Context

Long-term savings and investments (LTSI) enhance the future financial security of individual households while also supporting growth and financial development. In advanced financial markets, savings and investment products have become more complex, while in low- and middle- income countries, individuals may be reluctant to save or unable to do so as a result of financial exclusion. In both developed and developing countries levels of financial literacy are low, making financial planning difficult for unsophisticated investors. The OECD is committed to helping policy makers and other stakeholders in member governments and beyond to establish efficient financial education strategies that encourage appropriate consumer behaviours with a focus on the balance between short-term priorities and longer-term security.

The study

This review focuses on three key categories of LTSI-related behaviour:

• non-savers • new savers/investors • existing savers/investors

Research questions and aims

The review seeks to identify the essential components of high quality financial education about LTSI. The four key research questions are:

1. What is known about the effects of various financial education initiatives specifically on LTSI?
2. What does the evidence suggest about how to best design interventions?
3. What is known about the differences in effects and needs of programmes that target specific vulnerable population groups, or low- versus high-income countries?
4. What can be done to most effectively support major and potentially legally imposed decisions such as choosing a pension fund or an annuity from an LTSI financial education perspective?

Methods

Evidence was selected as follows:

• A first tier of evidence was drawn from studies of experimental evaluation of an intervention or rigorous non-experimental/observational studies that plausibly demonstrate a causal attribution of impact to a particular type of intervention.
• A second tier of evidence was drawn from high-quality observational studies, case studies, and other qualitative studies of interventions relevant to the four research questions.
• Relevant “grey literature” (unpublished studies of interventions) was also included.

Findings

While Miller et al. (2013) identified 188 papers presenting the results of evaluations of financial education interventions on financial knowledge and capability, the authors identified only five studies (all based in the US) that evaluated the impact of financial education interventions on long-term (retirement) savings. In addition to these studies, searches identified a number of further experimental studies (including one that is unpublished) relevant to the review.

The available evaluation evidence indicates that whilst the quality of financial education varies, well-designed initiatives can - and do - stimulate LTSI. Effective financial education initiatives for LTSI include (but may not be limited to) those that are:

• Of sufficient duration and frequency: There is some evidence that longer financial education programmes have stronger effects, but that there is a point at which no further gains are made.
• Provided at work: Workplace education designed to increase retirement savings has been shown to lead to increased enrolment and/or contribution into pension schemes, both amongst participants and their co-workers (and particular among those with lower levels of saving).
• Delivered alongside opportunities and incentives to save: Financial education seminars combining presentations and case studies on a range of financial literacy topics have been found to increase savings into Individual Development Accounts – a US initiative to increase long-term savings among low-income households.
• Strategically timed: several effective interventions have been timed to coincide with particular teachable moments, such as during a period of open enrolment for pension funds or as a worker plans to migrate.
• Technology-based: Technology and media have been successfully employed to make financial education more engaging, and to help improve long-term savings and investment behaviour.
• Combined with specific information: Just as interactive tools have been found to be more effective when combined with information, research among farmers in China has shown that it is possible to increase pension contribution rates among existing savers by combining education with information on the expected returns of a pension.

Recommendations

The report highlights that there is still a long way to go in terms of the design of effective financial education for LTSI, and that the limitations of the current evidence base indicate the need for more research and evaluation, particularly on different methods of LTSI financial education for different target populations and in different settings.

Points to consider

• • No overall robust meta-analysis is possible due to the small sample of rigorous evaluation studies available most, but not all, report the findings of initiatives within the USA.
  • Little attempt has been made to study the impact of varying parameters such as the way in which financial education is delivered or the content of that education.
• • Contributes to knowledge about the effect financial education on savings and investments behaviour.
• • Most, but not all of the studies, report the findings of initiatives within the USA.

Full report

Financial education for long term savings and investments - full report