Editor: David Reiss
Brooklyn Law School

July 31, 2013

Financial Literacy Literacy

By David Reiss

Personally, I was disappointed by the CFPB’s Financial Literacy Annual Report. It seems to me that the Bureau’s Division of Consumer Education and Engagement is thinking too small in setting forth its research agenda. For its financial education evaluation project,

The Bureau is conducting a quantitative evaluation of two existing financial coaching programs. Financial coaching generally involves one-on-one sessions with clients to increase clients’ awareness of their financial decisions and to provide support for clients to reach financial goals mutually set by the coach and client. (46)

Seems to me that there are some fundamental questions about financial literacy that need to be studied before small, resource-intensive projects like financial coaching are. I have blogged about these issues before, but the bottom line is that there is no solid empirical evidence that financial education achieves good results in general. So why study particular initiatives?

I would like to see the Bureau engage in a broad survey of financial literacy first and then develop a research agenda that reflects the big issues, including

  • do improved disclosures improve outcomes for consumers?
  • do consumers have the basic math skills to take advantage of disclosures?
  • what useful metrics exist for measuring the impact of financial literacy initiatives?

These are just a few big questions that I would want to answer before I looked at particular programs.

The Bureau should start from the premise that we have little reason to believe that financial education works.  Let’s build up a body of knowledge from there. If we assume that it works, as the Bureau’s current research agenda implies, then that assumption can lead us on a wild goose chase as we study program, after initiative, after project, looking for that golden-egg laying goose.

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