poor ﬁnancial numeracy; inappropriate loss
aversion/ risk aversion / ambiguity aversion /
regret aversion
• Complexity avoidance
• Emotional responses and disproportionate
responses to salient events
• Limited attention and procrastination

Other problems
uncertainty
• Inappropriate/inaccurate beliefs
• Poor ﬁnancial numeracy; inappropriate loss
aversion/ risk aversion / ambiguity aversion /
regret aversion
• Complexity avoidance
• Emotional responses and disproportionate
responses to salient events
• Limited attention and procrastination
By no means exhaustive...

Reﬂections On the Literature
• Existing cumulative evidence is still far from robust
• Mixed results and lack of comparable, robust study designs
• But four recent trends are cautiously promising
• Increasing number of international studies
• Increasing number of studies with “behavioral” component
• Increasing number of studies with RCT or other causal identiﬁcation
• More positive “proof of concept” results
• Yet important areas of improvement remain from a policymaker perspective
• No consensus on best practices
• Virtually no studies of cost effectiveness

Notable New Comprehensive Reviews
• Systematic Reviews and Meta Analysis
• Miller, Margaret, and Reichelstein, Julia and Salas, Christian and Zia, Bilal.(2014)
“CanYou Help Someone Become Financially Capable? A Meta-Analysis of the
Literature”, Background Paper to the 2014 Global Financial Inclusion Report
• Fernandes, Daniel and Lynch, John G. and Netemeyer, Richard G. (2014) “Financial
Literacy, Financial Education and Downstream Financial Behaviors”, Management
Science, forthcoming
• Important Narrative Reviews
• Lusardi,Annamaria, and Olivia S. Mitchell (2013) “The Economic Importance of
Financial Literacy:Theory and Evidence.” National Bureau of Economic Research
Working Paper 18952
• Xu, Lisa and Zia, Bilal (2013),“Financial Literacy In the Developing World”,World
Bank Mimeo (previously Policy Research Working Paper 6107)
• Hastings, Justine S. and Madrian, Brigitte C. and Skimmyhorn, Bill (2013) “Financial
Literacy, Financial Education, and Economic Outcomes”.Annual Review of
Economics,Vol. 5, pp. 347-373

Miller et al (2014)
• Covers 188 intervention studies
• Peer-reviewed studies of ﬁnancial education between 2000-2013
• Previously included in literature reviews published since 2007
• Selected sources of grey literature (World Bank, OECD, etc)
• Examine studies on savings, retirement savings, record
keeping and loan performance separately (unlike
Fernandes et al 2013)
• Savings/retirement is the single largest subject area (30%
of all papers, not including the “mixed” subject category)

Meta Analysis Results
Source: Miller et al(2013)
Of 6 studies that met the
inclusion criteria (all RCTS)
only 2 found a significant effect
on savings
However, when the data is
pooled and weighted, the
overall finding is that financial
education does positively affect
general savings at a 95% level
of confidence

Of 5 studies that met
the inclusion criteria,
none were RCTs. 3
reported a significant
effect on savings
Data suggests that
financial education can
significantly affect
retirement savings albeit
at lower confidence

Case 1: Financial Education In Schools in Brazil
Bruhn, Leao, Legovini, Marchetti and Zia(2012)
• Intervention: RCT of comprehensive financial education
delivered to Brazilian high school students and families.
•As part of large-scale national initiative, embedded case-
study based personal ﬁnance curriculum into existing
classroom teaching
• Results: Exposure to curriculum increases savings
• Increased proficiency in knowledge, accompanied by
increase in overall student savings rate and more
expression of financial autonomy
• Parental interaction reinforces savings behavior
• Compare to: previous school-based studies disputing
results based on observational evidence ( Bernheim, Garrett
and Maki 2001, Cole and Sastry, 2010); other unpublished
studies targeting school-age children (Berry, Karlan and
Pradhan 2012)

Case 2: Financial Education In The US Army
Skimmyhorn (2012)
• Intervention: Quasi-experimental study of phased rollout of
savings education delivered to newly enlisted US Army personnel in
2007-2008
•In-person 8 hour mandatory personal ﬁnancial management
course combined with immediate enrollment assistance
• Results: Attendance at PFMC increases retirement savings
contributions to the Army Thrift Savings Plan by 2x with results
persisting for at least 2 years
• Compare to: Previous studies of workplace financial education
interventions which show little lasting effect on behavior (Duflo and
Saez, 2002; Clark and D’Ambrosio, 2008)

• Intervention: 2x 2 RCT of savings and remittance training
delivered to migrant workers and their families prior to
departure.
•In-person group training of 8 hour module for families and 18
hour module for worker using comicbooks, brochures, games
and take-home workbooks
• Results: Financial education was significantly more impactful in
cases when training both migrants and their families
• No change in numeracy but significant impact on awareness
• No change in remittance level but significant impact on
savings behavior
• Compare to: Previous savings FE studies in Indonesia (eg Cole,
Sampson and Zia, 2011) as well as other types of FE targeted at
migrant workers (eg Gibson, McKenzie and Zia 2012)
Case 3:“WhoYou Train Matters”
Doi, McKenzie and Zia(2012)

• Insufﬁcient data to
meaningfully examine
effects of variation in
characteristics across
different interventions

An Important Question...
More
effective
More costly
Less costly
C
Less
effective

An Important Question...
More
effective
More costly
Less costly
C
Cost effectiveCost
ineffective
Less
effective

Cost effectiveness is unknown
• Only 1 study to date - Cole, Sampson and Zia (2011)
• Intervention: RCT of savings-linked financial education training
session developed for unbanked individuals to encourage use of
SIMPEDES low-cost bank account
• Results: Limited success - only less-financially literate individuals
showed any impact on opening bank accounts
• Cost-efficiency analysis: Compare FE to Subsidy
• Literacy training costs approximately $17 per head to deliver and
increases chance of bank account by 5% at best
• Changing subsidy from $3 to $14 does so by 7.6%.
• Inducing the opening of one bank account cost $17/0.05 = $340
with education versus $11/0.076 = $145 with subsidy

Overview
• Context
• Framework
• Literature

In Conclusion
We ask individuals to
make LT investment for
their own future
based on these principles

In Conclusion
Consider FE as a LT
investment in a country’s
future.
Can we practise what we
preach when making
policy?

5 First Lessons From The Field
Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation

Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation
Consider scientiﬁc evidence across disciplines
• Financial education
• Educational practice
• Behavioral economics
But also have the courage to take risks
• Conventional wisdom is changing

Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation
Assess need based on speciﬁc past/present/future
Seek out platforms that are tightly integrated into existing
consumer pathways
Use pedagogical methods that address the capacity,
motivations, experiences and preferences of the target
audience
Identify and work with complementary/substitute programs
For LT need to consider working across sectors

Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation
Prioritize and focus content delivery
•Attention and time are scarce resources
•Too much = avoidance and loss of conﬁdence
•Allow for repetition and reinforcement
For voluntary programs especially, pragmatic design
and marketing is must-have, not “nice to have”
Teach knowledge acquisition or advice-seeking skills
Work together with regulatory approaches

Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation
No take up = No effect
No follow-through = No effect
And especially for LT,
No continuity = No effect

Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation
Plan from inception
Consider spectrum of
approaches
Measure cost-effectiveness
Disseminate and share!!!

The Ideal (And Achievable)
Virtuous Circle
Be open to
evidence-
based
innovation
Develop
from and
embed in
context
Be specific
in need and
content
Build in
financial and
non-financial
incentives
Be open to
evaluation

Thank you!
Discussion or comments related to the
project (or not!)
are always welcome
jyoong@usc.edu
joanne_yoong@nuhs.edu.sg
ephysjy@nus.edu.sg

Joanne Yoong - 2014 Symposium on Financial Education in Korea

Recommended

Recommended

More Related Content

Similar to Joanne Yoong - 2014 Symposium on Financial Education in Korea

Similar to Joanne Yoong - 2014 Symposium on Financial Education in Korea (20)

More from OECD Directorate for Financial and Enterprise Affairs

More from OECD Directorate for Financial and Enterprise Affairs (20)

Recently uploaded

Recently uploaded (13)

Joanne Yoong - 2014 Symposium on Financial Education in Korea