no one changes their behavior because they have better economic fundamentals

Many times it is heard that the problem of the lack of savings or the low investment of the Spanish is the lack of financial education. And therefore the solution to these problems is obvious: give more training in stages of compulsory education to youth.

However, despite the fact that everything seems very obvious, the reality is that financial education, in practice, is of very little use. The truth is that having better financial fundamentals does not change people’s behavior, as counterintuitive as it may seem.

What the studies say

In 2014 three researchers published a meta-study over 201 previous studies about the effectiveness of financial education on people’s behavior with their money. The conclusions were devastating:

Financial education hardly influences (0.1%) the behavior of people, especially people with less income. Furthermore, the effects of this education wane over time. Even in cases where the intervention was intense, with many hours of training, the effects are negligible.

How can this be? More training was supposed to mean better behaviors. But the evidence is there. A more educated person will not have a healthier behavior with money. Knowing about investment funds will not make you hire more.

What is actually happening

The truth is that although human beings have the ability to make long-term plans (and this is what differentiates us from other animals), the short term has a lot of appeal. Our rational brain can think in the long term, but when the glands act, they rule. AND we like to buy and enjoy now rather than save and have money to spend later.

And money management is not the only effect of this short-termism. It also happens to us with food and exercise, although everyone knows that overeating and not exercising is wrong, in the end we can now face later and that is why there is obesity in developed countries.

Therefore, improving financial education does not improve money management, investing more and spending less. These types of interventions do not work and multiple studies support it. You have to find another way.

How to improve human behavior?

Humans are, by nature, quite lazy. Again, I don’t say it, the studies say it. And therefore the best way to improve people’s financial behavior is to make it very easy for them. This has been studied by a branch of economics called “behavioral economics” and proposes solutions.

For example, if what we want as a society is for individuals to save for retirement, the ideal way to achieve this is for companies to have to open a pension plan for all their workers and allocate a percentage of their salary to them. These plans would not be mandatory but if the worker does not want to hire them or dedicate a percentage of their salary I would have to explicitly state it.

When these types of interventions are carried out most workers contract the pension plan. That is, a change in regulations, leaving complete freedom to the individual, manages to increase the savings rate.

Therefore, instead of continuing to propose financial education as a solution, new inertia must be sought for society. Educating is fine, but if the goal is to change behavior we are not doing the right thing.


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