94 Iowa L. Rev. 197 (2008-2009)
Against Financial-Literacy Education

handle is hein.journals/ilr94 and id is 199 raw text is: Against Financial-Literacy Education
Lauren E. Willis*
ABSTRACT: The dominant model of regulation in the United States for
consumer credit, insurance, and investment products is disclosure and
unfettered choice. As these products have become more complex, consumers'
inability to understand them has become increasingly apparent, and the
consequences of this inability more dire. In response, policymakers have
embraced financial-literacy education as a necessary corollary to the
disclosure model of regulation. This education is widely believed to turn
consumers into responsible and empowered market players, motivated
and competent to make financial decisions that increase their own welfare.
The vision created is of educated consumers handling their own credit,
insurance, and retirement planning matters by confidently navigating the
bountiful unrestricted marketplace.
Although this vision is seductive, promising both a free market and
increased consumer welfare, the predicate belief in the effectiveness of
financial-literacy education lacks empirical support. Moreover, the belief is
implausible, given the velocity of change in the financial marketplace, the
gulf between current consumer skills and those needed to understand today's
complex nonstandardized financial products, the persistence of biases in
financial decisionmaking, and     the disparity between   educators and
financial-services finns in resources with which to reach consumers.
Harboring this belief may be innocent, but it is not harmless; the pursuit of
financial literacy poses costs that almost certainly swamp any benefits. For
some consumers, financial education appears to increase confidence without
*   Associate Professor, Loyola Law School, Los Angeles. Helpful comments and
suggestions from Anita Allen, Jennifer Arlen, Regina Austin, Oren Bar-Gill, Jean Braucher,
Dorothy Brown, Erik Gerding, Alexandra Natapoff, Chris Sanchirico, Reed Shuldiner, and
participants at talks given at the NYU Law School Law and Economics Colloquium, the
University of Pennsylvania Law School Faculty Workshop series, the 2008 Annual Meeting of
the Association of American Law Schools, the 2008 Federal Reserve Bank of Cleveland Policy
Summit, the 2007 Jurisgenesis Conference at Washington University in St. Louis, the 1 1th
International Conference on Consumer Law in Cape Town, South Africa, and the 7th
International Conference on Financial Services in Brussels, Belgium, are gratefully
acknowledged. Much thanks also to Stacy Wiesbrock, John Ohanesian, Leigh Ferrin, and Laura
Cadra for research assistance.

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