The Impact of Financial Education on Financial Capability and Financial Inclusion in Canada: A Life-Courses Perspective

Purpose:

Strengthening financial security has been identified as one of the 12 preliminary Grand Challenges in Social Work. Financial knowledge is associated with an increased likelihood of paying bills on time, budgeting, saving, and setting financial goals (Hilgert & Hogarth, 2003). People acquire financial knowledge through life experience, learning from others, formal education, self-learning, etc. In response to increasing evidence of financial insecurity, a number of financial education interventions have emerged. Financial education programs are featured in schools and anti-poverty interventions such as Individual Development Account (IDA) programs.

Previous cross-sectional (Gale & Levine, 2010) and experimental research (Carpena, et al, 2011) on financial education has shown mixed results. This research estimates the treatment impact of financial education by addressing three research questions: (1) What is the relationship between financial education and financial capability? (2) What is the relationship between financial education and financial inclusion? (3) How do the treatment impacts of financial education vary across the life-course?

Methods:

We used nationally representative data from two waves of the Canadian Financial Capability Surveys (CFCS 2008 and CFCS 2013; N = 15,519 and 6,685, respectively), Outcome measures were financial capability (FCAP) and financial inclusion (FI). FCAP was measured by 2 dimensions: Subjective FCAP, a 5-item self-rated FCAP scale; and Objective FCAP, a 14-item FCAP scale. FI was measured by four dichotomous variables of owning saving accounts (1/0), Registered Education Saving Plans (RESP) (1/0), investments (1/0), and Tax Free Savings Plan (TFSA) (1/0). Financial education was a dichotomous indicator of having taken a course to increase knowledge of financial matters in past five years. Propensity score matching was employed to reduce selection bias (Guo & Fraser, 2014). Regressions models were conducted among the matched sample to examine the effect of financial education on FCAP and FI. We controlled for socioeconomic and demographic variables.

Results:

For both survey years, financial education was associated with a higher level of both subjective FCAP (β = 8.55; β = 10.56, respectively, p < 0.001) and objective FCAP (β = 2.03; β = 4.89, respectively, p < 0.001). For FI outcomes, the financially educated had significantly higher probability investments (by 39% and 55%, respectively, p < 0.001), but other impacts on FI were not consistent. Across the life course, the impact of financial education on FCAP decreases with age. For example, for those aged 25 to 34, the impact of financial education was an 11.72 point increase in subjective FCAP, whereas the impact for those aged 60 to 64 was about half at 6.64 (both estimates p < .05).

Conclusions and Implications:

Using nationally-representative Canadian data, our results complement the existing debate on the effectiveness of financial education. Our analyses suggest that financial education may have positive impacts on FCAP. The strong observed impact on FCAP suggests financial education evaluations should consider cognitive and psychological outcomes in addition to behavioral outcomes. As the magnitude of the impacts are not uniform across the life course, policymakers may need alternative interventions for older adults.