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UNITED STATES DEPARTMENT OF LABOR

Do financial literacy classes help? An experimental assessment in a low-income population (Reich & Berman, 2015)

Review Guidelines

Causal Evidence Guidelines

Absence of conflict of interest. 

Citation

Reich, C. M., & Berman, J. S. (2015). Do financial literacy classes help? An experimental assessment in a low-income population. Journal of Social Service Research, 41(2), 193-203. https://doi.org/10.1080/01488376.2014.977986

Highlights

  • The study’s objective was to examine the impact of a financial education course on financial knowledge and behaviors for homeless families.
  • The study was a randomized controlled trial that assigned eligible participants to the treatment or control groups. Using data from three assessments, the authors analyzed the difference between the groups across the outcomes of financial knowledge, negative financial events, and positive financial events.
  • The study found that participation in the financial education course was significantly related to increased financial knowledge and positive financial behaviors.
  • This study receives a low evidence rating. This means we are not confident that the estimated effects are attributable to the financial education course; other factors are likely to have contributed.

Intervention Examined

The Money Smart Program

Features of the Study

This study was conducted in a housing program at a nonprofit organization that offered transitional housing as well as life skill classes for homeless families. The organization offered a modified financial literacy course based on the Federal Deposit Insurance Corporation’s Money Smart program. The course included lectures with handouts and slides and discussions. Lesson topics included budgeting, paying off loans, checking and credit accounts, and loans and payment plans (e.g., automobile financing), as well as short lessons on safeguarding money and assets (e.g., reading a credit report). Each session was two hours in length and sessions were completed weekly for four weeks.

Adults over the age of 18 who were head of household could participate in the program. Eligibility criteria included having children younger than 17, residing in the county, experiencing homelessness, being employed or employable, and passing a background and drug screening check. In addition to the financial education course, participants received housing, budget counseling, and case management. The authors randomly assigned 61 eligible participants to the treatment or control group. Of these, 33 participants completed the program (17 in the treatment; 16 in the control). The treatment group received the intervention immediately and the control group received it five weeks after study sign-up.

The authors used three data sources to measure financial knowledge and behaviors. A 12-item financial knowledge scale measured different types of knowledge including the definition of a charge card, how long to keep tax information, and benefits of a checking account. A 16-item negative events scale measured adverse financial behaviors including overdrawing a checking account, taking a cash advance, or missing a bill payment. An 8-item positive events scale measured positive financial behaviors including adding money to savings, comparing bills to receipts, and paying bills on time. The authors used statistical analyses to compare the differences  between the treatment and control groups across the outcomes of financial knowledge, negative financial events, and positive financial events.

Findings

Knowledge and skills for money management

  • The study found a statistically significant relationship between participation in the financial education course and increased financial knowledge, as program participants answered double the amount of questions correctly versus the control group.
  • The study also found a statistically significant relationship between participation in the financial education course and positive financial events.
  • However, the study did not find a statistically significant relationship between participation in the financial education course and negative financial events.

Considerations for Interpreting the Findings

The randomized controlled trial had high attrition, so the study cannot receive a high causal evidence rating. Randomized controlled trials with high attrition can receive a moderate causal evidence rating if the authors ensure that the groups being analyzed are comparable before the intervention. Although the authors accounted for differences in age, they did not provide information for each study group by race/ethnicity, gender, and a pre-intervention measure of knowledge as required by the review protocol. These preexisting differences between the groups— and not the financial education course—could explain the observed differences in outcomes.

Causal Evidence Rating

The quality of causal evidence presented in this report is low because the study was a randomized controlled trial with high attrition and the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to the financial education course; other factors are likely to have contributed.

Reviewed by CLEAR

June 2023

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