A new analysis published by Martha Brown Menard, who conducts financial services user experience research for Questis, dissects both successful and unsuccessful financial education programs, with an aim at discovering what approaches work best in what circumstances.

Setting the stage for her recommendations, Menard suggests financial stress among U.S. employees is reaching “epidemic proportions.” She cites survey data to the effect that 75% or more live paycheck to paycheck, personal savings rates are at their lowest since 2007, and non-mortgage debt levels are higher now than during the Great Recession.

“It’s no wonder so many people feel unable to pay off their consumer debt or save adequately for retirement, which only makes the situation worse. Because stressed employees bring these financial distractions to the workplace, it seems like a good idea for employers to provide some type of education, perhaps a seminar or lunch and learn, so that employees can become better informed about how to manage their personal finances,” Menard explains.

But for a variety of reasons, this kind of one-size-fits-all financial education has been demonstrated to have little to no effect on changing real-world financial behaviors. Indeed, as Menard lays out, a meta-analysis of more than 200 relevant studies found that workplace educational interventions explained only a tiny fraction of the downstream financial behavior changes studied.

Menard’s research takes a striking look back at the recent and not-so-recent development of workplace financial education in the United States. Quotes from figures throughout history show how the problem of poor financial literacy has been around since the beginning of the American Republic. She quotes early American president John Adams, who warned that “all the perplexities, confusion, and distress in America arise not from defects in their Constitution or Confederation, nor from want or honor or virtue, so much as the downright ignorance of the nature of coin, credit, and circulation.” In 1849, Menard observes, Victorian bank manager James Gilbart promoted financial education as a way to help potential customers of his London & County Bank feel comfortable by knowing what to expect when opening an account. Again in the U.S., the Smith-Lever Act of 1914 established the funding that land-grant colleges still use to teach cooperative extension courses in personal finance.

More recently, Congress modernized some of these educational efforts and in 2003 established the Financial Literacy and Education Commission, which subsequently released a national strategy for financial education. “Thanks to Congress, since 2004 Americans have celebrated April as National Financial Literacy Awareness Month,” Menard observes. “And President George W. Bush signed an order in January 2008 that created an advisory council on financial literacy.”

And yet with all this awareness of the problem—and literally centuries of discussion among thought leaders—have Americans, broadly speaking, improved their financial literacy? The evidence is at best mixed, Menard warns.

“Is general financial education effective? It certainly doesn’t look that way once we analyze the body of research to date,” Menard says. “Multiple academic studies have shown that claims of a cause and effect relationship between financial education and improved financial behaviors have very little evidence to support them. When examined more recently by a team of researchers conducting a meta-analysis of 90 previous studies, the correlations between financial education and improved financial behaviors were better explained by other individual difference factors that were not measured in the prior studies, such as familiarity with numerical concepts, financial confidence, and willingness to take risks.”

Menard’s observations continue: “Previous research evaluating the effectiveness of financial education often conflates two different kinds of studies: those that measure the degree to which a person is already financially literate, and those that measure whether and to what extent an educational intervention has increased a person’s financial knowledge. But neither pre-existing financial literacy nor educational interventions have been demonstrated to improve actual financial behaviors. Financial education explained only one tenth of one percent (.001) of downstream financial behaviors in the 90 studies that were aggregated, and the authors note that financial literacy is highly correlated with other individual differences or personality traits, such as self-efficacy, that can explain positive financial behaviors and outcomes. As in so many other areas of life, just because we know we should do something doesn’t mean we actually follow through and do it.”

The analysis goes on to suggest that behavioral psychology can be helpful in understanding this failure in education. Menard suggests those who receive financial education often fail to act because they are discounting the potential of future suffering, feeling overconfident about their future ability to take corrective action and worrying about potential losses. These are the same symptoms that cripple people from making better decisions across all facets of life, independent of their level of awareness on a given topic/challenge. 

Menard’s analysis concludes that the lessons of behavioral finance are only just being absorbed into the domain of financial education—and she expects that over time the efficacy of educational programming could finally (and dramatically) improve. In the most simplistic terms, she says financial education “must be easy, by removing barriers or reducing friction; attractive, by offering the right incentive; social, by promoting a sense of positive belonging; and timely, by linking it to a current situation and an individual outlook.”

A full copy of the report, “So Many Courses, So Little Progress: Why Financial Education Doesn’t Work — And What Does,” is available for download here.