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72 Soc. Sec. Bull. 39 (2012)
Raising Household Saving: Does Financial Education Work

handle is hein.journals/ssbul72 and id is 173 raw text is: RAISING HOUSEHOLD SAVING: DOES FINANCIAL EDUCATION WORK? by William G. Gale, Benjamin H. Harris, and Ruth Levine* This article highlights the prevalence and economic outcomes offnancial illiteracy among American households, and reviews previous research that examines how improvingfinancial literacy affects household saving. Analysis of the research literature suggests that previous financial literacy efforts have yielded mixed results. Evidence suggests that interventions provided for employees in the workplace have helped increase household saving, but estimates of the magnitude of the impact vary widely. Forfinancial education initiatives targeted to other groups, the evidence is much more ambiguous, suggesting a needfor more econometrically rigorous evaluations. Introduction In a recent consumer survey, 21 percent of respon- dents-including 38 percent of those with income below $25.000-reported that winning the lottery was the most practical strategy for accumulating several hundred thousand dollars for their own retirement. In addition, 16 percent thought that winning the lottery was the best retirement strategy for all Americans, not just themselves (CFA & FPA 2006). This is far from the only recent example of limited financial understanding among American households. From 401(k) portfolios overly invested in company stock to depleted retirement account portfolios, a growing number of compelling examples suggest that many individuals make ill-advised financial decisions about retirement. The low level of financial literacy among American adults suggests that better financial literacy could encourage greater personal saving and improve financial and economic security in retirement (Lusardi 2008a. 2008b). Efforts to improve financial literacy are now supported by a wide array of organizations, including private employers; federal, state, and local government agencies; commercial banks; consumer groups; community service organizations; and reli- gious organizations. As interest in financial literacy grows, however, policymakers and interested orga- nizations must understand the relative strengths and weaknesses of prior efforts and the importance of robust evaluations of financial education programs. This article evaluates previous efforts to raise household saving through financial literacy initiatives. We define financial literacy as the ability to make informed judgments and effective decisions regarding the use and management of money and wealth, as well as the ability and discipline to implement intended or desired saving behavior. In the background section, we summarize evidence of the extent of financial illiteracy and its financial outcomes. A significant proportion of American adults-particularly those with limited schooling, with lower income, or who are aged in their 20s or near retirement-do not understand basic financial concepts. Those individuals are more prone to making * William Gale is the Arjay and Frances Fearing Miller Chair in Federal Economic Policy at the Brookings Institution and director oJ the Retirement Security Project. Benjamin Harris is a senior economist at the Council of Economic Advisers and was a research economist at Brookings when this article was written. Ruth Levine is a student at Stanford Law School and ajformer research assistant at Brookings. This research was conducted as Center for Financial Literacy at Boston College research project no. 5001394, funded by a grant from the Social Security Administration (prime award no. 19-F-10001-1-01). Note: Contents oJ this publication are not copyrighted; any items may be reprinted, but citation oJ the Social Secutrity Bulletin as the source is requested To view the Bulletin online, visit our website at http: www.socialsecurity govpolicy The findings and conclusions presented in the Bulletin atre those of the authors and do not necessarily represent the views of the Social Security Administration, the Brookings Institution, or the Center for Financial Literacy at Boston College. Social Security Bulletin, Vol. 72, No. 2, 2012 39

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