Financial-Literacy

FINANCE CLASSES FOR TEENAGERS BOOST CONFIDENCE AND PRUDENCE

Simple training courses for teenagers on shopping, planning and saving lead to greater financial confidence and prudence. But girls remain less likely to be interested in financial matters to start with, less likely to save and more likely to have just enough money left to make ends meet at the end of the month.

These are among the findings of research by Melanie Luhrmann, Marta Serra-Garcia and Joachim Winter, presented at the Royal Economic Society’s 2013 annual conference. Their study examines the effects of a large-scale training programme aimed at increasing the ‘financial literacy’ of 14 to 16 year olds in German schools, with a particular focus on teenagers from poorer families.

The core training consists of three short modules on shopping, planning, and saving. The modules are taught by members of a non-profit organisation (‘My Finance Coach’) in the classroom. Over the past three years, more than 55,000 children have participated throughout Germany.

To analyse the effect of the programme, the researchers developed a questionnaire to measure financial knowledge as well as attitudes towards financial matters. The questionnaire was given to teenagers in a sample of participating classes both before and after the training.

The researchers then compare the findings to a control group of classes that did not participate in the training. In total, data from more than 1,400 questionnaires were analysed and the results show that:

  • Before receiving any training, only 38% of teenagers reported any interest in financial matters at all and only 21% said their financial knowledge was ‘good’ or ‘very good’.
  • After the training, the share of students who were actively interested in financial matters increased from 16% to about 31%, while 41% of teenagers reported their financial knowledge as ‘good’ or ‘very good’.
  • The increase in financial confidence was matched by prudence. After the training, the number of impulse purchases decreased.
  • There is a large difference between boys and girls. Girls are less likely to be interested in financial matters to start with and their self-assessed knowledge is lower. Girls are also less likely to save and more likely to have just enough money left to make ends meet at the end of the month.

Some argue that the financial crisis owes much to people not understanding the financial risks they were taking, particularly in the case of sub-prime mortgages. This has given rise to calls for an increase in the ‘financial literacy’ of the population. The authors say:

‘Early training programmes have positive effects on financial literacy and financial choices among young adults – that is, when they are most crucial.’

More…

Individuals face increasingly difficult financial decisions. Over the past decade, several studies have shown that they are not well equipped to make these choices – there is an alarming lack of ‘financial literacy’ among the adult populations in many developed countries. Research has now started to focus on financial literacy among children, in an attempt to tackle the problem by educational interventions as early in life as possible.

This study presents results from a field experiment in Germany that shows that a financial literacy training programme administered in schools does indeed increase interest in financial matters as well as financial knowledge among teenagers. Such early training programmes thus promise to have positive effects on financial literacy and financial choices among young adults – that is, when they are most crucial.

Savings and portfolio choices are becoming more and more difficult for many reasons, such as the deepening of financial markets, the increasing volatility of asset returns and the increasing complexity of financial products. At the same time, the shift towards more pre-funding of pensions requires individuals to engage more intensely in financial markets and to make even more decisions.

In the face of these changes, bad financial decision-making is a major concern. Moreover, poorer and less well educated individuals are particularly prone to making financial mistakes. As many important financial decisions are made early in adult life, scientists and policy-makers are becoming more and more interested in interventions that raise financial literacy among children and teenagers, in particular those from disadvantaged socio-economic backgrounds.

This study reports the results of a field experiment that was designed to evaluate the impact of a large-scale financial literacy training programme in German schools. The programme is targeted at teenagers between 14 and 16 years of age, with a particular focus on teenagers from families of low socio-economic status.

The core training consists of three short modules on shopping, planning and saving. The modules are taught by members of a non-profit organisation (‘My Finance Coach’) in the classroom. Over the past three years, more than 55,000 children participated across all of Germany.

To study the effects of this training, the researchers developed a questionnaire that measures various dimensions of financial knowledge as well as attitudes towards financial matters. The questionnaire was administered to teenagers in a sample of participating classes both before and after the training. These are then compared with a control group of classes that did not participate in the trainings. In total, data from more than 1,400 questionnaires were analysed.

Before receiving any training, teenagers’ interest in financial matters was low: more than 38% of students had no interest at all. Their self-assessed financial knowledge was also poor; only 21% of students said that it is good or very good.

After the training, teenagers exhibited an increase in both dimensions. The training increased the share of students who are interested in financial matters from 16% to about 31%. Similarly, among the teenagers who received training, the share of those who rated their financial knowledge as good or very good increased by about 20 percentage points to 41%.

Importantly, participating teenagers did not only feel more informed; their financial knowledge also improved with the training along some dimensions. The researchers also find that after the training, the prevalence of impulse purchases decreased. Interventions such as this one can thus potentially steer teenagers towards being more sovereign consumers.

The data also reveal a strong gender bias, present in financial knowledge, motivation and behaviour. Girls are less likely to be interested in financial matters to start with and their self-assessed knowledge is also lower (which might, at least in part, be explained by boys’ overconfidence). Furthermore, girls are less likely to save and more likely to have just enough money left to make ends meet at the end of the month.

In earlier research, similar gender differences have been documented among adults. The fact that that these gender differences already exist among teenagers is somewhat surprising, and it certainly calls for more research.

ENDS


Contact:

Melanie Luhrmann, +44 (0)7726 894865 (Melanie.luhrmann@rhul.ac.uk)

RES media consultant Romesh Vaitilingam:
+44 (0) 7768 661095
romesh@vaitilingam.com
@econromesh

Page Options