My Personal Finance Teaching Has Failed

If you teach it, will they learn?

I am sad to report that my six-year-old daughter Lucy has developed a gambling habit. And within three weeks of my writing an article about how to warn children away from games of chance. This raises the question of how and if personal finance teaching actually works. As it turns out, there is research about this.

But first, about the teaching: my family was at a pizza shop and video game arcade for my wife Sarah’s birthday. It was a special occasion, so I bought each of our kids a swipe card with video game credit. But no sooner had she gotten the card when Lucy ran across the arcade to The Claw machine.

You’ll remember The Claw from my previous article on gambling. I theorized that showing kids that the Claw machine is a money sink would demonstrate that everyone eventually loses at games of chance.

“Aha!” I thought, “Now I can put my teaching into practice.” I followed Lucy across the arcade to the Claw, rehearsing the lesson in my head.

By the time I got there, she had already won.

“Look Daddy!” she squealed, jumping up and down, brandishing a brand new stuffed animal. She had won on her first try.

I recalibrated my lesson on the fly. “That’s so great!” I said, trying despite myself to celebrate her win, “But my dear, you know that most of the time kids never win these games. You’ll just spend all your hard-earned money, and you’d be better off just buying a stuffie from the store.”

“Daddy, that’s ok,” she said as she swiped her card again with the dexterity of a veteran shopper. She lost.

“Oh no!” I said mournfully, and began to explain how such games make you think you can win consistently. But she swiped yet again, maneuvered the Claw with a cool head and a keen eye…

…and came away with two stuffies in one grab.

The Claw had betrayed me once again. Instead of dropping the stuffies when it was supposed to and always has when I’ve tried it, it clung to them and delivered them safely into my daughter’s arms, along with the lifelong lesson that gambling pays.

So maybe that lesson failed, or rather, did the opposite of what it was supposed to. But I’ve taught the kids a lot of other useful stuff. Will those lessons stick? Or am I just wasting my time?

I’m wasting my time, according to a famous meta-analysis of personal finance education research from 2014. In this influential paper, Daniel Fernandes et al. (2014) claim that “interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples.” Furthermore, “financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention.”

They say financial education has failed. According to their study, financial education could get kids a higher grade on the test, but it didn’t do much for actually changing behavior on down the road. If they’re right I can at least take solace that my backfiring Claw lesson didn’t turn my adorable kindergartener into a modern-day Doc Holliday. Because in that case my teaching didn’t do anything at all.

That financial education didn’t work was the research story that prevailed in the mid-2010s. It was a grim moment for those of us who had careers dedicated to economic and financial education, especially since it seemed to us like our lessons were working. In fact, as a teacher, it had me wondering if anything I taught would stick.

Thankfully, newer research came to teachers’ rescue.

A newer, better meta-analysis by a team led by Tim Kaiser found that financial education works after all.

They noticed some weaknesses with the Fernandes et al. meta-analysis. First, the studies it summarized were too light-weight. The analysis treated interventions such as a mandated high school class as being the same as, say, handing someone a brochure. Kaiser et al.’s meta-analysis also included more and better studies, and some improvements to measurement.

What did they find? Basically the opposite of the Fernandes study. “The evidence shows that financial education programs have, on average, positive causal treatment effects on financial knowledge and downstream financial behaviors. Treatment effects are economically meaningful in size, similar to those realized by educational interventions in other domains.”

Since then, the number and quality of research studies on personal finance education have exploded. This research has found that when kids get robust personal finance education, upon reaching adulthood, they…

• Have lower loan delinquency rates

• Have higher credit scores

• Choose lower-cost financing for post-high school education.

• Keep lower credit card balances

• Are more likely to have opened a retirement savings account.

• Are less likely to use payday loan financing.¹

There’s some takeaways here for all of us:

• Teaching matters, whether you’re a teacher, parent, or someone in any position to influence others. We see this in the workplace, too, as I covered in this article.

• Curriculum matters. The specific things we teach make a difference.

• Financial education affects real-world adult behaviors. But the education must be sustained over time.

• When you read research results, don’t let them change your mind completely. Rather, appreciate them and let them nudge you in the direction that the results indicate. But seek further information.

An epilogue on Lucy: when I admonished her about (what I see as) her inordinate stuffie habit, she told me, “Daddy, I’m ok with this life.” She certainly is confident with her money choices in life, and I think she’ll do ok.

1. Various outcomes are from:

Kaiser, T., Lusardi, A., Menkhoff, L., and Urban, C., (2020). Financial education affects financial knowledge and downstream behaviors. German Institute for Economic Research.

Urban, C. (2018). Better borrowing; How state-mandate financial education drives college financing behavior. National Endowment for Financial Education. Linked here.

Stoddard, C., & Urban, C. (2020). The effects of state‐mandated financial education on college financing behaviors. Journal of Money, Credit and Banking, 52(4), 747-776.

Wagner, J., & Walstad, W. B. (2019). The effects of financial education on short‐term and long‐term financial behaviors. Journal of Consumer Affairs, 53(1), 234-259.

Walstad, W. B., & Wagner, J. (2023). Required or voluntary financial education and saving behaviors. The Journal of Economic Education, 54(1), 17-37.