Against Financial Literacy Education

1. AgainstFinancial Literacy Education Lauren E. Willis Visiting Associate Professor, University of Pennsylvania Law School; Associate Professor, Loyola Law School Los Angeles

2. Regulatory model: Disclosure & “Choice” Today, necessary corollary: Financial Literacy Education New model: Regulation through Education

3. Financial literacy provides the foundation to build wealth and fully participate in the economy. By understanding basic financial principles and putting them to use, you can be on the road to improving the lives of your household and your community… – NAACP Financial Empowerment Guide [T]here needs to be financial education measures in place. – President George W. Bush, regarding foreclosure rates in 2007

4. Financial Literacy Education Model financial education ↓ financial “literacy”: knowledge, skills, motivation & “Goldilocks” confidence ↓ good financial behavior: decisions & actions our society/market requires ↓ good financial outcomes

5. Methodological problems with studies that claim to demonstrate effectiveness: unreliable data: surveys, self-assessments incomplete data: low response rate, response bias confounding variables: assistance, intervention inadequate controls: self-selection, attrition bias small samples results lacking statistical significance short time horizons: same day, 3 months Does Financial Literacy Education Work? Financially literate less profitable, but financial services industry still supports financial literacy education…

6. Is Financial Literacy Education Likely to Work? Information asymmetries & moving targets - consumer financial decisions are episodic Knowledge, comprehension & skill limits - rules of thumb do not work Disparity in ability to reach consumers at teachable, vulnerable moments

7. Is Financial Literacy Education Likely to Work? Triggers for Biases: Overwhelming information & choices High stakes Discomforting thoughts Uncertainty & the future Opaque attributes & incommensurable tradeoffs: can’t “Just Say No”

8. Information asymmetries & moving targets Knowledge, comprehension & skill limits Disparity in ability to reach consumers at teachable, vulnerable moments Overwhelming information & choices High stakes Discomforting thoughts Uncertainty & the future Opaque attributes & incommensurable tradeoffs Is Financial Literacy Education Likely to Work?

9. The Costs of the Education Model • Time, expense & inefficient division of labor • Diversion from effective policymaking: trying to fix the consumer instead of the law • Paradoxical effects on decisionmaking: overconfidence, lulling effect • Blaming the consumer: Don’t borrow trouble

10. Alternative Public Policies • Consumer decisionmaking education • Substantive product regulation • True transparency • Aligned incentives • Products liability • Welfare-enhancing defaults • Self-control devices • Affordable expert advice

11. AgainstFinancial Literacy Education Lauren E. Willis Visiting Associate Professor, University of Pennsylvania Law School; Associate Professor, Loyola Law School Los Angeles