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The path to increasing adults’ financial literacy may be through their children.
That’s the provocative finding of a study published in the latest issue of the Journal of Financial Literacy and Wellbeing. It’s titled “Spillover effects of financial education: The impact of school-based programs on parents,” the study’s author is Veronica Frisancho, chief economist at CAF Development Bank of Latin America. (This journal is brand new, by the way. Published by Cambridge University Press, its editors are Annamaria Lusardi, a professor at George Washington University and Academic Director of the Global Financial Literacy Excellence Center, and Flore-Anne Messy, Principal Administrator in the Directorate for Financial and Enterprise Affairs of the Organization for Economic Cooperation and Development (OECD).)
This study provides a ray of hope in what up until now has proven to be a tough nut to crack: How to improve adults’ financial literacy. While prior research has found that financial education in secondary schools leads to significant improvements in students’ literacy, reaching adults has been more difficult. Furthermore, as I outlined in a column a year ago, the “school of hard knocks” does a poor job of increasing adults’ financial literacy. The average person near retirement age is only marginally more literate than he was 40 years previously.
Frisancho analyzed the effects of a financial education program in Peruvian public schools involving nearly 20,000 teenagers in 300 public schools in six different regions of the country—half of whom received financial education and half of whom did not. The students’ parents and guardians were not themselves enrolled in the financial education classes, and the students who were enrolled in those classes were not specifically instructed to talk about what they learned with their parents.
They evidently did talk about it with their parents, however, resulting in important improvements in financial literacy and behaviors. Frisancho had access to the names of the students’ parents and guardians and, courtesy of Equifax, the credit bureau, she was able to compare the credit scores of those whose children received financial education with those whose children did not. In the years following the financial education classes, the former group experienced marked improvement compared with the latter.
Frisancho found that this impact was particularly strong among two groups of parents. The first contained those of limited means, for whom financial education presumably can have the greatest consequence. If there is any spillover effect from educating children to educating parents, it presumably would show up most strongly in this group. Sure enough, they experienced a 26% reduction in the probability of default and a 5% increase in average credit score.
The second group for whom education had an outsize impact included parents of daughters. They experienced a “6.7% increase in their credit score and a 28% decrease in the size of portfolio in arrears.” There was not a corresponding increase in the parents of sons who received the financial education, suggesting that “daughters tend to be a more effective channel to transmit financial knowledge and information to parents.”
This result is particularly intriguing, since stereotypically boys are thought to play the more dominant role in financial matters. It’s not clear why that does not appear to be so, at least among this sample of Peruvian teenagers and their parents. One possibility, Frisancho speculates, is that “since adolescent girls are in general more mature than boys of the same age, their views and advice may be better received by parents.”
Regardless of the cause, the general message of this research for retirees and near-retirees is to open up lines of communication with their children on retirement finance issues. They’re not disinterested parties to the discussion, of course, so this is not a bad idea in any case. And we now know that there’s the added benefit that they can help their elders improve their financial literacy.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
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