According to research from academics at the University of Colorado, the University of Virginia and Catholic University, financial education and training has a 0.1% effect on behavior. Analyzing 168 papers and 201 studies, the professors found little correlation between financial education and how people act with knowledge — negating the benefits of extensive education programs.
Least effective: training at events. The more time spent, the more learning is lost, the study found — leading to the suggestion of “just in time education” instead of lengthy programs.
Yet the retirement industry spends millions of dollars on education, plus all the time of advisors. Warren Cormier of the Boston Research Group (and co-founder of the Rand befi forum with UCLA professor Shlomo Benartzi) has commented that the way we teach financial education in retirement plans is as effective as teaching high school seniors algebra in a one-hour course annually — with attendance optional. Yet failing the test has much more dire consequences.
Is financial education in retirement plans effective? If it’s not, why continue it? Couldn’t the money be better spent — even if to lower costs? Is education a just a fiduciary hedge? Should we focus more on plan design and providing advice, as Schwab and LPL are proposing? Class, discuss.
