If financial education classes and lab-tested disclosures are unlikely to help consumers in their real-world financial decisions, what about field-tested targeted education/disclosure? Exciting work by Marianne Bertrand and Adair Morse shows that information given to payday borrowers can reduce their future borrowing, holding payday lender behavior static. Although this last caveat seriously limits the external validity of their results, the potential implications of their work are wonderful enough to be deserving of a full description here.
Author: Lauren Willis
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Disclosure 2.0: Disclosure in the Lab
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If, as I suggested in my last post, making the consumer smarter is hopeless, at least for those of us whose prenatal and early childhood environments can no longer be altered, what about disclosure? Could point-of-sale disclosure equip consumers to make good financial decisions?
Simple disclosures appear effective in directly aiding consumer decisionmaking in some domains, the A, B, and C restaurant hygiene grades being the classic example. But because financial products have many varying features that consumers need to understand to make good decisions, financial product disclosures are inevitably much more complex. As a recent article by Omri Ben-Shahar and Carl Schneider details, generally speaking, consumers do not read, or if they do read they do not understand, or if they do understand they do not use correctly, the information presented in complex product disclosures.
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Which Consumer Financial Education Programs Are Most Effective?: Assuming a Fact Not in Evidence
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Thank you to the Credit Slips team for inviting me to guest blog. First I must warn the reader that I am not a real blogger (I’m a bit of a Luddite – I don’t even have a smartphone). But I’m going to join the 21st Century for a bit here. Over the next couple of weeks I’ll be sharing my thoughts and some recent research pertinent to modes of consumer financial protection, from financial literacy education to policy defaults to product regulation. As some of you already know, I have been critical of all of these. But here I will also suggest some underexplored alternative routes to achieve the same ends of consumer financial well-being that have eluded us in the past.
I'll start today with financial education. The CFPB would like your comments on “effective financial education approaches that create opportunities for consumers to improve their financial decision making capabilities.” I thought I had blown up this myth already. And others keep proving me right. If you were at this past year’s Boulder Summer Conference on Consumer Financial Decision Making you know that a soon-to-be released exhaustive meta-analysis of past studies demonstrates that financial education does not produce better financial outcomes, and another study using a much larger dataset and a more robust set of controls than past work finds that financial literacy does not lead to improved financial outcomes.