By Barbara O’Neill, Ph.D., CFP®
Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling sessions with clients. Below are findings and implications for practice from four recent studies:
This study by Kim and Stebbins examined the role of financial education on a basic level of estate planning proxied by having a will. Results indicated that multiple exposures to financial education over time had a stronger positive association with having a will. In addition, respondents receiving financial education from an employer only or an employer and other sources were more likely to have a will. The study also found positive associations of will preparation with the number of hours and the quality of financial education.
- Implications: Study results showed the impact of multiple exposures to a financial education topic (e.g., basic estate planning) over time, especially from multiple sources like high school, college, and a workplace. The quality of financial education programs also matters. While service members are likely to have wills prepared at their installation, these findings could extend to other personal finance topics that require multiple exposures.
Student Loan Borrowers
Financial self-efficacy (FSE) is a person’s belief in their ability to achieve financial goals. This study of FSE among student loan borrowers by Brady et al. found perceived financial literacy prior to accruing debt was significantly associated with FSE while general financial literacy during repayment was not.
- Implications: Study results suggest student loan literacy prior to accruing debt may be a “mastery experience” that improves FSE when a student’s debt repayment period arrives. A strong implication is the need for well-timed (early) financial education and mentoring about student loans because general financial literacy is not significantly associated with FSE. “Early intervention” could possibly extend to other personal finance topics.
Financial Technology (FinTech)
Heo et al. investigated the relationship between financial stress and fintech and found that respondents with a greater level of financial stress generally tended to more engage with fintech regardless of their financial education experience. Fintech was used to handle stressful situations so respondents could monitor their transactions and personalize their financial management more closely.
- Implications: FinTech appears to be sought out as a coping mechanism for people experiencing financial stress while greater financial knowledge, alone, does not necessarily foster fintech usage. However, when people who have received financial education are in a financially stressful situation, they seek out fintech for problem-focused coping. Therefore, education about fintech tools related to common financial challenges is useful.
This study by Korankye and Kalenkoski found a negative effect of student loan debt on life satisfaction using data from a longitudinal data set. This was true even for retired households, where there were large effects. The researchers noted that “Although debt is taken to improve future utility [usefulness of a good or service], it provides disutility [shortcomings of a good or service] until it is paid off.”
- Implications: Financial practitioners should advise clients about the impact that holding student debt has on life satisfaction. Many borrowers likely have no idea about loans’ adverse effects and awareness about this might help them borrow more responsibly. Older adults should be encouraged not to carry debt into retirement.
Brady, S., Miller, J., Balmuth, A., D’Ambrosio, L.A., & Coughlin, J.F. (2021). Factors contributing to the financial self-efficacy of student loan borrowers. Journal of Financial Counseling and Planning, 32(3), 493-506. https://www.afcpe.org/news-and-publications/journal-of-financial-counseling-and-planning/volume-32-3/factors-contributing-to-the-financial-self-efficacy-of-student-loan-borrowers/
Heo, W., Lee, J.M., & Rabbani, A.G. (2021). Mediation effect of financial education between financial stress and use of financial technology. Journal of Family and Economic Issues, 42, 413-428. https://link.springer.com/article/10.1007/s10834-020-09720-w
Kim, K.T. & Stebbins, R. (2021). Everybody dies: Financial education and basic estate planning. Journal of Financial Counseling and Planning, 32(3), 402-416. https://www.afcpe.org/news-and-publications/journal-of-financial-counseling-and-planning/volume-32-3/everybody-dies-financial-education-and-basic-estate-planning/
Korankye, T. & Kalenkoski, C.M. (2021). The effect of households’ student debt on life satisfaction. Journal of Family and Economic Issues, 42, 757-772. https://link.springer.com/article/10.1007/s10834-021-09753-9
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