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I'd like to see this claim validated experimentally. My guess would be that any observational claim would be confounded badly by the kinds of factors that selec

I'd like to see this claim validated experimentally. My guess would be that any observational claim would be confounded badly by the kinds of factors that select people into financial literacy (whether that be regional factors that drive both opportunity and availability of financial education; personal factors that drive wherewithal to seek education or interest in financial literacy). My sense would be that there are cases where people are taken for a ride -- extremely bad decisions around payday loans, high APR leasing, bad use of credit, gambling, etc. -- but it's unclear whether or not most of these come from a lack of financial education or rather a sense of struggle and fatalism around pre-existing lack of economic opportunity. Likewise, we can all name people we know who are single mothers and are diligent about credit and clip coupons and have great savings tricks, but for the most part this headroom might be enough to stave off drowning but it never enables freedom because the costs and salaries don't enable freedom. By contrast, I know plenty of 6 figure earners who more or less don't give a shit and still manage to be more or less free. Some of them will reap what they sow come retirement time by virtue of having not invested well, but when we say freedom we typically mean something more here and now. I'd love to see a longitudinal RCT that actually uses a paired subject design to look at the impact of a 2-4 year financial literacy component to education. My guess is that the effects, though probably positive in sign, would be marginal in magnitude. The article motivates this as "people on benefits spend them without budgeting", but another way to look at this is that 30 years ago, people on benefits had access to a robust council housing market, the ability to climb the property ladder, career advancement prospects even in unskilled labour, and a better public pension system than now. Maybe financial literacy has declined, maybe scams have increased, but it seems like the biggest free variable is the degree of comfort state support, even if budgeted well, provides. This is pretty well documented; Ken Loach's I Am Daniel Blake covers this, the well-regarded "Up" documentary series is unintentionally almost entirely focused on the effects of the erosion of the welfare state, deindustrialization, and the death of blue collar opportunity...

paganel 5y ago
> My guess would be that any observational claim would be confounded badly by the kinds of factors that select people into financial literacy That’a what I think, also. It’s easy to boast of “financial literacy” when one is living a quiet and comfortable middle-class life with almost no financially-related existential dread, it’s a totally different conversation when you’re living day by day. I’m on mobile and too lazy to search but there was an article linked on this forum a few years ago written by a young lady (in her early 20s, I think) describing how after working 10-hour shitty shifts and coming back home to a very poor household one doesn’t think of ETFs and carried interest, but more about “let me have a few cigarettes, some fast food and a coke so that I could forget for some moments about my condition as a poor person”. More on that, I think this insistence on “financial literacy” is a very dirty play by today’s middle class (of which I’m a part, I confess) so that it won’t accept responsibility for the condition of the poor classes, it’s a sort of “it’s their fault for being poor because they are financially illiterate, there’s nothing much that we can do, the system works, the main proof being that we’re not poor”.
- xyzelement 5y ago
  >> let me have a few cigarettes, some fast food and a coke so that I could forget for some moments about my condition as a poor person”. Just to state the obvious, this is ONE way to think but it's not how people who climb their way out of poverty think. Eg - consider dirt poor Chinese immigrants to the US. They aren't thinking about coke and junk food, they are thinking about how to improve their family's lot and their kids' future, which is why they actually manage to. I grew up immigrant and very poor. So I "get it" but I also know first hand that when you are poor, toy can't afford to be stupid or careless to boot.
  - ResearchCode 5y ago
    I don't think those groups smoke less than the majority population. Perhaps more.
  - quadrifoliate 5y ago
    As another immigrant who came to the US dirt poor, I can absolutely say that I consumed cheap fast food as an escape from constantly thinking about how to improve my lot and climb out of poverty. I bet that has had a non-trivial negative effect on my health. Once I was more financially comfortable, I began making way more of the optimizations that most middle and upper class folks in the US treat as just "standard good practices", like maxing out your 401k, putting it in market-tracking funds, not picking stocks, etc.
  - ozim 5y ago
    Top comment is kind of true, the one you are replying to I don't really agree as well. Top comment for me is saying about that it is putting blame on poor people for being poor like "you want to afford apartment, just stop drinking Starbucks lattes every day". We know world does not work like that and a lot of dirt poor immigrants are not hitting jackpot or getting super rich by being frugal. Lots of people are not getting into being financially independent by simply being frugal. They mostly get by and that is it, some get better of course. On the other hand the comment you reply to is advocating that, well people have shitty jobs, they go back home and they don't have enough energy to do anything with their life but just smoke/watch tv, whatever. Which is advocating for wrong things. I totally understand if someone tried at lest something to make his life better, quitting smoking, not drinking lattes every day, even if he failed we cannot say he is just a lazy bum - at least there was some effort. Who I don't sympathize with are people who will nag day in and out how bad their life is, but they would blame whatever is out there and who never would attempt to do something but would just indulge in smokink/drinking/tv series.
phaemon 5y ago
Wow. Although there are elements I disagree with, that said is a very well argued and explained point. I suspect there are few here that will read through it though. Might be better as a blog.
giantg2 5y ago
The biggest thing in my mind, which you sort of imply, is that you need money to be ale to utilize that financial literacy. I dont care how financially literate someone is - if your making $7.50/hr and have no capital to invest, then it's pointless.
- xyzelement 5y ago
  // your making $7.50/hr and have no capital to invest, then it's pointless. Not pointless at all. It makes a difference whether you enter a vicious or virtuous cycle. Imagine - Bob and Alice bothake 7.50. Bob is financially illiterate and doesn't have a bank account, so he pays a ridiculous fee to a check caching place every time. He also doesn't know to file his taxes so that he can get essentially all his taxes back since he makes so little. So let's say Bob makes $6 after taxes and the check cashing fee. Alice meanwhile is savy enough to have a bank account and file a tax return so she keeps all 7.50 of it. At the end of the year, Alice has an extra $3,120 compared to Bob assuming 40 hours a week for 52 weeks. If she then saves it or invests it, she'll start making some return on it. Compared to Bob who has nothing. My mom and I were very poor when we came to the US and we saw many people live like Bob but we recognizes that with a little thinking we can do much better than that. My wife grew up wealthy-ish and never had to learn this stuff. She's a hard worker and always made more than she spent and she never really had to learn how to be smart and efficient with money. But if you are poor, you HAVE to figure that stuff out or you are dead. Financial literacy matters.
  - Broken_Hippo 5y ago
    Only... it isn't like this at all. Bob messed up his math some time ago and now can't get a bank account: Alternatively, most banks in his area charge fees to poor people - enough that it pays to have a prepaid card because the fees are lower than a bank. Heck, it might even be through the employer because more and more employers have stopped offering paper checks. Bob probably pays someplace like H&R block for his taxes. It is really, really difficult to miss that it is tax return time if you are poor, so most folks will file if they think they are getting some back. People finally get their cars fixed and are able to go to the doctor or finally buy some shoes. Or Bob might not. If Bob and Alice do not have children, they won't get much back in taxes, assuming they make minimum wage and work 35-ish hours a week. They might even owe if they are married - assuming that two full time jobs will still put the couple in a higher tax bracket. (Unless, of course, they have fixed this in the last decade, but I doubt it). If Bob avoids filing, it is probably because either he owes or doesn't think he'll get enough back to pay the folks to do it. Alice might make similar choices due to fees and things. Or she might find herself in a similar situation simply because she got sick and lost pay or lost a job - especially if she wasn't taught how to deal with being poor. It doesn't always matter if something is better long-term if you are struggling month to month, and you don't always get a say in how vicious your cycle is.
josephcsible 5y ago
> extremely bad decisions around payday loans, high APR leasing Are taking those things actually the extremely bad decisions themselves, or are they necessary consequences of previous extremely bad decisions? For example, if you let your last car get repossessed, and you live/work somewhere with poor public transit, then what choice do you have other than a BHPH car with sky-high APR?
- ceejayoz 5y ago
  > if you let your last car get repossessed, and you live/work somewhere with poor public transit Exactly! Why don’t the poor just stop doing these things?
hhs 5y ago
> I'd like to see this claim validated experimentally. In 2020, there was a meta-analysis of 76 RCT studies reviewing the impact of financial education programs on financial knowledge and human behaviors [0, 1]. Based on the abstract, the authors write: “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 and are at least three times as large as the average effect documented in earlier work. These results are robust to the method used, restricting the sample to papers published in top economics journals, including only studies with adequate power, and accounting for publication selection bias in the literature.” [0] [0]: https://repository.upenn.edu/prc_papers/676/ https://repository.upenn.edu/prc_papers/676/ [1]: https://www.oecd.org/financial/education/webinar-financial-education-affects-financial-knowledge-and-downstream-behaviors.pdf https://www.oecd.org/financial/education/webinar-financial-e...
anm89 5y ago
I see responses like this all the time and to me they are so bizarre. It seems to imply that the only valid way to accrue knowledge is by going to the high priests at the university systems and performing the sacred study rituals because self obviously this is the one true way of producing knowledge. Should i put my hand into an open flame? I dont know,tough to say without performing a meta study of existing flame temperature studies to confirm what the best journals think. otherwise theres just no way to know so I'll just have to test it out. Im not against science or the scientific method. In fact im extremely pro. but it's not the only way to come come valid conclusions about things. im going to go ahead and suggest that on average learning about finance is going to be helpful for people to manage their finances. call me a crackpot but It's not particularly important for me to verify this belief with a study. and all of this is before you get into the issues with the non trivial number of junk papers published in social science and psychology journals and the like that at best seem to say that even in cases of more difficult questions where more rigorous methods are valuable, this system of knowledge production fails a non trivial amount of the time.
- rflrob 5y ago
  Experiment is surely not the only way to acquire knowledge, but it’s one of the easiest ways to reduce the frequency of tricking yourself into reinforcing what you wanted to believe to begin with. As you say, the system of knowledge production is imperfect, so let’s try to use rigorous tools more often, not less. I think we all agree that financial literacy is probably, on average, good. But, as the parent post said, the magnitude is unknown. Is it the “passport to financial freedom”, in which case it’s probably reasonable to spend a lot of class time in school on it? Or is it just nice to have, and outcomes are mostly dependent on other factors, in which case we could just as well use those classroom hours for something else. This is a hard thing to disentangle from good survey data, and nearly impossible from the kind of anecdotal reporting in most of the article. Personally, I think some of the article cuts against its own thesis. “ Leanne Fielden fits the bill for the disadvantaged. She is an unemployed woman living in the deprived Middlesbrough region. […] Her profile belies her own financial expertise. “I’m fortunate that I’ve worked for Barclaycard and Visa. I often help family and friends with money issues,” she says. So she herself has no fear of finance.” If financial literacy were a magic bullet, why is she disadvantaged? Let’s not motte and Bailey this argument from the title (“financial literacy is a passport to financial freedom”) to the more defensible position of “financial literacy is helpful, in most situations”.
deleted 5y ago
[deleted]
Aunche 5y ago
>it's unclear whether or not most of these come from a lack of financial education or rather a sense of struggle and fatalism around pre-existing lack of economic opportunity Even if they make bad decisions due to fatalism, this fatalism comes from one's attitude towards their circumstances more than society not giving enough handouts. Plenty of immigrants are more than happy to abandon their lives at home, make minimum wage in the US in jobs citizens won't touch, live minimalistically, and send most of their money to their families.
- oblio 5y ago
  Yeah, but if you're living in the US and your kids are, too, your trick doesn't work. There's no arbitrage power.
cycomanic 5y ago
It's actually been disproven multiple times. There have been several studies that showed that giving poor people cash results in better results than financial literacy education (I don't have the book in front of me, but R. Bergman gives several sources for this in Utopia for realists). The whole financial literacy education bit seems to just be a continuation of "poor people are poor because of laziness/bad education/bad decisions" while reality is more poor people are poor because of lack of funds.

paganel 5y ago

> My guess would be that any observational claim would be confounded badly by the kinds of factors that select people into financial literacy That’a what I think, also. It’s easy to boast of “financial literacy” when one is living a quiet and comfortable middle-class life with almost no financially-related existential dread, it’s a totally different conversation when you’re living day by day. I’m on mobile and too lazy to search but there was an article linked on this forum a few years ago written by a young lady (in her early 20s, I think) describing how after working 10-hour shitty shifts and coming back home to a very poor household one doesn’t think of ETFs and carried interest, but more about “let me have a few cigarettes, some fast food and a coke so that I could forget for some moments about my condition as a poor person”. More on that, I think this insistence on “financial literacy” is a very dirty play by today’s middle class (of which I’m a part, I confess) so that it won’t accept responsibility for the condition of the poor classes, it’s a sort of “it’s their fault for being poor because they are financially illiterate, there’s nothing much that we can do, the system works, the main proof being that we’re not poor”.

xyzelement 5y ago
>> let me have a few cigarettes, some fast food and a coke so that I could forget for some moments about my condition as a poor person”. Just to state the obvious, this is ONE way to think but it's not how people who climb their way out of poverty think. Eg - consider dirt poor Chinese immigrants to the US. They aren't thinking about coke and junk food, they are thinking about how to improve their family's lot and their kids' future, which is why they actually manage to. I grew up immigrant and very poor. So I "get it" but I also know first hand that when you are poor, toy can't afford to be stupid or careless to boot.
- ResearchCode 5y ago
  I don't think those groups smoke less than the majority population. Perhaps more.
- quadrifoliate 5y ago
  As another immigrant who came to the US dirt poor, I can absolutely say that I consumed cheap fast food as an escape from constantly thinking about how to improve my lot and climb out of poverty. I bet that has had a non-trivial negative effect on my health. Once I was more financially comfortable, I began making way more of the optimizations that most middle and upper class folks in the US treat as just "standard good practices", like maxing out your 401k, putting it in market-tracking funds, not picking stocks, etc.
- ozim 5y ago
  Top comment is kind of true, the one you are replying to I don't really agree as well. Top comment for me is saying about that it is putting blame on poor people for being poor like "you want to afford apartment, just stop drinking Starbucks lattes every day". We know world does not work like that and a lot of dirt poor immigrants are not hitting jackpot or getting super rich by being frugal. Lots of people are not getting into being financially independent by simply being frugal. They mostly get by and that is it, some get better of course. On the other hand the comment you reply to is advocating that, well people have shitty jobs, they go back home and they don't have enough energy to do anything with their life but just smoke/watch tv, whatever. Which is advocating for wrong things. I totally understand if someone tried at lest something to make his life better, quitting smoking, not drinking lattes every day, even if he failed we cannot say he is just a lazy bum - at least there was some effort. Who I don't sympathize with are people who will nag day in and out how bad their life is, but they would blame whatever is out there and who never would attempt to do something but would just indulge in smokink/drinking/tv series.

phaemon 5y ago

Wow. Although there are elements I disagree with, that said is a very well argued and explained point. I suspect there are few here that will read through it though. Might be better as a blog.

giantg2 5y ago

The biggest thing in my mind, which you sort of imply, is that you need money to be ale to utilize that financial literacy. I dont care how financially literate someone is - if your making $7.50/hr and have no capital to invest, then it's pointless.

xyzelement 5y ago
// your making $7.50/hr and have no capital to invest, then it's pointless. Not pointless at all. It makes a difference whether you enter a vicious or virtuous cycle. Imagine - Bob and Alice bothake 7.50. Bob is financially illiterate and doesn't have a bank account, so he pays a ridiculous fee to a check caching place every time. He also doesn't know to file his taxes so that he can get essentially all his taxes back since he makes so little. So let's say Bob makes $6 after taxes and the check cashing fee. Alice meanwhile is savy enough to have a bank account and file a tax return so she keeps all 7.50 of it. At the end of the year, Alice has an extra $3,120 compared to Bob assuming 40 hours a week for 52 weeks. If she then saves it or invests it, she'll start making some return on it. Compared to Bob who has nothing. My mom and I were very poor when we came to the US and we saw many people live like Bob but we recognizes that with a little thinking we can do much better than that. My wife grew up wealthy-ish and never had to learn this stuff. She's a hard worker and always made more than she spent and she never really had to learn how to be smart and efficient with money. But if you are poor, you HAVE to figure that stuff out or you are dead. Financial literacy matters.
- Broken_Hippo 5y ago
  Only... it isn't like this at all. Bob messed up his math some time ago and now can't get a bank account: Alternatively, most banks in his area charge fees to poor people - enough that it pays to have a prepaid card because the fees are lower than a bank. Heck, it might even be through the employer because more and more employers have stopped offering paper checks. Bob probably pays someplace like H&R block for his taxes. It is really, really difficult to miss that it is tax return time if you are poor, so most folks will file if they think they are getting some back. People finally get their cars fixed and are able to go to the doctor or finally buy some shoes. Or Bob might not. If Bob and Alice do not have children, they won't get much back in taxes, assuming they make minimum wage and work 35-ish hours a week. They might even owe if they are married - assuming that two full time jobs will still put the couple in a higher tax bracket. (Unless, of course, they have fixed this in the last decade, but I doubt it). If Bob avoids filing, it is probably because either he owes or doesn't think he'll get enough back to pay the folks to do it. Alice might make similar choices due to fees and things. Or she might find herself in a similar situation simply because she got sick and lost pay or lost a job - especially if she wasn't taught how to deal with being poor. It doesn't always matter if something is better long-term if you are struggling month to month, and you don't always get a say in how vicious your cycle is.

josephcsible 5y ago

> extremely bad decisions around payday loans, high APR leasing Are taking those things actually the extremely bad decisions themselves, or are they necessary consequences of previous extremely bad decisions? For example, if you let your last car get repossessed, and you live/work somewhere with poor public transit, then what choice do you have other than a BHPH car with sky-high APR?

ceejayoz 5y ago
> if you let your last car get repossessed, and you live/work somewhere with poor public transit Exactly! Why don’t the poor just stop doing these things?

hhs 5y ago

> I'd like to see this claim validated experimentally. In 2020, there was a meta-analysis of 76 RCT studies reviewing the impact of financial education programs on financial knowledge and human behaviors [0, 1]. Based on the abstract, the authors write: “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 and are at least three times as large as the average effect documented in earlier work. These results are robust to the method used, restricting the sample to papers published in top economics journals, including only studies with adequate power, and accounting for publication selection bias in the literature.” [0] [0]: https://repository.upenn.edu/prc_papers/676/ https://repository.upenn.edu/prc_papers/676/ [1]: https://www.oecd.org/financial/education/webinar-financial-education-affects-financial-knowledge-and-downstream-behaviors.pdf https://www.oecd.org/financial/education/webinar-financial-e...

anm89 5y ago

I see responses like this all the time and to me they are so bizarre. It seems to imply that the only valid way to accrue knowledge is by going to the high priests at the university systems and performing the sacred study rituals because self obviously this is the one true way of producing knowledge. Should i put my hand into an open flame? I dont know,tough to say without performing a meta study of existing flame temperature studies to confirm what the best journals think. otherwise theres just no way to know so I'll just have to test it out. Im not against science or the scientific method. In fact im extremely pro. but it's not the only way to come come valid conclusions about things. im going to go ahead and suggest that on average learning about finance is going to be helpful for people to manage their finances. call me a crackpot but It's not particularly important for me to verify this belief with a study. and all of this is before you get into the issues with the non trivial number of junk papers published in social science and psychology journals and the like that at best seem to say that even in cases of more difficult questions where more rigorous methods are valuable, this system of knowledge production fails a non trivial amount of the time.

rflrob 5y ago
Experiment is surely not the only way to acquire knowledge, but it’s one of the easiest ways to reduce the frequency of tricking yourself into reinforcing what you wanted to believe to begin with. As you say, the system of knowledge production is imperfect, so let’s try to use rigorous tools more often, not less. I think we all agree that financial literacy is probably, on average, good. But, as the parent post said, the magnitude is unknown. Is it the “passport to financial freedom”, in which case it’s probably reasonable to spend a lot of class time in school on it? Or is it just nice to have, and outcomes are mostly dependent on other factors, in which case we could just as well use those classroom hours for something else. This is a hard thing to disentangle from good survey data, and nearly impossible from the kind of anecdotal reporting in most of the article. Personally, I think some of the article cuts against its own thesis. “ Leanne Fielden fits the bill for the disadvantaged. She is an unemployed woman living in the deprived Middlesbrough region. […] Her profile belies her own financial expertise. “I’m fortunate that I’ve worked for Barclaycard and Visa. I often help family and friends with money issues,” she says. So she herself has no fear of finance.” If financial literacy were a magic bullet, why is she disadvantaged? Let’s not motte and Bailey this argument from the title (“financial literacy is a passport to financial freedom”) to the more defensible position of “financial literacy is helpful, in most situations”.

deleted 5y ago

[deleted]

Aunche 5y ago

>it's unclear whether or not most of these come from a lack of financial education or rather a sense of struggle and fatalism around pre-existing lack of economic opportunity Even if they make bad decisions due to fatalism, this fatalism comes from one's attitude towards their circumstances more than society not giving enough handouts. Plenty of immigrants are more than happy to abandon their lives at home, make minimum wage in the US in jobs citizens won't touch, live minimalistically, and send most of their money to their families.

oblio 5y ago
Yeah, but if you're living in the US and your kids are, too, your trick doesn't work. There's no arbitrage power.

cycomanic 5y ago

It's actually been disproven multiple times. There have been several studies that showed that giving poor people cash results in better results than financial literacy education (I don't have the book in front of me, but R. Bergman gives several sources for this in Utopia for realists). The whole financial literacy education bit seems to just be a continuation of "poor people are poor because of laziness/bad education/bad decisions" while reality is more poor people are poor because of lack of funds.