Document Type
Working Paper
Date of this Version
4-30-2018
Abstract
Prior studies disagree regarding the effectiveness of financial education programs, especially those offered in the workplace. To explain such measurement differences in evaluation and outcomes, we employ a stochastic life cycle model with endogenous financial knowledge accumulation to investigate how financial education programs optimally shape wealth accumulation, financial knowledge, and participation in sophisticated assets (e.g. stocks) across heterogeneous consumers. We then apply conventional program evaluation econometric techniques to simulated data, distinguishing selection and treatment effects. We show that the more effective programs provide follow-up in order to sustain the knowledge acquired by employees via the program; in such an instance, financial education delivered to employees around the age of 40 can raise savings at retirement by close to 10%. By contrast, one-time education programs do produce short-term but few long-term effects. We also measure how accounting for selection affects estimates of program effectiveness on those who participate. Comparisons of participants and non participants can be misleading, even using a difference-in-difference strategy. Random program assignment is needed to evaluate program effects on those who participate.
Working Paper Number
WP-2018-04
Copyright/Permission Statement
Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of any institution with which the authors are affiliated. © 2017 Lusardi, Michaud, and Mitchell. All rights reserved.
Acknowledgements
The authors acknowledge support provided by Netspar, the Pension Research Council and Boettner Center at The Wharton School of the University of Pennsylvania, and the RAND Corporation. Michaud acknowledges additional support from the Fond Québécois de Recherche sur la Société et la Culture (FQRSC #145848). Useful comments were provided by Robert Clark.
Date Posted: 06 February 2019
Comments
The research reported herein was performed pursuant to a grant from TIAA-CREF.