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Mick McAteer: The great lie about financial education

Mick McAteer 06

Financial education is like ‘motherhood and apple pie’.

No one is supposed to criticise it. But, at the risk of appearing iconoclastic, the evidence suggests that it doesn’t really work.

There are exceptions, of course, but many of the studies quoted by advocates are based on self-reported surveys – for example, consumers saying they feel more confident or intend to save.

But, feelings and intentions are not the same as consumers making effective choices and decisions. The more robust, large scale meta-analysis does not show financial education* to be effective.

Thankfully, we are starting to see consumer groups being more realistic about financial education.

But, why do so many opinion formers and commentators still advocate financial education? We see four, sometimes overlapping, groups.

The first are newly involved in financial services (MPs are a good example). Understandably, they assume financial education must be a good thing – until the penny drops.

The second group are industry representatives who support financial education to ward off regulation. You know how it goes – ‘we don’t need any more of that intrusive, innovation-stifling, nanny-state regulation, let’s empower consumers instead’. It’s also attractive for corporate social responsibility departments.

The third group are market ideologues (often competition economists) who really believe that information asymmetry theory explains market failure and, if we can only educate consumers, this will level the playing field.

The other type of market ideologue thinks consumers must be financially educated as it is character building. They also don’t like the so-called nanny state, and believe that consumers have a duty to play a full and active role in a market society.

The fourth group are those who want financial education to work. There is a sizeable cottage industry of charities and academics who rely on financial education initiatives to make a living.

Of course, we might say that, even if financial education doesn’t work, surely it can’t do any harm.

But, it can be harmful if policymakers divert limited resources away from interventions that do work. With an oversupply of unnecessarily complex, opaque, risky, poor value products the priority should be to first simplify and clean up the market. Financial education might then stand a chance of adding value.

*Financial education is not the same as active behavioural interventions – for example, trusted intermediaries ‘nudging’ consumers to adopt positive financial behaviours. This does seem to work in the right conditions.

Mick McAteer is co-founder and co-director of The Financial Inclusion Centre



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 20th May 2016 at 4:21 pm

    All this is just meaningless waffle. Much depends on what lessons are taught to those who need help with organising their personal finances. Just a few examples of the fundamentals of lifetime financial planning are:-

    1. Start saving as early on in life as you possibly can.

    2. If you don’t put away something today, there’ll be nothing available to you tomorrow.

    3. Don’t borrow to buy things you don’t absolutely need.

    4. If you don’t insure your income and outgoings (or those of your family), there’ll be nothing to call on should the former cease.

    5. If in doubt, seek good professional advice. In the long term, the cost will repay itself many times over.

    These are not lies, they’re basic truths.

  2. Sascha Klauß 20th May 2016 at 4:49 pm

    Well that was a pretty hollow article. What is the great lie? What exactly is this “large-scale meta analysis”? Through what reasoning does it conclude that? No details, just a four-way ad hom on the people supposedly disagreeing.

    I happen to agree that financial education is not the panacea it is made out to be. Like healthy eating it is the parents’ job, and if they aren’t doing it you have to cross your fingers and hope the child has enough inner motivation to work it out for themselves. But the article doesn’t make any real argument in that respect.

  3. MIck

    Get real. Education in general in the UK is pathetic. A previous government minister has been quoted as saying that 50% of the population don’t know what 50% is.

    It is an unfortunate fact that the UK has the worst rate of child literacy and numeracy in the developed world.

    So perhaps if we make a start there things may improve.

  4. Why does the industry and its commentators insist on maintaining the use of the word ‘intermediaries’ when meaning ‘Professional Advisers’? Accountants – Professional Advisers, Solicitors/Lawyers – Professional Advisers, IFAs – Professional Advisers, Bank Advisers – Professional Advisers. It will be ‘brokers’ next or ‘middlemen’. Come on everybody, try to improve the views of the genaeral public not re-enforce the old status quo.

  5. Any chance Mick could tell us why financial education doesn’t work? Now that would be worth a read

  6. oh dear. Well if you educated people to recognise “an oversupply of unnecessarily complex, opaque, risky, poor value products” you wouldn’t have to clean up the marketplace because there would be no customer appetite for them…

  7. lisanne mealng 23rd May 2016 at 7:52 pm

    Over the years I’ve had the joy of interacting and advising many consumers. To be able to have an informed discussion with someone who has an understanding of finance is a real joy. The whole relationship takes on a very different slant and it becomes a partnership that provides the basis for sound financial decisions to be reached that are understood and can be followed through changing circumstances. There is longitudinal research from the US that supports the fact that a good educational grounding in finance creates a much more engaged consumer who is willing to save and invest.

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