To become an adult without knowing how to manage money is to risk financial instability, debt, and a meager retirement. Moreover, most evidence suggests it is extremely difficult to change the financial behavior of adults. They may not have time for financial literacy programs and, besides, may be too set in their ways.
On the other hand, working with children and teenagers offers the opportunity to intervene at a stage when they are still forming their habits and developing important socioemotional skills that lead to more responsible financial behavior. Indeed, governments and non-profits around the world are increasingly supporting financial literacy training programs designed for younger people.
In a study of a pilot intervention in Peru, I look at the effects of providing school-based financial education for high school students. I found that the program increased young people’s financial knowledge and self-control – with added benefits of higher grades throughout the school curricula. Most surprising, however, were the changes in adults in charge of delivering the training: I found that the program significantly changed the financial behavior of teachers – who received the training and taught the material in their classes. The very exercise of repeating the material they had learned in their training reinforced their knowledge and led to real improvements.
The pilot was implemented by the Peruvian government in 2016 in 150 public schools as part of the country’s National Financial Inclusion Strategy. The intervention involved a 20-hour teacher training plan and different classes on financial literacy for students in the last three high school grades. These included a wide range of subjects, covering everything from principles of investment and opportunity cost, to financial products and services, and consumer information and protections.
I administered surveys for both teachers and students to explore personality traits and preferences; looked at exams that tested their financial knowledge and examined administrative records of student performance at the end of the year to see if the financial training had affected other aspects of their academic performance.
I found, as in other studies, that such training had considerable impact on their financial literacy. Indeed, students participating in the program showed gains in knowledge equivalent to a 14.8-point improvement on the 2015 PISA financial literacy test for 15-year-olds, half the gap relative to the next country in the ranking. Moreover, they registered an increase in a key socio-emotional trait, self-control, which improved by 18% relative to the median in the control group. Self-control is important for outcomes such as school performance and labor market success and seems to be related to good financial choices.
How these transformations affect financial behavior is difficult to know since these are still underage youth without access to the formal financial system. But there were still significant shifts in shopping and saving habits. As measured by the surveys, the program resulted in a 1.2-percentage-point increase in the number of students who compared prices before shopping; a 1.3-percentage-point increase in students who saved instead of borrowing to buy something they couldn’t afford, and a 1.1-percentage-point increase in the number of students who talked to their parents about household financial decisions.
Students also improved their grades. This was not just in areas like math that one might associate with finance studies. Participating students registered an average 3% increase in their grade point average, perhaps because of their improvements in self-control or their exposure to coursework that they perceived as useful boosted their motivation for all types of school learning. Moreover, the improvements were achieved very cost-effectively, at a cost of just US$6.6 per student.
The advances seen in teachers stand out. This may have been related to the way the teachers learned: they were trained in the full curricula covered in the three grades, exposed to the relatively simple and easily accessible materials prepared for their students, and then allowed to reinforce their knowledge in the process of teaching the material. This intensity of learning clearly made them an unusual subset of adults and yielded impressive results. Among teachers who participated in the program, the probability of saving through the formal financial system rose 14 percentage points.
Universal financial access is acknowledged as a pillar of global development. Despite some improvements, the percentage of people in Latin America and the Caribbean who borrow from a financial institution is very low, at 9.6%. Moreover, as revealed in our 2016 flagship report, private saving rates stand at 14.7%, just above those of sub-Saharan Africa, and far below those of emerging Asia, at 25.8%. All of this affects a region which has suffered from low growth in recent decades with inadequate investment, productivity and other elements of dynamic economies.
Young adults between 15 and 24 tend to be particularly marginalized from the formal financial market. Today’s young adults are tomorrow’s adults. Hence, focusing on improving their financial literacy, providing them with adequate, formal savings products, and nurturing healthy savings habits may foster financial inclusion and provide society-wide benefits well into the future. As we show, even the financial behavior of adults can be changed. But the focus on young people is critical.