May 20, 2013
The CFPB released its report, Feedback from the Financial Education Field, which summarizes responses to an Request for Information on Effective Financial Education. The CFPB is required by Dodd-Frank to establish an Office of Financial Education “to educate American consumers and help them make better-informed decisions.” (5) The CFPB states that this “statutorily-mandated function serves as an important component of the CFPB’s consumer protection work.” (5)
But the feedback that the CFPB received is very disturbing. Not surprising, just disturbing. The report finds that “there is little systematic evidence about what approaches are most effective, for whom, and under what conditions.” (3) As of now, there “is a limited amount of rigorous evaluation on the effectiveness of financial education strategies and practices. A substantial amount of research in the field does not include control groups or use randomized control trials, and thus only limited compelling conclusions about financial education can be drawn, and often they cannot be reliably extrapolated to broader populations.” (11) Very basic things about financial education are still unknown. For instance, the CFPB acknowledges that there is uncertainty as to whether there is “a clear connection between financial knowledge and behavior.” (3)
For now, the CFPB should devote its efforts to evaluating “curricula, tools, and programs in order to identify programs and practices that are proven to improve financial outcomes.” (17) It is depressing to think that the CFPB might use a significant portion of its resources to promote financial education initiatives without strong evidence that they will work. So the CFPB should hold off on making significant investments in this area until it can identify successful strategies through evidence based practices. Too much of housing policy is based on sketchy academic research. Such research is readily relied upon to support politically palatable or ideologically driven decisions. But the CFPB should avoid taking the easy road as it will undercut its legitimacy and credibility in the long run.