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UNITED STATES DEPARTMENT OF LABOR

The impacts of mandatory financial education: Evidence from a randomized field study (Collins, 2013)

Review Guidelines

Causal Evidence Guidelines

Absence of conflict of interest. 

Citation

Collins, J. M. (2013). The impacts of mandatory financial education. Evidence from a randomized field study. Journal of Economic Behavior & Organization, 95, 146-158. https://doi.org/10.1016/j.jebo.2012.08.011

Highlights

  • The purpose of the study was to examine the impact of a financial education course on financial behaviors. 
  • The study was a randomized controlled trial that assigned participants to either the treatment or control group. Using credit reports, bank account records and participant surveys, the author conducted statistical models to compare outcomes between the groups 12 months after course completion. 
  • The study found that completing the financial education course was significantly related to higher levels of controlling spending, paying bills on time, planning for the future, and budgeting, but lower net worth and more debt. 
  • This study receives a moderate evidence rating. This means we are somewhat confident that the estimated effects are attributable to the financial education course, but other factors might also have contributed.

Features of the Study

The study was a randomized controlled trial conducted with Family Self-Sufficiency (FSS) clients in Long Island, New York. FSS clients are low-income families who receive aid from the U.S. Department of Housing and Urban Development via the Federal Housing Choice Voucher (Section 8) program. One requirement of receiving FSS benefits was the completion of a financial education course. The financial education course consisted of information related to personal finance (e.g., credit information, banking, budgeting, and financial planning). The curriculum was delivered in a five-course sequence, for a total of 12 hours over two months. 

The Community Development Corporation of Long Island (CDCLI) identified FSS clients who needed to complete the financial curriculum course by the end of 2007. CDCLI needed to stagger enrollment in the course to manage the size of the classes and the workload of caseworkers. This situation allowed the author to conduct the study. Random assignment was possible because the resources available to teach those that needed the course did not meet demand, resulting in a waitlist of individuals who needed the course. Of the 181 eligible clients, 144 clients agreed to participate in the study and were randomly assigned to the treatment or control group. Clients in the treatment group participated in the financial education course. Clients in the control group did not participate in the course and were prohibited from taking financial education classes for 12 months. 

The sample was predominantly female (96 percent in the treatment group; 97 percent in the control group) and less than one-third were white (32 percent in the treatment group; 27 percent in the control group). Almost half of the participants had some college education (47 percent in the treatment group; 49 percent in the control group). Data sources included credit reports, bank account records and participant surveys. The participant surveys asked about five self-reported behaviors: controlling spending, paying bills on time, engaging in financial planning, saving for the future and using a budget. Of the 144 clients who agreed to participate in the study, 127 had data at both baseline and the 12-month follow-up. The author used statistical models with controls to examine changes in financial behaviors from baseline to follow-up. 

Findings

Knowledge and skills for money management 

  • The study found that at the 12-month follow-up, the treatment group reported significantly higher ratings of controlling spending, paying bills on time, planning for the future, and budgeting than the control group. 
  • However, the study found that the treatment group had significantly more bank-reported debt and lower net worth than the control group. 

Considerations for Interpreting the Findings

Although the study design was a randomized controlled trial, sample attrition was high. This means the study was not eligible for a high causal evidence rating. However, the author controlled for age, race/ethnicity, gender, and financial knowledge at baseline as required by the topic area protocol. 

Causal Evidence Rating

The quality of causal evidence presented in this report is moderate because the study was a randomized controlled trial with high attrition, but the author ensured that the groups being compared were similar before the intervention. This means we are somewhat confident that the estimated effects are attributable to the financial education course, but other factors might also have contributed.  

Reviewed by CLEAR

November 2023

Topic Area