Financial Well-Being Requires More Than One Dose: New Study

What You Need to Know

A single-credit financial life skills course does not have much influence on financial well-being or financial stress.
However, there are still good reasons for colleges and universities to offer financial education courses.
Among the measurable benefits derived from these courses are greater financial socialization and financial self-efficacy.

Participation in an elective financial education skills course has little measurable influence on college students’ financial well-being, according to a new analysis set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review.

The paper, “Undergraduate financial knowledge, attitudes, and behaviors: The impact of financial life skills course on college students,” was authored by Cliff Robb, a professor at the School of Human Ecology at the University of Wisconsin-Madison. Robb’s work was supported by Somalis Chy, a graduate student at UW.

It is increasingly common for universities to offer financial education or life skills courses as electives, the authors note. However, less is known about the potential effect of these courses on factors beyond basic financial literacy — from the levels of financial stress experienced by course-takers to their actual financial well-being during their working lives and retirements.

Ultimately, evidence from the study finds that a single-credit financial life skills course has little sway on financial well-being or financial stress. However, there were notable changes associated with financial socialization and financial self-efficacy that reinforce some earlier explorations of financial well-being.

The authors say their analysis backs up what probably feels like common wisdom to many practicing financial advisors: There is no easy fix to the financial literacy gap. Instead, it requires sustained, ongoing education and advisory support to truly help individuals and families get on the right financial footing, both during their working lives and in retirement.

Running the Analysis

According to the new paper, financial literacy is now widely acknowledged as being important for consumers, but the provision of support and resources for consumers has not been consistent in the United States.

“Currently, 33 states require basic financial education in high school, though specific content, depth and structure varies both within and across states,” the authors write. “Evaluations of state-mandated financial literacy courses at the secondary level have shown positive outcomes, as evidence increasingly points to the effectiveness of these programs.”

Robb and Chy suggest these studies have shown that financial education influences consumers’ financial well-being through augmented financial knowledge and improved financial behaviors. However, whereas prior studies provide evidence for the value of sustained education at the secondary level, little is known about the value of college-level financial literacy courses, especially those taken as electives.

“At the college level, courses are often elective, and content varies significantly from one college or university to another, making it inherently difficult to gauge program success more broadly,” the authors suggest.

With these challenges in mind, the authors conducted a broad survey of 370 undergraduates at a major U.S. university. Half had opted to take a financial life skills course as freshmen or sophomores and the other half did not.

The initial parts of the analysis explore predictors of course enrollment. For the latter analyses, the authors were primarily interested in how students who choose to enroll in the course might differ from those who do not take the course. The paper also explores potential course affect on financial well-being, stress, attitudes and student loan debt awareness.

‘A Piece in the Puzzle’

According to the authors, the results of the study suggest that students who are exposed to less financial socialization or financial education while growing up are more likely to enroll in the course, but there is no evidence of a direct effect on financial well-being or financial stress from taking the course.

Still, the authors say numerous “interesting predictors” can be explored via the regression models underpinning the analysis.

“For example, the findings point to the importance of factors such as self-efficacy and financial behavior in predicting well-being, whereas stress was related to financial socialization,” the authors explain. “Student loan debt was also an important predictor in both models.”

An analysis of the reasons for enrolling in the financial skills course suggest the importance of early life experiences and household environment. For example, students with less overt financial socialization (and those from households with lower education) were more likely to seek out elective financial education. In this light, the coursework may well be serving as a market substitute for in-home financial learning.

“It was also noted that students who enrolled in financial courses demonstrated higher subjective knowledge, but this may very well reflect an impact of the course itself,” the authors suggest. “The timing of the data collection does not allow for us to draw any strong conclusions about characteristics like this one, since we do not have any ability to draw conclusions with regards to causality.”

“Although we were anticipating an effect of the financial skills course exposure, it was not surprising that there were statistically insignificant effects on both financial well-being and financial stress,” the authors conclude. “First, [we examined] a one-credit course. Second, it is an elective course, and thus there is an issue of self-selection bias, which is explored to a degree in our initial models.”

Ultimately, although course exposure did not appear to have much predictive power in either of the two core models, there were several significant findings from the survey data.

“First, our findings reinforce previous work indicating the importance of financial self-efficacy and behavior,” the authors explain. “The existence of financial stressors was also a significant predictor for financial well-being. Altogether, these findings further reinforce the complicated nature of financial well-being and suggest that education programs are simply a piece in the puzzle of helping consumers manage their finances effectively.”

The role of family was also reinforced by the findings around parental education, as students from more educated households reported fewer stressors than students whose parents never went to college.

“There are certainly potential resource effects at work here given the association between income and education,” the authors conclude. “As noted above, those students who held student loans reported higher levels of financial stress. Whereas student loans provide opportunities for students who might not otherwise be able to afford to attend college, it is increasingly important to consider possible negative impacts of high levels of borrowing at a young age on mental health and financial well-being.”