The Effects of Financial Education on Short‐Term and Long‐Term Financial Behaviors

• Published date: 01 March 2019
• Author: Jamie Wagner,William B. Walstad
• Date: 01 March 2019
• DOI: http://doi.org/10.1111/joca.12210

234 THE JOURNAL OF CONSUMER AFFAIRS

JAMIE WAGNER AND WILLIAM B. WALSTAD

The Effects of Financial Education on Short-Term and

Long-Term Financial Behaviors

This study investigates how nancial education in high school, college,

or in the workplace affects the short- and long-term nancial behaviors

of adults using the 2015 National Financial Capability Study (NFCS)

data. Financial education appears to have generally insignicant effects

on short-term behaviors for which there is regularfeedback and penal-

ties, and thus greater opportunity for learning by doing. If consumers

do not pay off their credit card bill, they get a monthly statement show-

ing interest charges and penalties. Financial education appears to have

more positive and stronger effects on long-term behaviors with less

timely feedback, and for which the adverse consequences are not fully

realized until later in life, so learning by doing may not work.Not saving

enough money for retirement cannot be easily or quickly corrected, if

at all. The benets to nancial education may differ based on the time

horizon for the nancial behaviors.

Financial education has the potential to help people make more informed

nancial decisions and change nancial behaviors that can have positive

effects on the nancial well-being of households. Whether nancial edu-

cation is effective in achieving these desirable goals may depend on the

time dimension. Financial education may have relatively weak or mixed

effects on the short-term nancial behaviors of people. By contrast, nan-

cial education may have a stronger and more positive inuence on the

long-term nancial behaviors of people. This study focuses on the puzzling

dichotomy in the apparent effectiveness of nancial education on nancial

behaviors based on a time perspective.

Financial behaviors are dened as short-term if they involvea money or

credit management task that gives regular and timely feedback to remind

people about what they need to do to change their nancial behavior to

Jamie Wagner (jfwagner@unomaha.edu) is an Assistant Professor of Economics and Director

of the Center for Economic Education in the Department of Economics at University of Nebraska

at Omaha. William B. Walstad (wwalstad1@unl.edu) is the John T. and Mable Hay Professor of

Economics in the Department of Economics at Universityof Nebraska –Lincoln. The authors would like

to thank the two anonymous reviewers and Sharon Tennyson for their valuable comments throughout

the review process. We also beneted from comments received from participants of the 2016 Cherry

Blossom Financial Education Institute hosted by the Global Financial Literacy Excellence Center

(GFLEC).

The Journal of Consumer Affairs, Spring 2019: 234–259

DOI: 10.1111/joca.12210

Copyright 2018 by The American Council on Consumer Interests

SPRING 2019 VOLUME 53, NUMBER 1 235

avoid nancial penalties and consequences. The four short-term nancial

behaviors investigatedfor this study are covering your expenses and paying

all your bills each month; managing your checking account so you do

not overdraw it occasionally; paying off credit card balances in full each

month; and, making monthly mortgage payments on time. Credit card

users, for example, learn from that failure to pay off a monthly bill can

lead to high interest costs and perhaps other fees, and as a result they are

encouraged to make payments on time to reduce the interest costs or avoid

the extra fees. This learning by doing, or correcting a nancial behavior

based on a timely negative feedback or experience, may be more inuential

in changing behavior for managing a credit card than a nancial education

program that gives information about and explains the importance of

regularly paying off credit card bills to reduce high interest costs.

Long-term nancial behaviors involve more planning for the future and

are less inuenced by regular feedback or learning by doing. The four

long-term behaviors studied are having a three-month emergency fund

to pay for unexpected future expenses; having a savings account to save

for a future purchase; owning nancial investments to accumulate wealth;

and guring out how much money is needed for retirement. They are

future-oriented and involve planning, which means they are more complex

to think about and more difcult to achieve than short-term money or

credit management tasks. Although people can be given reminders to save

or invest for the future, the feedback is usually irregular and less timely

than with short-term behaviors. Perhaps more critical for long-term than

short-term nancial behaviors is that there is no immediate penalty or

consequence if a plan for the future is not made or an action is not taken.

Not paying off a credit card bill one month can be corrected with next

month’s payment, but not saving enough for retirement is irreversible, or

cannot be quickly and easily changed when a person retires.

The basic hypothesis for this study is that nancial education is more

likely to have a positive inuence on these long-term than short-term

nancial behaviors. The probable reason for the difference, as has been

suggested, is related to complexity and opportunity. Short-term nancial

behaviors that focus on money or credit management tasks are less complex

and thus can be more easily learned by doing or from experience because

there is regular and immediate feedback with costly nancial consequences

if good practices are not followed. Long-term nancial behaviors, by con-

trast, are more future-oriented and involve planning, which means they

are more complex tasks to initiate and are difcult to sustain over time.

They are also less likely to be learned by doing or through experience

because there is less regular feedback followed by immediate penalties or